Elections and Economic Growth

What is the connection between electoral politics and economic growth? This paper provides an in-depth analysis of the impact government has on the American economy and, as a result, the role elections play in proposing and implementing policies designed to foster economic development, address fiscal shortcomings and meet the financial needs of current and future constituencies.

Keywords Consumer Confidence Index; Gross Domestic Product; Polimetrics; Recession; Standard of Living

Overview

Author and columnist Barbara Ehrenreich once observed that a free enterprise economy depends solely on markets. In turn, those markets, according to the most advanced mathematical macroeconomic theory, depend on the moods of the people she called "the Boys on the Street." She went on to explain, "When the Boys are in a good mood, the market thrives; when they get scared or sullen, it is time for each one of us to look into the retail apple business" (Columbia World of Quotations, 1996).

While Ehrenreich's statement may be interpreted as a somewhat glib and a bit overly simplistic assessment of the way the modern economy operates, one cannot deny the impact on the economy that the human element delivers. After all, prices are set based on the willingness of investors to purchase or sell as they are by the costs involved with manufacturing the product or providing the service. If one investor sees another individual sell his or her stock in apparent panic over information he or she receives, the former investor may act similarly. Markets, after all, thrive when consumer confidence is high and wane when investors' fears are manifest.

In macroeconomics, the relationship between supply and demand is an integral theme. There is little doubt that government has long played a central role in the US economy throughout the nation's history. However, America's implementation of a free-market economy has been accented by a tacit understanding that government should adopt a Hippocratic Oath of its own with regard to the country's business institutions: "First, do no harm." Government's role has long been to facilitate economic growth and create the underpinnings that will give the economy long-term stability. For the first century of American history, the Legislative and Executive branches adhered to that policy.

Then again, when the nation was faced with one of the worst fiscal disasters in its history, the Great Depression, which was compounded by the horrific events of World War II, government's active presence in rebuilding devastated economies in North America as well as Europe and Asia was not reluctantly requested by the citizenry — it was overwhelmingly expected.

Since the Great Depression, politicians have maintained an active role in seeking economic growth. Their interest is clear — if the voters are concerned with the state of the economy, then the issues facing the fiscal system must be a priority. The colloquial statement uttered by Democratic strategist James Carville in the 1992 presidential campaign, "It's the economy, stupid," remains true to the present, evoked by political candidates from both sides of the American political aisle.

What is the connection between electoral politics and economic growth? This paper provides an in-depth analysis of the impact government has on the American economy and, as a result, the role elections play in proposing and implementing policies designed to foster economic development, address fiscal shortcomings and meet the financial needs of constituencies.

Leadership & Economic Growth

As far back as the Reconstruction, economics and electoral politics have experienced linkages. After the Civil War, attentions rightly turned to two fronts: Cultural reparations between whites and former slaves and economic development. The success of America's elected leaders, it is believed, was increasingly becoming based on how the American economy fared, especially in the decades that followed one of the country's darkest eras. One study, however, indicates that while these linkages existed prior to the turn of the 20th century, they were amplified by the Depression and Second World War. This upturn is attributed to the fact that government was called upon to stabilize the markets, stimulate business development and get Americans back to work (Lynch, 1999).

Indicators of Economic Status

GDP

In order to understand these linkages, it is prudent to study the tenets of economic growth itself. There are a variety of factors that can be used to measure economic growth. The Federal Reserve, for example, employs several indicators as measuring sticks when establishing economic policy. The first of these is also the most prominent: Gross domestic product (GDP). This indicator can be defined as the total value of goods and services produced within the borders of the US, regardless of who owns the assets or whether or not the product or service was created by a US or foreign-born worker (Federal Reserve Bank of New York, 2006).

Consumer Confidence

A second indicator is that of consumer confidence. A useful mechanism for monitoring the behavior of shoppers is the Consumer Confidence Index (CCI), which measures the attitudes of consumers regarding the economic environment. In late 2013, this important survey revealed a decline in citizens' belief in the short- and long-term strength of the economy. In November of that year, the index declined to 70.4, while the Expectations Index declined from 72.2 to 69.3 from October to November. However, there was some optimism on the job front, as 11.8 percent of those polled indicated that jobs were “plentiful,” representing a 0.2 percent improvement from the previous month (The Confidence Board, 2013).

While US stocks are up more than 150 percent from their 2009 lows, during the midst of the economic recession, investment authorities advised caution entering 2014; the likelihood that stock prices will continue to rise at such a rate are unlikely, and economic prognosticators are mixed on the direction of the US economy (T. Rowe Price, 2013). Because the US economy remained volatile, despite signs of continued economic recovery (including a reduction in unemployment), the it was certain to affect the 2014 midterm elections and the 2016 presidential elections.

