Jan. 7, 2012 – 12:42 p.m.
Political Economy: Economic Dilemma
By John Cranford, CQ Columnist
As Rick Santorum might say, it’s “game on” when it comes to focusing the 2012 presidential campaign on the state of the economy. Not that the Great Recession and its aftermath haven’t been Topic A all along, but the Republicans have plainly decided that to win in November they will need to blame
We’ll have to wait to see how this all plays out, but the December employment report released last week was not the first sign that the tide may be turning. The question is, how much credit will the president get for any economic improvements — assuming that by next fall voters judge that things have indeed gotten better.
This will be mostly a game of perceptions. The economy actually started climbing out of recession 30 months ago. The low point came in June 2009, according to the folks at the National Bureau for Economic Research, who serve as the acknowledged — if self-appointed — arbiters of U.S. business cycles. Even the jobless rate peaked that October — 26 months ago.
For now, the public isn’t buying it. Polls show that most Americans believe the recession continues, and large numbers say the worst may yet be ahead. That view can probably be traced directly to the slow decline in unemployment, which has been a psychological drag on the recovery and has served as a persistent political weapon in the hands of Obama’s critics.
The latest jobs numbers — 212,000 private jobs created in December and more than 1.9 million last year — and other recent statistics might push the public to be more optimistic, giving the White House hope about the president’s re-election prospects.
Importantly, the jobless rate has been falling now for four straight months. Moreover, it has been below 9 percent for three months, and other economic indicators appear to reinforce that trend. The last time unemployment was lower than the December rate of 8.5 percent was February 2009 — the first full month that Obama was in office and the month that his economic stimulus package was signed into law.
The economy still is not firing on all cylinders. But workers are putting in longer hours because their employers need them to, and as a result they are getting paid more. Manufacturers are booking more orders, and the share of industrial capacity in use is climbing toward pre-recession levels.
Inflation is tame, and interest rates remain at historically low levels. Car sales are up. Homebuilders have increased the pace of new construction. And at the same time, households have continued to reduce their debts — and their debt service costs. The share of household income used to pay interest and principle on borrowing has fallen to about where it was 17 years ago.
Those signs all increase the odds of a sustained recovery — absent some new shock, or course.
‘An Unacceptable Pace’
So, Republicans find themselves in the awkward position of needing to cheer any improvement — it would be unpatriotic to do otherwise — while at the same time blaming Obama for preventing a more robust recovery.
Last week, we saw GOP Rep.
Political Economy: Economic Dilemma
Although that might seem to be a partisan shot, the liberal-leaning Economic Policy Institute made much the same point in its analysis of the jobs report. The group went on to note that one reason the jobless rate has fallen is that the labor force has shrunk relative to the population. If Americans suddenly came out of the woodwork and joined the labor force thinking they might find work, unemployment would rise — possibly by a significant amount.
If that were to occur — and there are many theories about why the labor force has stagnated — optimism might quickly fade.
This will probably end up the way most things do in Washington nowadays: devolving into partisan fights over which policies would best promote growth. Needless to say, the Republican prescription for how to juice the recovery is quite different from that of the White House. The president’s public relations game will in no small part come down to proving that the administration was thwarted in its best efforts by recalcitrant Republicans. The GOP, naturally, is taking a similar tack.
What is true, regardless, is that there is unlikely to be a bright moment before the election when the danger is clearly past. “It’s going to take a while for us to climb our way out” is how Alan B. Krueger, Obama’s top economic adviser, put it to MSNBC.
That shows a willingness on the part of the White House to be realistic about the economy’s prospects. The test will be whether Americans conclude that the president has done right by them.