That 1992 campaign slogan “It’s the economy, stupid” not only energized the Democratic base, it helped to unseat President George Herbert Walker Bush, the father of the 43rd president of the United States, bringing Bill Clinton to the White House, the first Democratic president in 12 years. The 90 percent approval rating for President Bush [...]
That 1992 campaign slogan “It’s the economy, stupid” not only energized the Democratic base, it helped to unseat President George Herbert Walker Bush, the father of the 43rd president of the United States, bringing Bill Clinton to the White House, the first Democratic president in 12 years. The 90 percent approval rating for President Bush following the successful 1991 Iraq campaign had dropped sharply within a year, a casualty of the recession mired economy and a warning that voters were growing restless as the election was approaching.
Twenty years later amid the deepening polarization in American politics, the pre-eminence of the economy as the primary decider in a presidential election seems questionable. It would still be simplistic to say that since President Obama was re-elected despite the poor economy, the economy is no longer as critical a factor as in previous elections. The fact remains that while he won comfortably not just in the count of Electoral College votes, but also the popular vote, the margin of this victory was greatly reduced from 2008. The sluggish economy – especially the budget deficit, leading to rising public indebtedness, the high unemployment rate and low housing prices over a number of years – had to be an important factor for the electorate, but it was clearly not enough to reverse the final outcome.
If there has been a change in popular perception and if indeed Americans are not swayed as much by the economy as in the past, what might explain this change? There are many reasons, but one that seems rather obvious is an evolution that has at its origin the increasing polarization of American politics and the values that elected Congressional representatives bring to Washington. How else can one explain the fight over raising the debt ceiling last year with Republicans strongly opposing and Democrats urging President Obama to declare the debt limit itself unconstitutional. These legislative squabbles can extract a heavy price with significant ripple effects. The subsequent cut in Standard and Poor’s triple-A rating for the world’s largest economy in August 2011 was due in large measure to the inadequacy of the fiscal consolidation plan struck by Congress and the administration to stabilize the dynamics of the public debt rather than any anxiety over the long term fundamentals of the American economy, which remain solid.
For two elections in a row since 2010, the American people have voted for a Democratic controlled Senate while giving control of the House to the GOP. This has resulted in a hardening of ideological positions with the Democratic president frequently locking horns with the Republican Speaker of the House, each hurling threats at the other over fiscal issues.
The current debate on how to avoid the fiscal cliff and the related issue of raising the debt ceiling has plunged the nation yet again into another artificial crisis, created by a Congress driven by conflicting ideology, now threatening to plunge the country into recession. Instead of engaging in practical and meaningful negotiations, the rhetoric seems to suggest a quest for domination and political supremacy. Lost on the elected representatives on both sides is that each day that passes without an agreement the greater is the harm inflicted on the economy with mounting irrecoverable costs. It has the hallmark of an ideological warfare with little regard that the longer it drags on the greater the suffering of the American people and indeed the rest of the world, pulling down growth rates from Mexico to China. In that sense it is a timing issue where a solution – any reasonable solution – reached by the end of 2012 is more desirable than one – even a more comprehensive one – reached next year. This view was recently echoed by the head of the International Monetary Fund, Christine Lagarde, when she urged the United States to agree on a budget deal as quickly as possible to remove the prospect of zero growth next year.
Restoring the Clinton-era tax rates for the rich, in other words letting the Bush tax cuts expire for the top two percent, but not for others is a complete anathema to the vast majority of Republicans in Congress. The alternative – deep spending cuts in Medicare, Medicaid and Social Security – is not acceptable to the President and his fellow Democrats. There is a middle ground that in addition to modest tax increases for the rich from current levels and reasonable spending cuts would also increase revenue by reducing deductions and closing loopholes, but that has so far proved elusive. The American people voted close to 50-50 for the two parties in the combined presidential, gubernatorial and congressional elections in 2012, but this electoral verdict seems to have fallen by the wayside in the struggle for political supremacy. That said, politicians are ultimately pragmatists so it is more than likely that a budget deal will be reached once all the posturing has ended. What form it will take is open to speculation, but Speaker Boehner’s acceptance of higher tax revenues by willing to compromise on deductions and loopholes is a promising sign. Since the political cost to the GOP will be relatively greater if there is no agreement, the negotiated settlement will likely be one where both sides move from their current positions with the movement for the Republicans more significant than the Democrats. For this to occur, Speaker Boehner will require a conciliatory gesture for himself and his party to declare partial victory, which in all likelihood he will secure from the President.
While the debt and deficit issue, taxes, healthcare and social services are the bone the polarized political classes are quarrelling over, they are in fact symbols of larger issues. The backbone of the American economy is still robust, but it has changed radically over the last couple of decades, one important area being the flight of large parts of manufacturing to low wage countries. Emerging economic superpowers, most notably China whose economy is poised to overtake the United States by 2030, and other well populated high growth countries like India and Brazil can no longer be dismissed as secondary economic forces. These realities have contributed to a massive dislocation and with it a loss of confidence in established doctrines. The consensus that prevailed in the United States from the end of World War II to the 1990s has disintegrated and in the process thrown up a host of would-be-leaders exhorting conflicting remedies for regaining America’s self-esteem and its place in the world. The GOP is the most afflicted, but the Democrats have also been infected as seen during the 2010 electoral cycle. The recent election was partly about whether or not Americans were going to accept the philosophies that underpinned the GOP far right. The voters thought about it and then pulled back. The GOP’s embrace of the Tea Party movement has cost it dearly. It will therefore take some time for the party itself to heal and develop a new ‘narrative’ that it can truly believe in and can convince the voters.
Meanwhile, the ranks of millionaires – high net worth individuals (HNWI) – will diminish no matter what happens. A recent study by Wealth Insight has concluded that the impasse – tiptoeing around the cliff or eventually falling over – will ultimately lead to a smaller number of millionaires. Conversely, if either party had won decisively, in other words if the threat of the fiscal cliff had somehow been mitigated, millionaires would be considerably more numerous. One wonders how high the number of people below the poverty line will swell before the rhetoric ends and there is finally some decisive action!