Quality of Life

A third indicator of economic growth is manifest through an analysis of the population's quality of life. While assessments of manufacturing productivity, unemployment rates and consumer confidence are critical, a nation's standard of living is also an invaluable measuring stick by which the country's true economic health is revealed. In fact, an individual's ability to pay higher interest rates, purchase a home, commute to work, pay for medications and health care, shop for groceries and other activities is a vital bellweather for determining the country's actual state of fiscal health.

Standard of living is a central issue in the aftermath of the recession. Although the unemployment rate in October 2013 (7.3 percent) had declined significantly from its recession height of 10 percent in 2010, it was still much higher than its prerecession rate of 4.4 percent in May 2007 (BLS, 2013). These facts are certain to be taken into consideration in the 2014 election cycle. Inflation-adjusted wages and benefits have changed very little since the beginning of the twenty-first century; in fact, wages dropped for the bottom 70 percent of earners from 2007 to 2012 (Economic Policy Institute, 2013). Furthermore, the rising cost of health care, skyrocketing oil prices and increases in the price tags on other necessities are eating away at individual paychecks (Colvin, 2006).

A stagnate US economy does not sit well with the voting electorate. However, as details about the status of the GDP and CCI are likely to be appreciated only by those familiar with such issues, these indicators may not create a tidal wave of voter sentiment. Then again, standard of living issues hit a larger number of households more directly and with greater clarity. Their responses to such situations can impact an election, as they did in 2008, 2010, and, to a certain extent, 2012.

Politics & the Economy

The US Government & Iraq Policy

In 1992, President George H. W. Bush was coming off a wave of popularity from the success of military operations designed to oust Iraqi forces from Kuwait. However, his popularity, stemming from his unquestioned leadership and poise in that campaign, would be short-lived. The economy was showing signs of wear, and neither the Bush administration nor the private sector seemed to be able to counter what would ultimately become a painful economic recession. One writer, invoking the school of thought known as "polimetrics" (which calculates how economic conditions affect voter behavior), posited that Bush's post-Iraq popularity would not be a factor in his reelection. Rather, Bush's bid for a second term would be determined by the state of the economy, which by the time of the election would be anemic (Koretz, 1991).

The following decade, the US again dealt with a situation in Iraq, but that time, the Bush who occupied the White House was not running for reelection. Additionally, the campaign in that Middle Eastern country was anything but popular, and the fact that it cost the lives of American soldiers (as well as many civilian Iraqis) gave President George W. Bush's opponents an opportunity to propel Democrats into majority leadership in Congress in 2006 and to retake the White House in 2008. Every Democratic candidate for president in 2008 (even those who voted to send troops to Iraq in 2002) called for the troops to come home, and even a few Republican presidential candidates echoed such demands.

Interestingly, however, the "troop surge" deployed by President Bush, while unpopular among Democratic candidates, initially showed improvements in terms of reductions in violence and greater stability. Fewer and fewer reports of bombs and chaos were seen on television. Voters, previously vehemently opposed to the war and keeping troops in Iraq, seemed increasingly less focused on the conflict. Some even called the Democratic demands for immediate troop withdrawal unrealistic and, although still opposed to the war, turned their attentions to domestic issues. Chief among these concerns was the economy (Halloran, 2007).

Ironically, the issue that solidified the Republican Party leading up to the 2008 presidential election was the "war on terrorism," of which the Iraqi front is part. Republican candidate and former prisoner of war John McCain highlighted the good news of increased Iraqi stability. However, McCain’s candidacy was done in by his refusal to address the economy as it spiraled downward as the 2008 election approached.

An Economic Downturn

In 2008, with the increased number of housing foreclosures (and related credit issues) and a consistently upward trend in oil prices, the US economy entered a prolonged recession, which affected the 2008 election and nearly cost President Barack Obama his reelection bid in 2012.

The voting population picked up on the economic warnings in 2008, and, coupled with a general distrust of the republican Party most based on the Bush administration’s agenda, overwhelmingly elected Obama in 2008. The US has a staggering trade deficit, with the US paying more in overseas interest than it is receiving from foreign investments. Millions lost their homes to foreclosures, and millions more were unable to sell their properties in a dead market. In addition to increasing oil prices were the high costs of health care and college tuition, but cost of living adjustments are hardly keeping up with such upward trends (Borosage & Vanden Heuvel, 2007). Though the recession seemed to solidify Obama’s election in 2008, it continued to be an issue during the midterm elections of 2010; so much so, that a contingent of far-right Republicans known as the Tea Party was able to make significant headway in electing officials that took strong anti-big-government stances, blaming Democratic spending for the continuation of the recession.

