All economics is local

J.T. Young Former Treasury Department and OMB Official
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To understand the nation’s anti-incumbency, look no further than the economy’s anti-recovery, which appears to be reversing former House Speaker Tip O’Neill’s dictum that all politics is local.  Anti-incumbency is threatening to make all politics national.

Bad economic news is pervasive.  Last quarter’s GDP growth was just 1.6%, less than half the previous quarter’s.  It is not expected to change soon.  The Congressional Budget Office projects that the economy will grow just 2% next year.

Slow economic growth has translated into even slower job growth.  The unemployment rate remains 9.6%.  Again, CBO projects next year’s annual rate will be 9%.

Few new economic figures will be added to change the dismal political picture before November’s elections.

Bad economic numbers have thoroughly shaped public perception.  In a recent ABC/Washington Post poll (released September 7th), 92% of respondents said the economy was “not so good/poor.”  Seventy-six percent said the economy was “staying the same or getting worse.”

Interestingly, while the economy and the public’s perception of it are each moving strongly in one direction, the blame assigned for it is moving in two directions.  Obama was down 41%-57% in his approval/disapproval rating on handling the economy.  At the same time, by 60% to 40%, respondents felt the Bush administration deserved “a great deal/good amount” of blame for the economy’s current state.

The public appears to be exhibiting a certain cognitive dissonance.  The public has absorbed the worst economic crisis since the Depression and blames both parties for it.  Certainly there are other factors that will influence next month’s elections, but none rival this one.

That the economy could have such a large effect on public perception should not come as a surprise.  The economy has a way of subsuming all else.  Like day obscures the stars — when the sun rises, the stars are still there, but unseen.  So, too, when the economy dominates as a political issue.

Normal political issues cut two ways.  There are pros and cons to each.  The politician hopes the former outweighs the latter, and is successful if they do.  The economy cuts only one way.  Everyone loses from a bad economy.

By looking at national polls, we can see the effect of this interplay between the economy and public perception.  But as pervasive as general economic downturns can be, how do we grasp the political effect at the local level?  The Federal Reserve Board’s latest survey of the nation’s regional economic conditions gives us a glimpse.

The previous report showed just two regions with slowing or mixed economies.  The latest survey shows that five of the Fed’s 12 regions — those served by the Chicago, New York, Philadelphia, Richmond, and Atlanta banks — have slowing or mixed economies.

While anti-incumbency is an understandable byproduct of this nationwide economic downturn, which the public blames both parties for, it does raise a question: If this downturn is so frequently compared to the Depression economically, why are its politics so different?

FDR did not encounter Obama’s plight.  FDR inherited the Depression, yet voters never held him accountable for it — even as the recovery dragged on for years.  During FDR’s four terms, the bad economy always remained the Republicans’ fault.

Obama, too, took office with a recession well underway.  It was well over a year old at his inauguration.  Yet less than two years later, voters hold him responsible for today’s struggling economy.

Yes, there are important differences between the two periods.  The Depression was far more severe than the current crisis.  As bad as today’s unemployment is, it does not approach the Depression’s 25% rate.

Politically, too, this downturn is different.  When it began, Democrats were already in charge of Congress.  During the Depression, Democrats did not take control of Congress until well after it began.  Bush left office shortly after the current recession began.  The Depression began early in Hoover’s first year and continued throughout the remainder of his term.

America is at an unusual confluence of economic and political events.  While it recalls the Depression economically, it is very dissimilar politically.  Together these elements translate naturally and nationally into anti-incumbency.  This year all politics is national, because this year all economics is local.

J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 -2004 and as a Congressional staff member from 1987-2000.