Elections are driven by the state of the economy. When the economy is flying, as it was for Bill Clinton in 1996, Ronald Reagan in 1984, Richard Nixon in 1972 and Lyndon Johnson in 1964, the incumbent almost never loses. When the economy is sinking, as it was for George H.W. Bush in 1992 and Jimmy Carter in 1980, the incumbent almost never wins.
That trend holds internationally, too. Vanderbilt University political scientist Larry Bartels has studied 31 elections held in 26 developed countries since the 2007 start of the Lesser Depression. He found that “voters consistently punished incumbent governments for bad economic conditions, with little apparent regard for the ideology of the government.”
In a previous analysis, Bartels looked at elections following the Great Depression. “The apparent impact of short-term economic conditions was so powerful,” he wrote, “that, if the recession of 1938 had occurred in 1936, Roosevelt probably would have been a one-term president.” And that held in other countries, too. “Voters simply — and simple-mindedly — rewarded whoever happened to be in power when things got better,” he concluded.
That’s not a bad way for voters to hold politicians accountable. After all, the point of policy is to make things better. And if voters don’t have time to undertake a deep analysis of every policy passed by Congress, they can at least look around and see whether conditions in the country appear to be improving or deteriorating. It’s crude, and it might dissuade politicians from accepting short-term pain for the country’s long-term gain, but it’s better than voting based off the latest crop of attack ads.
But sometimes, the things driving the country’s economy are not passed by Congress. Sometimes, Congress has almost no influence over them. And this is one of those times.
Europe has reached a tipping point. Without a systemic solution — and fast — Greece will default. If Greece falls, chances are that Ireland and Portugal will follow. Desmond Lachman, a fellow at the American Enterprise Institute, compares it to Bear Stearns collapsing and dragging Lehman down with it.
If that happens, we’re going down, too. The European Union is a big economy. Bigger than ours, in fact. In 2010, the United States exported $240 billion worth of products to the European Union, and imported $320 billion. And our other major trading partners — Canada, Mexico, China, etc. — are similarly interlinked with the European economy. So just as a financial crisis that began in the United States was capable of creating an economic crisis around the world, a debt crisis that begins in the European Union has plenty of channels through which it can shatter a fragile global economy.
Moody’s Analytics, in its most recent forecast, was blunt: “A little bad luck or a new shock could still trigger recession.”
Even the not-so-bad outcomes are still, well, pretty bad. Goldman Sachs estimates that if the European Union simply limps along the way it is now, the financial stress “is likely to slow the U.S. economy to the edge of recession by early 2012.” In a year where we may only grow by two or three percentage points anyway, that’s a lot of lost growth.
There’s also the continued uncertainty of another major crisis. Recovery is, in part, a confidence game: businesses and consumers need to be confident enough of a sustained recovery to invest. After all, why build a plant or hire a worker or buy a house if we might end up in another financial crisis six months from now? Better to just wait until things settle down.
That’s the reality of the economy over the next year. If Europe gets its house in order, we might see a recovery. If it continues staying one step ahead of catastrophe, we’re likely to continue stagnating. And if it makes a mistake, we’re likely to follow it into recession.
In determining the likely future of our economy, Europe will probably also determine the outcome of our election. And that means that Congress, the president, and even the Republican presidential candidates, for all that they will pretend otherwise, will not. In 1992, James Carville, an adviser to Bill Clinton’s presidential campaign, used to constantly remind his candidate, “It’s the economy, stupid.” In 2012, it may well be the European economy, dummkopf.