So the Economy Will Decide the Election? Which Economy?

Susan Page, in USA Today (April 26, 2004):

Allan Lichtman, a historian at American University in Washington, D.C., who created a formula to predict presidential elections, says that the"very odd recovery" has made the political repercussions of individual economic statistics less reliable than in the past [as a guide to the election outcome].

Lichtman is the author of The Keys to the White House, which identifies 13"keys" that he says can be used to project the winner of a national election. Two keys are economic. His short-term measure is whether the economy is in recession. His long-term measure is whether real per-capita economic growth during the term is at least as good as the average of the last two terms.

In November, Bush is likely to hold the advantage on the first economic key but not the second. In contrast, Clinton held both keys in 1996. The elder Bush held neither in 1992.

"We no longer can simply look at economic growth and then say this will help one or the other candidate," says Sung Won Sohn, chief economic officer at Wells Fargo Banks and a White House economist in the Nixon administration."We have now economic growth, the jobs situation, terrorism concerns and a lot more variables in the equation. The traditional analysis of simply looking at the unemployment rate to gauge election outcome is not workable anymore."

In this economy, middle-class Americans can face very different situations:

* Times can be good for a family that has benefited from Bush's tax cuts and has refinanced a mortgage to take advantage of low interest rates. Both things can feel like a pay raise even if income is flat. And since the stock market began to recover, investors have fewer qualms about opening quarterly statements for their 401(k) retirement accounts.

* Times can be bad for a family that includes someone who has lost a job and had a hard time finding another one with comparable pay and benefits; long-term unemployment rates are the worst in at least 40 years. People with jobs have been hit by rising health insurance premiums. Those with kids in college have seen tuition bills climb much faster than inflation, too.

How miserable?

When the Kerry campaign unveiled a"misery index" this month, it used seven statistics that generally show middle-class families under pressure: household income, private-sector job growth, bankruptcies, home ownership, and the costs of health care, college tuition and gas.

The Bush campaign quickly released its calculation of the traditional"misery index," a formula devised by Arthur Okun, an economic adviser to President Johnson. That index combines the unemployment and inflation rates.

By Kerry's"misery index," the economy is the worst it has been for any president running for re-election since Carter. By the old-style"misery index," the economy is the best it has been for any president running for re-election since then.

Commerce Secretary Don Evans calls it" clearly one of the strongest economies in my lifetime." He says,"You can lead by looking at the glass being half-full and seeing all the positive trends in our economy."

Democrats say administration officials are mistaken if they don't recognize the economic strain many Americans still feel."When people hear that the economy is supposedly getting better and they feel incredibly uncertain about where the new middle-class jobs are and they find themselves squeezed by the run-of-the-mill costs of life, it's led to a palpable anxiety," says Gene Sperling, a White House economic adviser for Clinton who advises the Kerry campaign.

Sperling says"anxiety" is the word that best describes the current economy. White House economic adviser Gregory Mankiw says he'd choose the words"on track." He says,"We're not where we want it to be, but it's heading in the right direction."