Financial Malaise

The cognoscenti have determined that a jobless rate below 7.2% is the key to Obama’s reelection. If only he can somehow get the jobs machine going … at least for a few months next summer. But the problem is a lot bigger than that.

    1. The worker problem. Sure, jobs is a big issue with the Congressional Budget Office predicting a headline unemployment rate of 8.2% next year – a half percent above when Obama took office.  Obama may be able to goose it a bit by extending employer Social Security tax holidays and finding some more ‘shovel ready projects”; but employers will become increasingly interested in holding back until a hoped for better day in 2013. (I am in the perhaps minority who believe that as the election approaches small business owners will really, really, really want Obama to lose.) The big factors are long term anyway – globalization; back office automation; the housing industry depression (see below.) And, if he is going to court the Hispanic vote, he may have to explain to the 13.6 million mainstream unemployed why the presence of 12 million illegals isn’t a big contributor to their unemployment and compressed wages.

   2. The homeowner problem. For better or worse the major asset of many middle class Americans is the old homestead. With Barney Frank leading a large bipartisan parade, we increased home ownership from the traditional two-thirds of the public to almost 70% and home prices increased much faster than inflation or rental rates. Well, numbers revert to the mean and most experts believe that prices will continue to fall and new construction will remain constrained for several years.  Due to low downpayment standards and falling prices, about  a quarter of owners are under water. There will be another round of blaming the banks – and perhaps another effort at “loan modifications” –  but there is no way that homeowners will be in a good mood in 2012.

   3. The retiree problem. This could be the biggest political problem if properly explained by the Republicans.

        –  By now everybody (except Harry Reid) understands that Social Security and Medicare are unsustainable.  If the Democrats won’t allow an honest discussion of the issue issue until after some distant election, they will be the party of the status quo. The Republican candidate just needs to be empathetic and promise a plan to save the basic benefits.

        –  More important is the second component of Jimmy Carter’s “misery index” – inflation.  The Left may be able to convince people not to worry about what trillion dollar deficits will do to their grand kids, but if Republicans show retirees on fixed incomes the impact of a 10% inflation rate there will be a lot of support for those who want to attack the budget deficit now.  For those who have missed it, the latest Consumer Price Index reading was 3.6% (about twice the Fed’s target), and inflation on imported goods (partly because of the unstated “weak dollar” policy) has been much higher.

        –  Perhaps most importantly, this discussion is as much about uncertainty as about facts. Few retirees have a solid understanding of their resources and future requirements; fewer have adequate resources to comfortably survive what debt-driven inflation will bring if deficits are not brought under control.  For these people a 65% “wrong track” polling number reflects real anxiety.

    All of which explains why James Carville’s statement was “It’s the economy, stupid“, and not just “It’s jobs, stupid.”  As it stands, Obama projects to do well except for those who want jobs, those who have houses, and those who are retired and living on fixed incomes.  For the rest, the “stay the course” message may resonate.


   This week’s video and the accompanying article by mainstream scientists are about recent evidence anticipating a prolonged decrease in sunspot activity beyond the normal 11 year cycle.  Such a “Maunder Minimum” is associated with an absence of sunspots between 1645 and 1715 and a concurrent “Little Ice Age”. Oops.

bill bowen – 6/17/11