Simple analysis: the 2004 Presidential election will turn on economic issues — notably, jobs.

Complex analysis: While a number of other issues will continue to get media play — the Iraq situation, the National Guard story, Gay Marriage — I’m not convinced that these are outcome determinative. They will very likely reinforce partisan views, perhaps moblilize one side or the other. They may impact some (but not many) swing voters. Perhaps the negative issues softens up the incumbent up a bit, and distracts his team from pursuing their own media agenda.

But none of these are unequivocably conclusive.

Tactical considerations aside, these are not the strategic issues (and I’m all about strategy) which will swing an election. More likely, these issues offset to some degree the awesome advantage incumbency gives a sitting President. But I remain unconvinced they will swing the election.

On the other hand: Two charts demonstrate where Presidential vulnerability lay. The first, from Thursday’s WSJ, shows the increasing job losses in rust belt state Ohio. As much as the Dems would like to blame this on W., its part of a longer term trend going back decades. The past few years do look particularly awful, however:

wsj_kerry_fights_on_two_fronts.gif
Source: WSJ

This is not the chart which will swing the election. Manufacturing jobs have been leaving the Mid-West for a long, long time. And while it probably is not a good election strategy to say, “Hey, that’s global trade for ya!” — just ask Greg Mankiw — this is by no means a new phenomena.

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But here’s where a crucial vulnerability comes in. As the chart (below) shows, it is different this time: Something very unusual is happening economically, and the White House has been tone deaf to it.

This is not a new meme for readers of this site, as we have been saying this since last June, and too many times since then. But the following is not quite a mainstream idea — yet.

This is the chart that can swing the election. It’s the key White House vulnerability: The economic structure of both the job market and indeed, the entire economy has changed. There are fundamental reasons why jobs are not coming back post-recession. These involve structural changes, like outsourcing and increased productivity — as well as more mundane factors. I have yet to hear anything from this administration recognizing these structural changes.

As this chart shows, a seismic shift has occured in a basic aspect of the economy. THAT is the vulnerability of any incumbent — when something very different is occuring, and the White House fails to notice it.

Nonfarm Payrolls (% change from recession end)
non_farm_payrolls_feb_2004.gif
Source: Chart of the Day, February 10, 2004

In fact, most economists (in and out of government) have overlooked these changes. Example: “There’s a puzzling lack of employment growth for this stage of the recovery,” says Harvard University professor Lawrence F. Katz. “But the U.S. still has a dynamic economy that hasn’t shown any signs of tipping into a long-run decline in jobs.” There are some exceptions: John E. Silvia, chief economist of the fixed-income division of Wachovia Securities, is one; Anthony Chan, chief economist at Banc One Investment Advisors is another.

But the most significant exception is the New York Federal Reserve, who released a report titled: “Has Structural Change Contributed to a Jobless Recovery?”

Even that report was overlooked — or at least never publicly mentioned — by the White House.

This is a key vulnerability: Not only is there a significant economic issue, but we have an Administration which has failed to recognize these fundamental changes.

This chart screams “seismic shift,” in something very basic in the broader economy. THAT is the the vulnerability of the incumbent — a commitment to dogma (i.e., Supply Side economics), puts blinders on. We see no awareness or acknowledgement of this change.

Of course, you cannot craft a creative response to a problem that you simply refuse to recognize. An incumbent whose economic views get effectively be painted as “old school” or “hopelessly out of touch with a modern and rapidly changing world” is potentially vulnerable to “new economic ideas.” Think Bush the elder and the supermarket scanner.

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My own theory about the economy is all over this blog, but to reiterate: We have just come out of the biggest bubble in Human history. There was massive overinvestment, tremendous overspending, all of which has lead to significant overcapacity. In a post-bubble environment, one cannot merely stimulate your way out of the business cycle. What it will take mostly is time — something no President wants to say. “Hey, voters, just wait a decade or so and jobs will return.”

