Pinched (20 page)

A salary of $75,000 is hardly a ticket to high living, especially in Washington, where costs are steep. But it’s no mystery why
Washington’s political elites have a rosier view of the economy than most Americans. The city’s professional suburbs are among the very richest in America. And while a relatively large number of poor people do live in Washington itself, many of them are sequestered in corners of the city where the professional class seldom sets foot. The city and its environs are a primary habitat for America’s meritocratic winners, and most of the area’s professional inhabitants have felt the recession only lightly.

The federal government, of course, did not stand idly by as the recession unfolded. Aggressive action by the Fed and Treasury immediately after the crash almost certainly prevented a true depression. The stimulus package of 2009 helped stabilize the economy, and more modest measures at the end of 2010 were passed explicitly to speed growth in 2011. Hesitancy to do more is understandable;
by 2010, most Americans believed the government had done too much, rather than too little, and worries about the national debt were widespread.

All that notwithstanding, the political will to action undeniably diminished—and the government, to some extent, became unfocused—soon after the stock market began to rally and business profits began to grow again. Over the past two years, I’ve spoken with many political leaders and officials about the economy, and every one of them seems to genuinely regret the pain that the recession has inflicted on so many Americans. But as early as the fall of 2009, many of them simultaneously seemed to believe that the healing was well advanced. The acceptance of that idea is doubtless made easy by the tenor of their daily interactions with associates, friends, and acquaintances. Within the Washington professional community’s social circles, nearly everyone you meet seems to be doing just fine.

In his 2005 paper, “Inequality and Democratic Responsiveness,” Martin Gilens, a political scientist at Princeton University, examined the influence that different classes of Americans exert on federal government action. Sifting through detailed survey data on public support for thousands of proposed policy changes from 1981 through 2002, he found that, in essence, the government is responsive
only
to the wishes of the rich. Gilens compared popular support for different initiatives at the tenth, fiftieth, and ninetieth income percentiles. On many issues, poor, middle-class, and rich Americans held similar views. When they didn’t, however, it was crystal clear whose interests legislators and other policy makers served. When the rich and poor disagreed about an issue, policy hewed closely to the preferences of the rich, and was “wholly unrelated” to the preferences of the poor. The same was true, more or less, when the opinions of the rich differed from those of median-income Americans. When middle-class preference for any given policy flipped from strong opposition to strong support, the probability of government action rose by only 6 percent, on average, if the rich remained opposed. By contrast, when the rich got behind an issue that the middle class opposed, the
chances of government action rose by 30 percent. “Whether or not elected officials and other decision makers ‘care’ about middle-class Americans,” Gilens concluded, “influence over actual policy outcomes appears to be reserved almost exclusively for those at the top of the income distribution.”

The sequestration of the rich and affluent from other Americans—in tandem with the flow of money toward positions that the rich hold dear—may in large part explain the intensity with which certain ideals are held in Washington (unrestrained finance; free trade as an end in itself). A whole ideology of governing has grown over the past thirty years, extending across party lines, that is defensible intellectually, but congenial to the rich and well educated above all. This ideology, for the most part, does not directly
conflict
with the ideal of a broadly shared prosperity. Yet increasingly, it appears to be insufficient for the achievement of that goal—and perhaps indifferent to it.

Some three years after the crash, America’s banking institutions are generally larger and more powerful than they were before, and they carry an even stronger implicit government guarantee against failure. The plan to close the loophole that allows hedge-fund managers to pay just 15 percent of their income in taxes died a quiet death in the Senate in 2010.
A new free-trade agreement with South Korea, the biggest since NAFTA, was negotiated by the White House near the end of that year. The temporary income-tax cuts passed by the Bush administration, and tilted toward high earners, were extended. Not all of these measures were bad policy, and some of them carry substantial benefits for the middle class. Nonetheless, it is undeniable that throughout the Great Recession, and particularly with regard to long-term policies involving the financial industry, one of the more prominent national political developments has been the furtherance of positions, however unpopular, that benefit and are supported by the elite.

• • •

P
OLITICAL FORECASTING IS
a murky business, but
the state of the economy will likely determine the presidential election of 2012. The malaise of the 1970s, to one extent or another, cost both Gerald Ford and Jimmy Carter reelection. Ronald Reagan, whose approval ratings suffered along with the economy through much of his first term, won a landslide reelection in no small part because incomes and the economy were improving extremely quickly by 1984. George H. W. Bush, whose midterm approval ratings were so high that some of the most prominent Democrats decided not to run against him, was not so lucky; recession returned in the latter half of his first and only term (the recession ended a few months before the 1992 election, but that had not yet translated into bigger paychecks when voters cast their ballots). In 1996, the economy was booming when Bill Clinton won his second term, easily dispatching Bob Dole; job growth was strong, and wages were rising.

Other factors besides the economy can of course swing elections. “Incumbent fatigue” tends to hurt the prospects of candidates who follow a two-term president from the same party; that’s one reason George W. Bush beat Al Gore by a whisker in 2000, despite a strong economy. Wars and other traumas can override economic concerns; the war on terror almost certainly boosted Bush’s reelection prospects in 2004 (economic conditions in that year were middling, on balance).

But economic conditions are usually the dominant factor in modern presidential elections. In particular, voters respond strongly to the
direction
of the economy
during the election year
. As the journalist John Judis has observed, the unemployment rate in November 1984, when Reagan won reelection, was 7.2 percent, the same as it was in July 1981, soon after he’d assumed the presidency. But in between it had been much higher. Voters didn’t punish Reagan for the high unemployment and economic contraction that encompassed much of his first term; they rewarded him for strong income growth and a falling rate of unemployment in 1984 itself. Similarly, in 1936, Franklin Delano Roosevelt was easily reelected despite an
unemployment rate of about 14 percent; unemployment had been much higher in the years before.

