Monday, November 08, 2010

Thinking about the whys of the election

Unemployment peaked in June 2010 at 9.7 percent. I am not sure that everyone understands what that number means. "Full employment" means that there is about 4% unemployment as about one in 25 workers is "between jobs" for one reason or another at the best of times; by that standard, unemployment is about 5% or one in 20 workers above "full employment". A part of that is that it is taking longer for people "between jobs" to find a new job. On the other hand, the government unemployment index counts only those people actively looking for a job and surely some people who would like to work are so discouraged that they are no longer looking.

Still, the jobless rate is too high and there are millions of people who want jobs who are out of work. That percolates through the economy since there are a lot more people who are worrying about their jobs as well as those who are out of work. It is also the case that more people around looking for work tends to drive down the pay for those working.

The net worth of U.S. households went down from $79.8 trillion in mid 2007 to $62.9 trillion in early 2009. That is a 21 percent decrease in household wealth. The new worth has only rebounded to $67.4 trillion and actually decreased in the last quarter for which there is data. The value of real estate went down, as did the value of stocks, as did the value of pension funds. People who had not been putting aside a portion of their income in savings because their property and stocks kept increasing in value suddenly found that they should have saved more.

However, the total net worth is very unevenly distributed. Across all groups, the 2007 median net worth was $120,300 and the mean was $556,300. We know that a lot of people went into the red in the last two years as they drew down savings because they were out of jobs or because they owed more on their homes that they were worth (because they had borrowed a lot to buy the house and housing prices went down with the sub-prime mortgage bubble burst). For a lot of the middle class, the loss in wealth was truly worrisome.

In fact, I think the actions of the Bush administration in 2008 and the Obama administration since it came into office helped keep the economic situation from getting much worse. Still, people are angry and tended to take out the anger on those in office.

People are also mad at the corporate executives in the industries that caused the problem, and madder still because they have profited from the bailouts. I think the bailouts were good economic policy, and I think the Obama administration did the auto industry bailout better than the Bush administration did the financial industry bailout. Still, the voters probably took out their anger on the people in office who were up for election.

I am bemused by the response to the health care legislation. The public surely wanted regulation of health insurers to help families keep their children insured, to prevent people from losing insurance because they got sick, and to keep insurance companies from refusing insurance to people with existing conditions. The unbiased Congressional Budget Office said that the new law will save a lot of money. Yet the legislation seems to be unpopular with many voters.

The election was probably more based on what is going badly than on what is going well. The Obama administration seems to have done well getting the Chinese to increase the value of their currency with respect to the dollar which will help the balance of trade in the next few years (see the graph above). He has continued the withdrawal policy in the Iraq war that was started by the Bush administration and seems to be moving toward a prudent withdrawal from Afghanistan that has bipartisan support. Thus the policies seem to be in the right direction, and they seem to be bipartisan in the way that U.S. foreign policy should be, and in a way that they should survive the political change imposed by this election.

The Obama administration has also moved to reduce the friction caused by the Israeli-Palestinian conflict and has greatly improved the views about the United States in most of the rest of the world. It has restored the credibility of government science. It has moved to improve long term competitiveness of the U.S. economy by support for education and technological innovation. It has directed stimulus money into restoring our deteriorating infrastructure and reducing oil dependence by developing efficient energy technologies. It has regulated the financial industry in ways that will help the consumer and that will help prevent the kind of bubble and crash we have just experienced.

A large part of the success of the Republicans is that they have succeeded in framing the issues of the election. Some of the reason seems to be that people who are mad as hell but do not really understand the problem have been given access to the media and have managed to organize and influence public opinion and the elections.

Obama is blamed for the failure of communication and accepts some of that blame -- probably deservedly. On the other hand, he had more time for communication when he was a candidate than now that he is running the government, two wars, economic policy, foreign policy and domestic policy. Moreover, it is easier for the guy on the outside to attack the guy in power for the failures of his policies than for the guy on the inside to explain the benefits of his policies, why they will take time to work, and why in the real world they could not have been better.

The posting, as I read it over, seems very positive about the Obama administration. I too am unhappy about the economy, the wars and a lot of other problems in the United States, but on the other hand I don't really know what the Obama administration could have done better. I wish the Republicans had been more willing to compromise in the last two years, but it seems clear that their party profited from saying no to everything. A big part of the problem is that a party can profit in its election possibilities by policies that are not most profitable for the country. That is the problem that Obama pointed to during the 2008 election, and it is a problem he has not been able to dent in the his time in the White House.

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