Slumping personal income and the 2010 midterms
posted at 11:02 am on April 14, 2010 by Karl
This Washington Times item was picked up by the Drudge Report, but deserves some extra context:
Real personal income for Americans – excluding government payouts such as Social Security – has fallen by 3.2 percent since President Obama took office in January 2009, according to the Commerce Department’s Bureau of Economic Analysis.
The context is that personal income has become the Democrats’ favorite statisitic for wishful thinking about the 2010 midterm elections. The latest version of this story comes from The New Yorker’s James Surowiecki:
Given high unemployment and flat wages, no one is going to be singing “Happy Days Are Here Again” any time soon (even if the tune was F.D.R.’s theme song). But we’ve now had three straight quarters of growth, and last month saw the creation of more than a hundred and fifty thousand jobs. That prompted the Harvard economist Jeff Frankel, a member of the committee that officially declares when recessions begin and end, to declare the downturn over. So, with the midterm elections just seven months away, people are starting to wonder how a rebound might shape results in November.
A tough November for Democrats therefore looks like a foregone conclusion. And yet if the economy really starts to recover this summer a lot could change. For one thing, voters have short memories: when they cast their ballots, their decisions are shaped primarily by recent events. [Princeton political scientist Larry] Bartels, in his book “Unequal Democracy,” points out a strong correlation between voting in Presidential elections and income growth during election years, rather than income growth over the full length of a Presidency. Indeed, he narrows it down further: the second and third quarters of the election year seem to matter most. Since the second quarter started just last week, there’s time for moods to brighten substantially by Election Day. Some have argued that an economic rebound won’t matter this year, because things have been so awful that normal growth won’t feel like progress. But, as [GWU political scientist John] Sides says, “it doesn’t seem that economic growth matters less when you’re digging out of a crisis. What voters look at is whether things are getting better or worse.”
Even the high unemployment rate may be less important politically than you’d think. Seth Masket, a political scientist at the University of Denver, has found that, in midterm elections since 1950, there’s been no correlation between the unemployment rate and election outcomes. The key economic variable for voters, other studies show, has been income growth, or, more specifically, how fast per-capita G.D.P. is rising. In other words, if income growth is brisk enough, Democrats should benefit at the polls even if unemployment stays high. And Democrats do have an ace in the hole when it comes to keeping the economy moving: last year’s stimulus bill was backloaded, which means that close to five hundred billion dollars in stimulus money is still to be spent.
First, on the economy in general, the new Associated Press economists’ survey and pundits from Megan McArdle to Kevin Drum are not confident about the strength of any ongoing recovery. I hope that people like Larry Kudlow and Mark J. Perry are right in predicting a strong short-term recovery, even if Obamanomics may do longer-term damage if uncorrected. Righties don’t need to root for bad economic news. If the economy turned around before the backloaded stimulus kicks in, it merely proves how ineffectual and politically motivated Obama’s stimulus program really was and is.
Second, while many of Bartels’s larger hypotheses (on US economic performance under GOP and Democratic administrations, or the voting behavior of the white working class, to name two) are questionable, his theory about personal income is reasonable enough (it’s also a big part of Hibbs’s “Bread and Peace” model for predicting presidential elections). But what is the probability that personal income growth is going to significantly improve over the next two quarters? Surowiecki can cite Masket downplaying unemployment as a factor, but there seems to be no consideration of the effect that a large, persistent pool of unemployed (and beyond that, “discouraged” workers) has on the ability of the employed to demand higher wages.
Nor is that omission the only problem with Masket’s analysis. As Sean Trende pointed out last November, 1982 is about the only modern example of a midterm where unemployment was in the range we see today. He further noted that, historically, bad recessions are followed by rough midterm elections for the party in power.
The common denominator in these analyses is the truism that in politics, perception is often more important than reality. Voters’ opinion of the economy is likely driven by their immediate perception. Income growth is something voters notice — if it translates into higher wages, which hasn’t happened yet in this cycle. Like unemployment, it may be a lagging indicator. (Voters will also notice things like fuel prices, which are likely to increase during the summer, due to environmental regs, vacation demand, etc.) Democrats hoping these stats will turn in just a few months are likely to end up disappointed.