Politics & Prose August 2006

The "S" Word Spells Trouble for the GOP

If history is any guide, the Republicans will lose the House this year and the presidency in 2008

Federal Reserve Chairman Ben Bernanke has set an inflation target that may turn into a bull’s eye on the Republican party. Bernanke wants to cut the current "core" inflation rate of 2.9 percent to 2 percent. Over the next two years that would increase the unemployment rate from 4.8 percent to 5.5 percent, throwing two to three million more Americans out of work. Last week, Bernanke "paused" the Fed’s two-year policy of raising interest rates, but to contain inflation, rates will have to go up. Unemployment will go up with them. If Bernanke doesn’t raise rates enough to increase unemployment, inflation, driven by surging oil prices and rising wages, will escalate. Robert J. Gordon, a professor of economics at Northwestern who studies the trade-off between unemployment and inflation, contends that over the next two years both will increase simultaneously. "I think the Fed is facing an absolutely classic case of stagflation," Gordon told Edmund L. Andrews of The New York Times, "a situation in which they cannot win."

Gordon’s "they" might just as easily apply to the incumbent party. Right now security issues—"cut and run" vs. "stay what course?"—dominate the political foreground. These issues might be salient in November, and possibly in 2008, though whether to the credit or debit of the GOP remains to be seen. But American politics knows no more certain a predicative metric than that increasing unemployment or rising prices in an election year defeat the incumbent party. The phenomenon is called "economic retrospective voting." In the long sweep of political history, it appears that, more perhaps than any other factor, the answer to Ronald Reagan’s question in his first debate with Jimmy Carter in 1980—"Are you better off now than you were four years ago?"—decides elections.

In a path-breaking 1971 study, "Short-Term Fluctuations in U.S. Voting Behavior, 1896-1964," Gerald H. Kramer, a Yale political scientist, correlated economic conditions with the fortunes of incumbent parties. The key variable, Kramer found, was real personal income—that is, income adjusted for inflation. In "off-years," when there were no presidential elections, falling real incomes predicted defeat for the incumbent party in statewide races for the U.S. House. For example, a 10 percent decrease in per capita income translated into a loss of 40 House seats. In their 1998 paper, "Twenty-five Years After Kramer: An Assessment of Economic Retrospective Voting Based Upon Improved estimates of Income and Unemployment," D. Roderick Kiewiet and Michael Udell substantiated Kramer’s basic thesis. Using estimates of pre-World War II unemployment levels that had been unavailable to Kramer, they found that unemployment, not real personal income, is "the single variable that most powerfully affects congressional elections."

In short, either falling real incomes or rising unemployment strongly predicts defeat for the incumbent—that is, the president’s party in off-year elections. If the experts quoted in the Times are right, real personal incomes, which have fallen since 2001, will fall this year—that’s what inflation means. If, to moderate inflation, the Fed raises interest rates to slow the economy, then unemployment will rise. Both are likely to rise together, if Gordon is right, between now and 2008. Thus, if history is any guide, economic retrospective voting should cost the Republicans the House this year and the presidency in 2008.

In an important 2004 paper pertinent to this discussion, "Partisan Politics and the U.S. Income Distribution," Larry M. Bartels surveyed fifty-three years of presidential history, 1948-2001, to measure partisan differences in economic performance. He found that all income groups did better under post-war Democratic presidents, with those in the bottom 20 percent seeing their pre-tax incomes rise four times as much under the Democrats as under the Republicans. That is because of the better overall economic performance turned in by the Democrats, who averaged 4.84 percent unemployment and 4.08 percent GDP growth to the Republicans’ 6.35 percent and 2.86 percent. Only with inflation and only by a nose—3.97 percent to 3.95 percent—did the Republicans do better. How, then, did they manage to win or hold office?

Correlations between the economy and the presidential vote are weaker than between the economy and the congressional vote. Other issues—war and peace—and the personalities of the candidates can play major roles. But Republican presidents have also timed the political cycle better than the Democrats. In election years, at every level, income rose 2 percent under the Republicans but only 1 percent under the Democrats. Will the Republicans be able to game cycle again in 2008? In an economy experiencing both rising inflation and unemployment—stagflation—cutting taxes or increasing spending, standard GOP tactics ahead of election-years, will only stimulate inflation, reducing real incomes. By swelling the deficit, they will also put more upward pressure on interest rates, increasing unemployment. Surely it is instructive that the only recent presidents to preside over stagflation, Gerald Ford and Jimmy Carter, both lost.

The economy—understood as personal incomes going up or down and unemployment going up or down—is the classic "valence-issue" in politics. "Instead of ‘position’ issues, where one party favors policy X and the other party favors policy Y…'valence' issues chiefly hinge on perceived government management: my party can manage the economy or the war, for example, better than your party has been doing," David R. Mayhew, a Yale political scientist, explains in Electoral Realignments (2002). "The more one examines American electoral history, the more it seems to tilt toward valence-issue as opposed to position-issue junctures." In his 1963 paper introducing the term, Donald E. Stokes defined "valence-issues" as "those that merely involve the linking of the parties with some condition that is positively or negatively valued by the electorate."

If this excursion into political science has any relevance for Democratic electioneering, it may be this: downplay "position-issues"; they leave you open to attack. Instead link the Republicans to "conditions negatively valued by the electorate"—incompetent management of the government and falling real incomes or rising unemployment or both. Make the 2006 and 2008 elections referenda on a record of miserable failure.

Presented by

Jack Beatty is a senior editor at The Atlantic Monthly and the editor of Colossus: How the Corporation Changed America, which was named one of the top ten books of 2001 by Business Week. His previous books are The World According to Peter Drucker (1998) and The Rascal King: The Life and Times of James Michael Curley (1992). More

Jack Beatty"The Atlantic Monthly is an American tradition; since 1857 it has helped to shape the American mind and conscience," senior editor Jack Beatty explains. "We are proud of that tradition. It is the tradition of excellence for which we were awarded the National Magazine Award for General Excellence. It is the tie that binds us to our past. It is a standard we won't betray."

Beatty joined The Atlantic Monthly as a senior editor in September of 1983, having previously worked as a book reviewer at Newsweek and as the literary editor of The New Republic.

Born, raised, and educated in Boston, Beatty wrote a best-selling biography of James Michael Curley, the Massachusetts congressman and governor and Boston mayor, which Addison-Wesley published in 1992 to enthusiastic reviews. The Washington Post said, "The Rascal King is an exemplary political biography. It is thorough, balanced, reflective, and gracefully written." The Chicago Sun-Times called it a ". . . beautifully written, richly detailed, vibrant biography." The book was nominated for a National Book Critics' Circle award.

His 1993 contribution to The Atlantic Monthly's Travel pages, "The Bounteous Berkshires," earned these words of praise from The Washington Post: "The best travel writers make you want to travel with them. I, for instance, would like to travel somewhere with Jack Beatty, having read his superb account of a cultural journey to the Berkshire Hills of western Massachusetts." Beatty is also the author of The World According to Peter Drucker, published in 1998 by The Free Press and called "a fine intellectual portrait" by Michael Lewis in the New York Times Book Review.

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