More than any other issue, the economic climate has strongly affected the American voters decisions since 2008. In a 2013 Gallup poll, Americans indicated that dysfunctional government and the economy were the biggest problems facing the country (Newport, 2013).

The Economy's Effect on Political Candidacy

Since 2008, candidates have taken notice of voter sentiments regarding the plight of the US economy. While the economy is without a doubt a bipartisan issue, the response by presidential candidates has largely been divided. They have chosen advisors from a variety of schools of thought, including those from previous administrations and Congress.

Unsurprisingly, the positions of the Democratic and Republican candidates, at least rhetorically speaking, have been typical for the party lines. Democratic candidates tend to lean toward demand-side economics, seeking infusions of cash to help bolster the workforce as well as to serve those who are out of work. This philosophy is best exemplified by the American Recovery and Reinvestment Act of 2009, a massive program implemented by the Obama administration to stimulate the American economy through investment in multiple economic sectors. The Democrats are more likely to embrace tax increases in the hopes that the wealthy will pay more into public coffers, which can be used to serve the middle class and those below the poverty line.

Republicans, on the other hand, have tended to lean toward the supply side, favoring business-friendly tax cuts and incentives in order to foster and support corporate growth. They appear warm to across-the-board tax cuts and espouse cuts in capital gains taxes, hoping that the latter will encourage more citizens to invest in the stock market.

Conclusion

An economy is not unlike an ecosystem. It relies on the establishment and maintenance of a delicate balance between the varying components that comprise it. In a macro-economy, this accord rests between the countervailing supply and demand elements. On the supply side, production must be consistent, while the system must remain conducive to continued business. On the side of demand, consumers must feel confident and remain capable of making purchases and investments.

At the same time that balance is maintained, the system must continue to grow. Without some form of growth, the equilibrium between supply and demand destabilizes. This unfortunate situation weighs heavily on the minds of political leaders as well as economic observers and the business community. Even the layman ultimately finds reason for concern at the notion of a faltering economy, particularly when the shortcomings of the system place his or her way of life in danger.

For this reason, vigilant observation of economic growth indicators remains essential for safeguarding against fiscal malaise. Candidates for elected office in particular keep a careful eye on the electorate's attitudes concerning the economy, and they also seek vigilance on changes in these indicators. If production sloughs, consumer confidence wanes or any sort of unanticipated fiscal event occurs, they will undoubtedly be called upon to address such issues.

In fact, government has, since the early 20th century, been expected to right the problems of a supposedly free-market economy (and, by its definition, a system that is free of government interference). Since the Depression and the rise of Keynesian economics, political institutions have had a strong presence in the US economy — setting interest rates, creating tax incentives for business development and even providing subsidies, amongst other activities. It comes as no surprise, therefore, that candidates for political office may be asked for solutions to a weakening economy.

A point made clear in this paper, however, is that in an election year, candidates (particularly challengers) have very full dockets and very little air time in which to propose truly comprehensive solutions. In speaking to the uninitiated, would-be leaders must introduce positions that are direct responses to the voters: If unemployment is up, a candidate may advance a job training program. If the housing market is up, he or she might propose more funds to aid less-affluent potential homebuyers. He or she may understand that a program designed to retrain laid-off workers is but a drop in the bucket, but without the time (or voter attention), he or she must remain myopic.

Polimetric studies do show a linkage between economic growth and voter participation. As the recession damaged every layer of the American economy, voters became less concerned with global politics and issues such as the War on Terror, shifting their focus to issues such as the cost of living, jobs, and their ability to buy, maintain and sell a house. In turn, political candidates have shifted their attentions away from foreign military campaigns and onto the domestic economy.

Nonetheless, candidates must speak to their bases, and their policy responses, whether as proposals or actual legislation, remain essentially the same. Tax cuts for businesses, increases in minimum wages, housing grants, sector investment and economic stimulus packages may all see modest success, but they also can cause other problems (tax cuts, for example, cost budgets losses in revenues and make sector investment and development grants less available).

In an election year, economic growth is an absolutely critical issue. President George H.W. Bush learned this lesson the hard way, falling victim to a faltering economy in the 1992 election only two years after his extremely successful campaign in the Persian Gulf. And McCain seemingly paid at the polls for the younger Bush’s mistakes. Obama nearly lost his 2012 reelection bid because of the economy, and the 2016 candidates for president will surely have to contend with economic issues facing the country in the wake of eight years of Democratic policy.

