The Argument in Brief
Despite recent signs of a modest upturn in President Barack Obama’s political fortunes, the 2012 election is likely to be close and hard-fought. More than in any contest since 1992, the economy will be the overwhelming focus. But fundamental clashes about the role of government will also be in play against a backdrop of record low public confidence in our governing institutions. And contests involving incumbents tend to be referenda on their records more than choices between candidates. If the election pitting Obama against the strongest potential Republican nominee, former Massachusetts Governor Mitt Romney, were held tomorrow, the president would probably lose.
But a year is a very long time in American politics, and three factors could change the odds in Obama’s favor. Economic growth could exceed expectations, and the unemployment rate—long stuck at 9 percent—could come down fast enough to restore a modicum of Americans’ shattered hopes for the future. The Republicans could commit creedal suicide by nominating a presidential candidate outside the mainstream or unqualified for the office. And the Obama campaign could make a wise decision to focus first and foremost on the states—principally in the Midwest—that have decided presidential elections in the past half century and are poised to do so again next year. If the president tries to rerun his 2008 campaign under very different circumstances, he could end up turning potential victory into defeat.
Setting and mood
With little more than a year until the presidential election, several recent surveys illuminate the terrain on which the campaign will be waged. Let’s begin with the October 2011 CBS/NYT survey, which finds that only 10 percent of the electorate trusts the federal government to do what is right most of the time—by far the lowest level of confidence ever recorded. Only 9 percent approve of the way Congress is doing its job, which pretty much narrows its base of support to staff and family members. A parallel Gallup survey (September 26, 2011) found an “historic negativity” toward government, with fully 81 percent of respondents expressing dissatisfaction with the way the nation is being governed.
According to CBS/NYT surveys, from Obama’s inauguration through the end of 2009, on average, 39 percent of the electorate thought that the country was generally heading in the right direction—not great, but much better than the 2008 average of 13 percent. But things have gone downhill ever since: “right direction” averaged 33 percent in 2010 and 28 percent thus far in 2011. As of early November it stands at just 21 percent.
It’s not hard to see why people feel this way. To an extraordinary degree, public attention is focused on a single issue. Fifty-seven percent of the people regard the economy and jobs as the most important issues facing the country, compared to 5 percent for the budget deficit, 2 percent for health and education, and 1 percent for poverty, crime and war. (Neither abortion nor moral values registers even 1 percent.)
Most people think the economy is doing badly, and they don’t expect things to improve anytime soon. This represents an abrupt change. As recently as the first quarter of 2011, more people thought the economy was getting better than getting worse. By September, only 12 percent saw improvement, while 43 percent were experiencing decline. Indeed, four in five Americans think the economy is still in recession, and only 37 percent think it will be better a year from now. Only 15 percent think they are better off than when Obama became president, versus 35 percent who feel worse off.
A recent Wall Street Journal analysis illuminates the harsh reality underlying this assessment. During the 2007-2009 recession, median household income declined by 3.2 percent. Since the official end of the recession in mid-2009, it has declined by an additional 6.7 percent. Median household income now stands below what it was in 2000. For most American households, the past ten years have been a lost decade.
While some groups have done worse than others, few have been spared. Median income for households headed by high school graduates has declined by 13.6 percent since 2007. But those with some college education have lost 12 percent, and even those headed by college graduates have lost 6.9 percent. Young adults and those nearing retirement have been especially hard-hit in the past two years: since mid-2009, household incomes of those under 25 are down 9.5 percent, 25 to 34 year olds have surrendered 9.8 percent, and households headed by workers in their early 60s have shed 10.7 percent on top of a 10.8 percent decline in 2007-2009—a staggering 21.5 percent loss overall.
During the early phase of the Obama administration, the vast majority of Americans blamed former president George W. Bush for the country’s economic woes. While they still do, President Obama is increasingly being held responsible as well: 53 percent of the voters now blame him a “great deal” or a “moderate amount” for the economy, up more than 20 points. Not surprisingly, most Republicans have held him responsible from the very beginning, and most Democrats still don’t. The big swing has come among Independents, whose “blame Obama” percentage has risen from 37 percent in early 2009 to 60 percent in the fall of 2011 (Gallup, September 21, 2011).
Despite the success of the “Occupy Wall Street” movement in shifting the national conversation toward the role of large financial institutions, by a margin of 64 to 30 percent, Americans still blame government more than Wall Street for our economic plight. Not surprisingly four in five Republicans blame government more. But so do 65 percent of Independents. And even Democrats do as well, albeit by a narrow margin of 49 to 46 percent. This is not to say that financiers are off the hook: 45 percent of Americans think they deserve a great deal of blame. But even more—56 percent—say that about the federal government (Gallup, October 19, 2011).
Another Gallup finding highlights the ongoing collapse of public confidence in government. A survey released on September 19, 2011 found that Americans now believe that the federal government wastes 51 cents of every dollar it spends, the highest estimate ever recorded. Twenty-five years ago, that figure stood at only 38 cents. While estimates of waste at the state and local level remain lower than for the federal level, they have also risen by double digits in recent decades.
