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Monday, November 17, 2008

Its the Economy, Stupid!

Here's the political and economic math: Let's assume the current downturn turns out to be as painful as the 1990-91 recession. It's an apt comparison. As Minneapolis Federal Reserve President Gary Stern said earlier this year," The situation we confront today is reminiscent, in several salient ways, of the headwinds environment that prevailed in the aftermath of the 1990-91 recession."

Among those "headwinds" Stern referred to: an imploding real estate bubble, a construction bust, a banking crisis, and a credit crunch. Sound familiar? The nation's gross domestic product fell 3.0 percent in the fourth quarter of 1990 and 2.0 percent in the first quarter of 1991. But even after the economy started expanding again, the unemployment rate kept rising until it hit 7.8 percent in June of 1992 vs. a low of 5.2 percent in June 1990. Recall that in January of 1992, President Bush, running for reelection, told New Hampshire voters that the economy was in "free fall" even though the economy was later shown to have grown at a robust 4.2 percent during the first quarter of that year.

See, it takes a while for people to really perceive that an economy has turned around, especially if unemployment is high. Bill Clinton won the 1992 election on the economy ("it's the economy, stupid") even though GDP had been growing for six full quarters. According to Gallup, 88 percent of Americans thought the economy was "fair" or "poor" in October 1992 with some 60 percent saying the economy was "getting worse." Two years later, it was the Democrats turn to feel the brunt of widespread economic anxiety as the Republicans captured both the House and the Senate. Even though the economy had then been growing for 14 straight quarters and the unemployment rate was down to 5.8 percent, 72 percent of Americans still thought the economy was "fair" or "poor" and 66 percent though the nation was headed in the wrong direction.

That's right 3 1/2 years after the 1990-91 recession ended, the economy was still weighing negatively on voters and hurting the incumbent political party. Is it so hard to imagine, then, that three or four years from now voters will also be unhappy about the state of the economy and blame the party in power, the Obamacrats?

Read it all here.

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