During the interregnum, policymakers can identify the biggest obstacles towards job creation, and do what they can to remove them. They may determine its rising health care costs, or high taxes on small businesses, or its the expenses of IRS filings for new workers, or litigation exposure or whatever. Identify the key issues, and deal with them.

There’s the entire election for you: How the Jobs issue gets defined. The party out of power has a few months (at most) to clarify this definition. Since they have a contested primary (while the incumbent party does not), they have an opportunity to frame the issue, and to some degree, define the debate in a very public manner — for now.

The Dems have done a good but-not-great job at this. The have made what seemed like a walk appear like a close race. But the election is still 8 months away, and they are nowhere near over the hump. There’s plenty of time for an October surprise (Bin Laden, you’re on!).

Still, this remains the White House’s greatest vulnerability. Until the other side recognizes and exploits it, the President remains the front runner in the 2004 contest.

Source:
In Ohio, Kerry Fights on Two Fronts
David Rogers
Wall Street Journal, February 26, 2004

http://online.wsj.com/article/0,,SB107775244670039415-search,00.html

Has Structural Change Contributed to a Jobless Recovery?
Authors: Erica L. Groshen and Simon Potter
Federal Reserve Bank of New York, August 2003 Volume 9, Number 8
http://www.newyorkfed.org/research/current_issues/ci9-8.pdf (PDF)

Chart of the Day
February 10, 2004

http://www.chartoftheday.com

Category: Finance, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “What Will Determine the Outcome of the 2004 Election”

  1. Chibi says:

    I think the Bush team just assumed the jobs would come back like they always do, and really didn’t look too closely at what was going on. Now they’re latest talking point is “Clinton Recession”. Personally, I think it’s a tough sell. They tried to package their tax cuts as a jobs package. That didn’t work so well.

    In the end, I think you’re right. It will all come down to jobs/economic security. Bush will try to make anything but the economy the issue, but it will be very difficult to ignore. Also, when you realize that we’ve got rock-bottom interest rates, huge deficits, a falling dollar that is making markets nervous, rising oil prices (and a lot of other commodities for that matter), there just seems like a whole lot of land mines out there that could go off this year. Throw in rising health care costs, education costs, harsh cuts in many states’ spending, Greenspan’s mention that we need to cut SS benefits to future retirees for good measure to get voters anxious. Anxious voters generally don’t re-elect the incumbent, you know? I think even if Osama is caught, if the economy is still fumbling around looking for traction, a lot of people’s attitude might just be “Well it’s about time! Now where are those jobs you’ve been promising?”

  2. iSee says:

    Do I Need to Draw You a Picture?

    “jobchart” In the end, it will all come down to jobs/economic security.

  3. Seth-Tech says:

    Election Strategy

    Regardless of who wins the Democratic nomination, I think this is an excellent strategy to employ in order to remove Bush from office. Sure, the economy is recovering, but are any jobs coming out of this recovery? Weren’t the Bush…

  4. a framing exercise

    The Big Picture: What Will Determine the Outcome of the 2004 Election: My own theory about the economy is all…

  5. David Fisher says:

    What Will Determine the Outcome of the 2004 Election?

    Comments:

    Framing the Issue:

    It is important to keep in mind that the framing of the issues surrounding the global economy, the loss of American jobs, and outsourcing of jobs to cheap foreign labor belongs to the proponents of globalization… not to its detractors.
    This means that the frame is: you get globalization (free markets) or you get protectionism (government controls). That is the framing of the issue. So far, those who have created that framing are winning the framing-battleground very well. That is not the true frame at all. Failing to make a true reframing and to devote themselves to the new framing of the issues is where the Democratic Party is itself a failure.