Trust in the political system is low because politicians aren’t seen as providing answers. In mid-September, 43 percent of the people thought that Obama had a clear plan for creating jobs. Five weeks later, after a non-stop presidential jobs tour, that figure has fallen to 38 percent—unimpressive, but far better than the Republicans in Congress, who have persuaded only 20 percent that they have a jobs plan. But the people aren’t grading the president on a curve: only 35 percent approve of the way he is handling job creation, and only 38 percent approve of his handling of the economy as a whole. (By contrast, public approval of his handling of foreign policy and Iraq stands at 50 and 60 percent, respectively. But these aren’t likely to be voting issues next year.)
The American people have noticed that partisan polarization is blocking agreement on the issues they care most about: only 28 percent express any confidence that Democrats and Republicans can get together on job creation. And they don’t like the gridlock at all. Fifty-one percent think that it’s more important for political leaders to compromise in order to get things done, versus only 28 percent who prefer leaders to stick to their beliefs even if little gets done. Liberals and Democrats opt for compromise, as do moderates and Independents; conservatives, Republicans, and Tea Party supporters want leaders to stand fast, come what may (Gallup, September 26, 2011).
While both political parties stand near record lows in public esteem, the people do not tar them with the same brush. For example, 69 percent think that the policies of the congressional Republicans favor the rich, versus 9 percent for the middle class and 2 percent for the poor. Only 15 percent believe that Republican policies treat all groups equally. Here are the comparable figures for the Obama administration: 28 percent, 23 percent, 17 percent, and 21 percent. The American people know what Republicans stand for, and they don’t much like it. By contrast, they can’t figure out what Obama stands for—and they don’t much like that either.
The economic issues facing the country go beyond growth to encompass distribution as well. The CBS/NYT survey asked the people a blunt question: “Do you feel that the distribution of money and wealth in this country is fair, or do you feel that the money and wealth in this country should be more evenly divided among more people?” Twenty-six percent of the respondents thought that the current pattern is fair, versus 66 percent who thought the distribution should be more even.
A recent report from the Congressional Budget Office (CBO), which analyses trends in household income, further clarifies the terrain on which the campaign will be fought. Its core finding can be stated simply: in the three decades from 1979 to 2007, the distribution of household income became substantially more unequal, even taking transfer payments and taxes into account. The bottom four quintiles saw their share of income drop, while the share going to the top quintile rose from 43 percent to 53 percent. And in that top quintile, nearly all of the gain went to the top 1 percent, whose share rose 9 percentage points, from about 8 percent to 17 percent. Among that rarified group, average real household income after taxes rose by 275 percent, versus 35 percent for households at the median. When the “Occupy” movement talks about the 99 percent, they’re on to something. And so are the people as a whole.
CBO identifies the widening dispersion of income derived from wages and salaries, capital and business income, and capital gains as the major reason for the increasing inequality of household income: all these sources of income have become less equal. In 1979, the bottom 80 percent of households received 60 percent of total labor income, 33 percent of business and capital income, and 8 percent of capital gains. By 2007, those figures had fallen to 50, 20, and 5 percent, respectively.
Taxes, it turns out, are not a big part of the story. Indeed, CBO finds, income taxes became somewhat more progressive between 1979 and 2007, in part because they declined sharply for those at or near the bottom, many of whom now receive net tax benefits through the Earned Income Tax Credit and other programs. That progressivity is why Republicans have begun complaining about the large number of Americans who pay no income taxes.
Payroll taxes, on the other hand, have become increasingly regressive. The lowest quintile of households surrendered less than 5 percent of their income to payroll taxes in 1979, versus 8 percent in 2007. And these two trends have roughly cancelled each other out. By one frequently used measure, CBO finds, “the federal tax system as a whole was about as progressive in 2007 as it was in 1979.”
In sum, say the people, we have an urgent task of generating jobs and economic growth right now. Over the longer term, though, they doubt that the long-cycle trend toward increasing inequality is compatible with either economic or civic health. Unless the situation changes dramatically, we can’t expect the market to reduce inequality; it certainly hasn’t during the past three decades. If the people want more equality, which they say they do, they can only get it through public policy. But if they don’t think they can trust the government to get the job done, they’re stuck with a status quo they dislike.
That pretty much defines where we are with a year until the presidential election. The people want change, but they have no confidence in the public sector as the change agent. That would seem to give the edge to the anti-government party, but unfortunately for the Republicans, the people think they’re out to serve the interests of the rich, who already have too much. That would seem to give the edge back to Obama and the Democrats. But unfortunately for them, the people can’t figure out whose interests Obama and the Democrats want to serve—or whether they have a plan that could translate good economic intentions into tangible results.
Sentiment inside the Beltway has turned sharply against China. There are many issues where the two parties sound more or less the same. Trump and others in the administration seem heavily invested in a ‘get very tough with China’ stance. It’s possible that some Democrats might argue that a decoupling strategy borders on lunacy. But if Trump believes this will play well with his core constituencies as his reelection campaign moves into high gear, he will probably decide to stick with it, if the costs and the collateral damage seem manageable. But that’s a very big if, especially if the downsides of a protracted trade war for both American consumers and for American firms become increasingly apparent.