The economy and the election: The macroeconomics mandate
Nov 7th 2012, 14:19 by G.I. | WASHINGTON
HAD Barack Obama lost to Mitt Romney yesterday, the explanation would have barely taken up a sentence: the economy defeated him. Mr Romney’s mission from day one was simple. Pound home the message that Mr Obama took a bad economy and made it worse, and leave the facts to do the rest: unemployment stuck at around 8% and four straight years of trillion-dollar deficits.
That Mr Obama won is thus a victory not just for him personally but for macroeconomics. Political pros always disparaged “it could have been worse” as a winning slogan (a view I confess I shared). Yet even if voters did not understand the nitty gritty of fiscal multipliers, bank recapitalisation, liquidity traps and quantitative easing, they seem to have grasped enough to reject the competing Republican narrative that fiscal and monetary stimulus made matters worse. In exit polls, voters widely agreed that the economy was in bad shape, but were more likely to blame George Bush than Mr Obama for that.
Political strategists and demographers will cite a host of non-economic factors to explain Mr Obama’s victory: the wide margin of support from Hispanics, the positive optics of his response to Hurricane Sandy, the targeted message in Ohio of the auto bail-out, the superior ground game. Yet economic determinists including yours truly can point out that a bad economy slowly getting better should, and did, yield a close election.
It also yielded a contest that could have easily gone the other way. That the results broke in Mr Obama’s direction suggests that ultimately the trend in economic activity trumped the level. After a mid-year swoon that sent Mr Obama’s approval plummeting, the economy began to pick up again in the late summer. By election day the stock market and consumer confidence were back at levels last reached before Mr Obama took office, and unemployment finally nudged below 8%. In the exit poll, four in ten voters said the economy was getting better and 88% of those voters went for Mr Obama.
Yet it was awfully close. While voters in recent years were more likely to say Mr Obama’s policies helped rather than hurt, the margins were always slim and highly dependent on circumstances. Had the euro crisis intensified rather than turned the corner late in the summer, had Middle East tension sent oil back to $140 per barrel, had the housing market taken just six more months to improve, Mr Obama would now be preparing to pack his bags. He could have pointed out ad nauseum that America has actuallyoutperformed the typical post-crisis economy, that it has outperformed almost every other major developed country since the crisis, that Britain, which pivoted more quickly to austerity, fell back into recession this year. None of it would have mattered. Mr Obama’s loss would have vindicated the competing theory that stimulus is ineffective and government-generated uncertainty is the main thing holding the economy back.
I doubt that the core of Mr Romney’s team, or at least his economic team, fully bought into that; most would have rediscovered their inner Keynesians shortly after election day and some would have quietly urged Ben Bernanke to finish his term at the Fed. Yet those advisors may have struggled to be heard above the Republican austerians in Congress who would have taken credit for putting Mr Romney in the White House.
Still, last night’s elections do not mean the macroeconomy is in the clear. Global headwinds may be slowly shifting to tailwinds, but American growth remains subdued and fragile. Whether America avoids a savage, premature dose of austerity in the next few months requires Mr Obama making peace with Republicans so that they can move the fiscal cliff. He also needs to overcome his deep deficit of trust with business, due both to frequent regulatory overreach in his first term and to the negative campaign he waged around Mr Romney’s Bain Capital background. In his acceptance speech yesterday Mr Obama wisely didn’t talk about millionaires and billionaires paying their fair share but about “reducing our deficit (and) reforming our tax code”. House speaker John Boehner was conciliatory, saying, “If there is a mandate, it is a mandate for both parties to find common ground and take steps together to help our economy grow and create jobs, which is critical to solving our debt.” But Mitch McConnell, the Senate minority leader, was not sounding chastened: “The voters have not endorsed the failures or excesses of the president’s first term, they have simply given him more time to finish the job they asked him to do together with a Congress that restored balance to Washington after two years of one-party control,” he said.
Mr Obama should also heed another message from last night’s poll: voters are not overtly hostile to Republicans’ tough-love message on entitlements. He had bet that Mr Romney’s selection of Paul Ryan as a running mate would alienate elderly voters nervous about Mr Ryan’s proposal to convert Medicare to vouchers. But in retiree-rich Florida, whose outcome as of this writing has yet to be decided, voters were evenly split on which candidate would do a better job on Medicare. Of course, that may simply vindicate Mr Romney for saying Obamacare robbed Medicare for current retirees. Sadly, the campaign did not really give Americans meaningful debate on the country’s fiscal direction. But at a minimum, last night’s results were not a rejection of ambitious entitlement reform.
For now, though, the more important takeaway is that they were also not a rejection of macroeconomic theory and evidence. And that is encouraging.
The original post is linked here.