Why it May Be Difficult for President Obama to be Re-elected!
I have always enjoyed studing and hearing about history of all kinds, even when I was a small boy. Based on my historical study and perspective I have shared several times that it may be difficult for President Obama to be re-elected. Whydo I say that?
So much of success in so many endeavors depends on timing—what are the conditions that you face—the milieu within which you will operate? This is especially true in politics.
Hitting the economic cycle just right is critical for a President to be re-elected and to be considered a successful President. Most people don’t see it that way--but so much of a President’s success is really just timing and luck. I don’t mean to imply that policy isn’t important or that Presidents are complete captives of their fate—just that timing and luck matter more than we normally think. This is politicsand the public responds to perceptions.
Research has also shown that the performance of the stock market has historically impacted the public mood—positively or negatively, and has been a significant factor in whether an incumbent President is re-elected.
Let’s take a brief look at history to see what I mean.
Franklin Roosevelt is generally considered to be a successful President and Hoover to be an unsuccessful President. Leaving aside policy, why? Hoover was inaugurated in March of 1929 and had the bad fortune to be in office during the stock market crash and the collapse of the economy. He was also in office during the bank runs and when the stock market collapsed in 1932. Franklin Roosevelt was inaugurated in March of 1933—he immediately declared a bank holiday and went off the gold standard—thus easing the deflationary pressures resulting from the inability to increase the money supply in an economy where the supply of money was collapsing. The economy grew strongly and the stock market never fell below the 1932 bottom. Yes, we had a mini-depression in 1937—but the economy was always progressing when Roosevelt stood for re-election.
In fact the economy grew strongly right through his re-election in 1936.
What about Ronald Reagan—now surely there’s a President that didn’t benefit from good timing?Wrong. The hard lifting on inflation (that Carter inherited) was carried out by Jimmy Carter who appointed Volcker as Fed Chairman even though he knew that Volcker intended to target the money supply. A bad recession ensued and Carter was defeated for re-election and is generally considered to be a bad President because of this.
Reagan can into office as the economy bottomed and although there was another recession the effects had dissipated before he stood for re-election. The economy grew strongly during his terms in office and the stock market soared after going through a long bear market in the 1970’s. He is generally considered to be a successful President even though many of the policies at the heart of our current difficulties were policies
he implemented.
So what about President Obama??
President Obama had the bad luck of being elected at the beginning of an economic collapse and to be inaugurated as the collapse gathered force. The US economy was losing 700,000 jobs a month when President Obama was inaugurated . President Obama didn’t cause any of this and responded the way most Presidents would—but the economy is still sputtering. He’s had the bad luck of being President during what will ultimately be recognized as a deflationary bust.
These kinds of cyclical peaks and busts don’t happen that often—about once every 80-100 years but they are prolonged and difficult because the excess debt needs to be worked off and the bad policies from the previous bubbles need to be reformed. This is difficult because business has usually assumed control of politics over the previous decades as the lessons of the past deflationary bust are forgotten. Banks are reluctant to lend and borrowers are reluctant to borrow—everyone is trying to deleverage. Typical efforts to stimulate the economy don’t work, income for most people is often stagnant (as it is today) and demand is weak. In the absence of default, restructuring or inflation, the economy suffers because of all the debt and the bad policies. President’s normally don’t get re-elected when the economy is weak, jobs are scarce and income is stagnant.
Yes, President George W. Bush got re-elected at the start of this bust, but he needed to push two unfunded off the books wars, an unfunded drug benefit in Medicare, lots of tax cuts, easy money,and a housing bubble to do it. Those options have been exhausted. Tax revenues are in serious decline and the budget is in deficit because of all these counter cyclical programs that help people cope with the weak economy.
So President Obama will struggle—especially if the economy worsens—and given the problems in Europe and China the economy could get worse—much worse. I also believe that the deflationary bust is ongoing, masked by aggressive monetary and fiscal policy—but these policies cannot resolve the underlying imbalances. So I also expect to see another crisis—probably larger and more destructive than the crisis in 2008. I hope, for all the relatives sake that I am wrong—but when you reach the point where income cannot service much less repay all the debt—something’s got to give. It’s called math.
At some point the economy will recover. I also believe that the US will do much better than other countries in the future—but we have all these huge political and economic divisions to overcome and the US could come apart or we could see “the Heaven Sent Man” come to power ushering in authoritarian rule—probably by big corporations.
At some point, one side or the other will prevail and will rule through the balance of the crisis. Who will it be? Will it be the right wing radicals in the Republican Party? Whether it’s the Religious Right, the laissez faire anti-tax and anti-regulation folks, the unfunded liabilities for entitlements, the health of our adult population, our need to improve education, a health care crisis, ongoing militarism, or differences of opinion as to the power of the President and the Federal government--The US faces real challenges as a country. Clearly, the bureaucracy needs to be reformed and streamlined—but hopefully beneficial oversight can be preserved. If the timing works out and a recovery happens during a Romney term—the extreme right could remain in power for some time. On the other hand, if Romney wins and the economy worsens—this could spell the end of the hard right in the Republican Party. The same risk applies to President Obama and the Democratic Party.
Your thoughts and insights are always appreciated!
Brother Phil Lane Jr.