The financial pages are full of discussion about the first half of the year - how the different stock, bond, and real estate markets are doing; whether the economy is strong enough for the Fed to move toward a more normal interest rate environment; how world events are impacting the economy. Let's put the discussion in the context of the 2016 presidential election.
First, some assumptions:
1. James Carville had a good point relative to most voters during Bill Clinton's successful effort to unseat incumbent George HW Bush in 1992, "It's the economy, stupid". People have an opinion on a lot of things, but in the voting booth they are most concerned about how financially comfortable they and their families will be.
2. People's time horizon is fairly short, and pain leaves a longer lasting impression than pleasure. There will be a lasting impression among those who have been out of work or had insurmountable debt in 2015, but the first half of 2016 is much more important for most voters.
3. The president's party gets most of the political credit or blame for the economy. Congress plays a bit part in the public's mind.
4. Unforeseeable events can have a substantial political impact - the financial collapse of 2008 - and a candidate's response is important, but such events are rare.
With those caveats, if this were July of 2016, what would be the setting for the Democrat (presumably Hillary) who would inherit the Obama economy mantle, and for the Republican (hopefully someone with a financial pedigree) who would be arguing for a more robust economy.
- For the "middle aged workers" - Gen X, Gen Y, and younger Baby Boomers. The statistical battle is between the Democrats who point to a gradual improvement of the official unemployment rate from 7.8 % when Barack Obama took office to 5.3 % today, and the Republicans who point to a workforce participation rate of 62.6 % - the lowest since 1977, and the fact that inflation adjusted wages have been flat throughout the Obama presidency. For an aberrationally high number of voters, this is not a good economy - the millions who have dropped out of the work force entirely, are involuntarily working part time, or are working at below poverty wage rates don't need economists and politicians to tell them that the economy is not working for them. The 2016 campaign will be between ways to make the market work to create more good jobs and ways to artificially assist those who do not have the skills or the commitment to be beneficial participants. Hope versus continued dependency.
- For the Baby Boomers and older. Unlike earlier generations who relied primarily on company pensions, this generation has its nest egg in self-directed plans where the risk and upside belong to the employee rather than the employer. The individual retiree's attitude about the economy will depend on how much they have followed the general consensus of experts that a majority of retirees investments should be in bonds as they age. Those in the stock market have done fine with US markets more than doubling since January 2009; more conservative bond holders have been trapped by near-zero interest rates. Fortunately, inflation has also been low, preventing drastic pain. Don't touch my social security.
- For the Millenials. The Obama economy has been a disappointment for the "hope and change" generation. Many with technical skills and geographic mobility are doing remarkably well; in the Bay Area the dot.com feel is back, except that this time the companies provide real services and earn real profits. However, more broadly, unemployment for those under 35 is closer to 10%, some 40% of college graduates are taking jobs which do not require a college degree, and many graduates are carrying $30,000 or more of college debt. Financially strained Boomers are retiring later; technology is eliminating many jobs; immigrants are taking many of the entry level jobs. These voters may be liberal on social issues, but they are learning hard lessons in economics which were not taught in school.
The economy can change by a few points in a year, but these are pretty well entrenched realities - a mediocre economy which leaves the President's approval rating in the high 40's, and a two-thirds "wrong track" reading. The Republican candidate does not need to be a policy wonk like Paul Ryan, but he (she?) needs to be someone who can easily explain why foreign trade is good for American jobs, why a restructuring of the corporate tax code would bring investment money home and incent business expansion, and why the people want and deserve opportunities for meaningful employment more than ever-expanding welfare programs.
For those confused about the Greek referendum, here's an explanation by Greek Finance Minister Varoufakis of why European governments need to respect democracy by complying with a vote by the Greek people to reject the requirement that they meet the consensus financial requirements of the entire eurozone. It helps to understand that Varoufakis is an anti-capitalism economics professor whose expertise is game theory.
bill bowen - 7/3/15