How Will the Economy Affect Midterm Elections?

It is by now conventional wisdom that the economy is going to cost Democrats big in the midterm elections . . . so it's refreshing to see folks like James Surowiecki challenge that wisdom.  After all, the economy has started growing again, and, in what must be an astonishing coincidence, we're just about to get a big river of stimulus money sluicing through voter pockets.

Possibly.  But conventional wisdom has a lot going for it.  I agree with Surowiecki that what matters is not the headline numbers on the newspaper page, but peoples' actual felt experience with the economy, particularly real income growth.  That felt experience is maybe improving a tiny amount.  Consider the following, however:

• At this point, there is not enough time for employment to recover significantly.  We lost a lot of jobs, and if analysts are right that this represents mostly structural change in the economy (rather than a temporary collapse in aggregate demand), employment will rebound only slowly.  It took years under the Bush administration to work off the relatively modest collapse around 9/11.
• Most peoples' major asset will still be worth a whole lot less than it used to be.  And people who are pinched will not have the housing piggybank to cushion their anxiety.
• Delinquencies are finally slacking of, but the backlog of foreclosures is eventually going to come on the market, further pushing down home values in many areas.
• We can't really afford to expand the various forms of housing support much further . . . but if we stop them, housing markets will look even worse.
  
• Low inflation means the cost of living doesn't go up . . . but people are now conditioned to expect nominal wage increases.  Money illusion is going to make people perceive the labor market, and income growth, as worse than they actually are.
• Health care costs are going up due to selection effects in individual and small business markets--healthy people are cutting the expense when they lose their jobs, landing companies with a smaller, sicker pool.  That's going to further cut into any wage growth.
• Budget deficits are almost certainly going to keep going up in the short term.  People get especially touchy about deficits when they are personally strapped.
  
• Oil prices are still rising.

I'm not saying the Democrats can't pull it out.  Nothing is impossible, and they have GDP growth on their side.  On the other hand, they're facing some pretty strong headwinds--much stiffer than Bill Clinton faced when he lost the House to the Republicans in 1994.  And contra what I was assured by many Democrats, health care reform has not gotten more popular since it passed; arguably, it's gotten slightly less popular.

That base had better be very motivated.