    New Frame:

    What is actually taking place is this: cheap foreign labor is cheap for many reasons, not merely that the hourly rate is low. There is no: 1) health insurance, 2) workers’ rights, 3) workers’ compensation insurance, 4) no safety laws, 5) no pension plans or pension costs, 6) no employers’ governance, and, in short, no nothing to protect workers from managements’ cheating and violating basic human rights.
    To gain the ability to turn the clock back to where employers can run over workers and to destroy 100 years of hard fought rights of human dignity in the work place is what globalization is really about. Cheap foreign labor also sets up the conditions for cheap domestic labor by eroding all of those rights right here too. And, coupled with 12 to 15 million illegal aliens working in the U.S., the bottom of the labor market is dropping to sub-human levels. (Visit the dormitories for migrant workers around the U.S. – truly deplorable working conditions.) And this is precisely where globalization is taking us.
    Essential to this process is that foreign governments are far cheaper to bribe than the U.S. government is. (They are, of course, equally bribable, it is a question of the price.) In most foreign governments (Viet Nam, Laos, China, Indonesia, Malaysia, Honduras, Guatemala for instance) plant owners can bribe the local police to beat, maim, remove, or kill anyone attempting to unionize or to address deplorable working conditions… and they do. This means that labor is cheap, will stay cheap, and that there is no redress for workers because the power of the police has been brought to bear against workers. This is all a reversal of human rights and human dignity back to the mid-1800’s which is where globalization is taking us.

    Reduce Responsibility:

    The true aim of globalization is to:

    · Concentrate Wealth into fewer and fewer corporations,
    · Move those corporations off-shore to foreign domiciles where the officers and board of directors are secret, cannot be sued for anything, have no liabilities, and,
    · To move cash flow and what was taxable income into tax havens through complex transactions through a variety of tax-haven countries.

    The goal of globalization is to remove all responsibility from owners of capital, to remove all accountability, taxability, and legal exposure. In the meanwhile, they move capital and jobs to any market that offers a marginal exploitation return. They will bribe and make corrupt any government they choose.

    The Real Framing of the Issue:

    The real issue surrounding globalization is this: do we want to grow capitalism into a responsible, caring, compassionate, diverse, accountable, transparent and open system or do we want to strip those qualities away to get raw economic power in the hands of a very few people at the cost of dehumanizing labor and workers?

    Winning The Election:

    The Democratic Party is barely different from the Republicans on the issue of taking and receiving huge sums of money from private economic interests at the expense of the middle and lower economic strata people. But, were they to choose to reconnect with their “base” then they would champion their base and protect it.

    Denying access to the U.S. market place to companies who dehumanize their workers, who thrive on near-slave-labor, child-labor and who use the power of the police to hurt their workers and deny them their basic human rights is not “protectionism.” It is merely applying the laws that we won so dearly in the U.S. over the last 100 years to everyone who wants access to our market.

    To win an election against the Republicans, the Democrats must start representing their base with the same fervor and single-mindedness that the Republicans do for their base.

  6. John Palmer says:

    With all the yelling, sometimes it’s hard to seperate the issues from the hyperbole. I sincerely hope that at least during the upcoming dabates, that John Kerry and President Bush can focus on the things that matter, and stop yelling at each other.

    I was reading the essays at ElectionAnalysis.com and even though they try to present a balanced approach, there is still a lot of emotion in the mix.

    I honestly think it’s about more than just jobs, because we seem to be in a changing economic period, where less skilled jobs are being moved overseas, while the American work force is being forced to retrain for more high-tech positions. A lot like the early 1900′s.

    But the constant threat of terrorism, Iraq, national security, and even the personal integrity of the candidates will and should play a large part in making this very important decision.

  7. john says:

    i wish someone would tell me how dang close the gosh darned 2004 presedential election will be!

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  15. BOPnews says:

    President Bush: Buy, Sell or Hold?

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    President Bush: Buy, Sell or Hold?

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    President Bush: Buy, Sell or Hold?

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    President Bush: Buy, Sell or Hold?

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    President Bush: Buy, Sell or Hold?

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    President Bush: Buy, Sell or Hold?