As the election of 2012 nears, the answers to two key questions will likely determine which party will hold the White House in 2013. The first concerns the pace and rhythm of recovery. The second is
which
recovery voters ultimately care about. Although the unemployment rate is usually a fairly good proxy for the health of the economy, since the Great Recession ended, jobs have stayed scarce while economic growth, business profits, and some personal-income growth have returned. Historically, political scientists have found that once you account for income growth,
unemployment doesn’t matter much at the ballot box; the unemployed, even in times like these, are a small fraction of the electorate, and many don’t vote. And Larry Bartels, a political scientist at Princeton, has found that one of the best predictors of incumbent support in presidential elections is income growth at the 95th percentile. (He suggests that the outsized importance of the affluent as potential campaign contributors, as well as their high voting rates and their propensity to occupy positions that lend them large megaphones, may account for that.)

The divergent finances of different classes of Americans make any assessment of the recovery exceedingly difficult, and nearly impossible to capture in a single metric—particularly when one considers the prominent role of housing wealth in the recession. Housing values kept rising throughout the two recessions prior to this one, and typically change slowly enough that they don’t seem to have a big impact on elections. We are in uncharted territory this time around.

If the recovery broadens meaningfully in 2012, Barack Obama will likely win a second term, even if improvement is still small compared with the accumulated pain of the past three years, and even though the long-term prospects of most Americans are likely to remain uncertain. On the other hand, if the economy is flat or ebbing—whether due to the tapering off of stimulus measures, a falling housing market, a worsening of Europe’s debt crisis, turmoil in the Middle East, or some other shock—the GOP will hold an enormous
advantage. The 2012 Republican presidential field appears weak to many political observers. Yet
polling in early 2011 showed that nearly every major Republican hopeful was running close to Obama in hypothetical head-to-head match-ups. If the economy dips down again, any GOP nominee would have a good shot at winning the White House.

And if the economy is somewhere in between—shambling slowly forward, with strong gains at the top slowly petering out as one moves down into the broad center of society? In the end, all of these questions and “horse race” analyses may obscure a larger point: no matter who wins the White House in 2012, history suggests that if economic weakness lingers, politics will become smaller, reforms more muted, and experimentation with new ideas less likely.

After the 2010 midterms, the historian David Kennedy wrote that the recent pattern of U.S. elections bore no small resemblance to that of the Gilded Age. The 2010 election, he noted, was America’s third consecutive “wave” election—in 2006, control of both houses of Congress changed from one party to the other; in 2008, the presidency did; in 2010, the House of Representatives flipped again. In 2008, some political observers speculated that the GOP was a spent force that would need years in the wilderness before it could once again garner widespread support; the Democrats seemed poised for many years of control. Yet only two years later, political momentum had entirely reversed. Such political volatility recalls that of 1870 through 1900, when control of the House shifted six times in fifteen elections, and when divided government was the norm.

“Generations of American scholars have struggled to find a coherent narrative or to identify heroic leaders in that era’s messy and inconclusive political scene,” Kennedy wrote. “It is not as if the Gilded Age did not have plenty of urgent and potentially galvanizing issues”—from healing the wounds of the Civil War to navigating the disorienting switch from agriculture to industry. “Yet the era’s political system proved unable to grapple effectively with any of those matters.”

Kennedy relates the “abject political paralysis” of that period—defined by a political system “both volatile and gridlocked”—to the enormous social and economic dynamism of the times, and the near constant dislocations and disorientation that resulted. And indeed, periods of profound economic transformation, in which both ordinary people and the government are unsure of how to adapt, are likely to be politically unstable, even when the economy is lifting most people up from year to year.

But the failure of most people to benefit strongly from economic dynamism in the 1880s and 1890s—just as they failed to benefit throughout the early 2000s—surely also contributed to political instability.
Japan’s economy since the early 1990s has hardly been a dynamo, yet its politics have also grown exceedingly volatile as stagnation has deepened. As John Judis has noted, from 1950 to 1970, Japan had six prime ministers; since 2005, it has had just as many. (Since 1990, it has had fourteen.) Several recent leaders initially “stirred hopes of renewal and reform,” as Obama did during his campaign, only to be undone by rapid “disillusionment and despair.”

In the end, if we remain stuck in an economic climate in which stagnation and disappointment are the norms for large numbers of Americans, the most-likely risks to our politics are not rogue leaders or an insurgent populist party. They are endless vacillation, low levels of public trust, and political options that are stunted by a poisonous atmosphere and heavy discontent. Of course, the bad times could end naturally and relatively quickly; new technological breakthroughs or world events could lift the economy, easing, at least for a time, the economic problems we face. That, by and large, is what happened at the beginning of the twentieth century and at the end of the 1930s.

But the country had advantages then that it no longer possesses—most notably a population that, from top to bottom, was much better educated than that of any other country, and that was rapidly becoming better educated still. National problems are not always
self-correcting, and we must be wary of the assumption that because the United States has extricated itself from bad situations in the past, it is predestined to do so in the future. Over many years, a persistently bad economy can create a sort of political trap that is difficult to escape. That is yet one more reason to focus our national energies today on putting a definitive end to this period of malaise, and putting the nation on better footing in the decades to come.

T
HE SOCIAL LEGACIES OF THE
G
REAT
R
ECESSION ARE STILL BEING
written, but their breadth and depth are immense. They are enormously complex problems, and their solutions will be equally difficult. There is no magic bullet for what ails the United States today.