Terms & Concepts

Consumer Confidence Index: Economic indicator which measures the attitudes of consumers regarding the current economic environment.

Gross Domestic Product: The total value of goods and services produced within the borders of the US, regardless of who owns the assets or whether or not the product or service was created by a US or foreign-born worker.

Polimetrics: Field of political science tool which studies how economic conditions affect voter behavior.

Recession: Condition in which economic growth does not occur.

Standard of Living: Aggregate of costs and expenses an individual or household must incur in order to live comfortably within an economic system.

Bibliography

Bartiromo, M. (2007). The unvarnished McCain. Business Week, 4037, 114-115. Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25199705&site=ehost-live

Borosage, Robert L. & Vanden Heuvel, K. (2007). The economy debates. Nation, 285(7), 6-8. Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier. http://web.ebscohost.com/ehost/pdf?vid=10&hid=120&sid=076e1564-b52a-4e48-8719-0d8c80456131%40SRCSM1.

Bureau of Labor Statistics. (2013, Dec 3). Labor force statistics from the current population survey. Retrieved December 3, 2013 from data.bls.gov/timeseries/LNS14000000

Columbia World of Quotations. (1996). Retrieved January 8, 2008, from http://www.bartleby.com/66/33/18533.html.

Colvin, G. (2006, July 10). The imagination economy. Fortune, 154(1). Retrieved January 10, 2008 from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=26341076&site=ehost-live

The Conference Board. (2007, December 27). The Conference Board Consumer Confidence Index improves moderately in December. Retrieved January 8, 2008, from http://www.conference-board.org/economics/ConsumerConfidence.cfm.

Conference Board. (2013, Nov 26). Consumer confidence declines again in November. Retrieved December 3, 2013 from www.conference-board.org/data/consumerconfidence.cfm

Cook, C. (2007). It's the economy, maybe. National Journal, 39(48). Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27822416&site=ehost-live

Englund, M. (2007, November 15). GDP estimate: Trimming the sales. Business Week Online. Retrieved January 8, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27561457&site=ehost-live

Federal Reserve Bank of New York. (2006, April). Retrieved January 8, 2008, from http://www.newyorkfed.org/education/bythe.html.

Halloran, L. (2007). With casualties down, the war retreats as a political issue. US News and World Report, 142(22), 40. Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27951734&site=ehost-live

Koretz, G. (1991, December 9). The economic tea leaves say Bush could lose in '92. Business Week, (3243), 24.

Consumer confidence continues to free fall amid holidays. (2007). Las Vegas Business Press, 24(49).

Lynch, G. P.. (1999). Presidential elections and the economy, 1872-1996. Political Research Quarterly, 52(4), 825-844. Retrieved January 8, 2008, from http://prq.sagepub.com/cgi/content/abstract/52/4/825.

Mishel, L., & Shierholz, H. (2013, Aug 21). A decade of flat wages: The key barrier to shared prosperity and a rising middle class. Economic Policy Institute. Retrieved December 3, 2013 from http://www.epi.org/publication/a-decade-of-flat-wages-the-key-barrier-to-shared-prosperity-and-a-rising-middle-class/

Newport F. (2013, Oct 9). Dysfunctional gov't surpasses economy as top US problem. Gallup. Retrieved December 3, 2013 from http://www.gallup.com/poll/165302/dysfunctional-gov-surpasses-economy-top-problem.aspx

Novak, R. (2007). Advising the candidates. International Economy, 21(4), 24-29. Retrieved January 9, 2008, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=27518696&site=ehost-live

Schneider, W. (2007). A 'bad times' election? National Journal, 39(46/47), 75. Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27740196&site=ehost-live

Suggested Reading

Benjamin, M. (2004). The war for your wallet. US News and World Report, 137(13). Retrieved January 11, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=14684813&site=ehost-live

Investor's Business, D. (2013, June 27). Backward priorities kill Obama economy. Investor’s Business Daily A01. Retrieved December 3, 2013 from EBSCO online database, Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88414436&site=ehost-live

Schneider, W. (2007). A 'bad times' election? National Journal, 39(46/47), 75. Retrieved January 9, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27740196&site=ehost-live

Zuckerman, Mortimer B. (2007). Let's put it to a vote. US News and World Report, 142(23), 72. Retrieved January 11, 2008, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=28024648&site=ehost-live