Back during the George HW Bush recession in 1992, Clinton campaign strategist James Carville coined the phrase "It's the economy, stupid" which has forever since been a major underlying consideration in any national campaign. With ISIS videos, Iranian nuclear ambitions, Benghazi, and a former Secretary of State running, the 2016 campaign promises to have a greater than usual foreign policy component, but Carville's admonition that people vote on the basis of their own economic well being can be ignored at the candidate's peril. So, lets make an honest effort to project what the campaigns will be able to say in 18 months.
For a theme, the Democrats will claim that the economy has been good under the Obama administration, recovering from the disaster brought about by the last Republican president. Under Hillary, recalling the good years of the previous Clinton presidency, the merry-go-round will continue.
- There have been six consecutive years of Gross Domestic Product growth.
- The S & P stock market index is up almost 150 % since Obama took office, driven by soaring corporate profits.
- The unemployment rate has gone from 7.8 % at the beginning of the Obama administration to about 5.6 % today, about the historical average.
With the Democrats (and their friendly media) touting the most popular headline numbers, absent an economic reversal, the Republicans will have a much more nuanced position to sell:
- The credit for pulling out of the 2008 financial crisis belongs to Hank Paulson's implementation of the TARP program, Ben Bernanke's policies at the Federal Reserve, the energy revolution, and the underlying strength of the American people - not to mention increasing the national debt to over $18 trillion - above the country's annual Gross Domestic Product.
- Unemployment numbers are highly misleading, driven by millions of part time jobs and more millions who have dropped out of the work force. Only 44% of adults have full time jobs; calculated differently, the official BLS U-6 rate (unemployed; underemployed; dropped out) is about 11% - well above its historic average. And for those who were employed, after inflation the median weekly income was less in 2014 than in 2009.
- The stock market numbers are only part of the story. The dark side of the Fed's low interest policies has been that bonds also pay next to nothing, providing a hard squeeze for retirees who follow the conventional wisdom of keeping their investments split about evenly between stocks and bonds.
Federal Reserve President Janet Yellen is probably the most important decision maker for the Obama economic legacy and Hillary's 2016 campaign. She has overseen the phase out of Quantitative Easing (the buying of Treasury bills by the Federal reserve) and is poised to start raising interest rates from near-zero where they have been since the end of 2008 toward the long term average of about 6%. Much of the world is going in the opposite direction with Chinese growth slowing and Europe and Japan near recession. With a strong dollar already crimping exports and the value of foreign earnings, timing is profusely discussed in financial circles, but doesn't yet seem to have seeped into the political dialogue.
The 2008 financial collapse which, more than anything, cost John McCain the presidency was not a glimmer in April of 2007, and there is a lot of smart money betting that the world economy will rock along about as it is at present. But somewhere in the campaign staffs being organized by Jeb Bush, Scott Walker, Marco Rubio, Ted Cruz, and Rand Paul there had better be an economist or two designing scenarios and brainstorming with the message designers to speak to the college graduates who cannot find jobs, the retirees who are trying to live without bond income, the coal miners who are being regulated into poverty by the EPA, and the Central Valley farm workers for whom the Obama economy has been a tragic failure. The lead story cannot be about how unfairly the pie is divided; it must be about the paltry size of the pie.
This week's video is a 2012 speech by Ron Paul giving a full throated opposition to Iranian sanctions. For many, the first challenge for presidential candidate Rand Paul is to distance himself from the views of his father.
bill bowen - 4/17/15