It’s (More Than) the Economy, Stupid!

by | January 15, 2024

“It’s the economy, stupid!” 

In 1992, Democratic political strategist James Carville implored Bill Clinton’s campaigners to focus on Americans’ dissatisfaction with inflation and unemployment under incumbent President George H. W. Bush. With one of the most pithy, effective, and famous campaign slogans in US history, Clinton vanquished Bush in the ensuing election with a singular focus on the economy.

A dozen years earlier, in the 1980 campaign pitting Ronald Reagan against incumbent President Jimmy Carter, Reagan’s team had deployed a similar tactic, focusing on a soaring ‘misery index’—the sum of the prevailing inflation and unemployment rates—to achieve a resounding electoral victory. 

Those two successful campaigns have embedded into American political folklore the notion that outcomes of presidential elections rest on the health of the macroeconomy.

That’s not far-fetched. Few issues matter more to voters than their economic security, their wellbeing, and the material prospects for their families’ futures.

But, as we argue below, it is also true that history is not receptive to the idea that inflation or unemployment, alone, are reliable indicators about how Americans feel about their economy. 

That is a critical message for the 2024 campaign, which unofficially kicks off on January 15 with the Iowa Republican caucuses. The successful presidential candidacy in 2024 will have to go well beyond the statistics of macroeconomics, and convey messages of empathy, hope and understanding to millions of Americans who, despite gainful employment and falling inflation, remain deeply unsettled about their economic futures.

To see why things like inflation or unemployment may not be decisive, it is worth taking a brief tour of US postwar electoral and economic history, with the help of the Chart 1, below. 

The chart depicts the ‘misery index’ (the simple sum of the US headline consumer price inflation rate and the unemployment rate), as well as shaded vertical bars, denoting the 11-month runup period prior to US presidential elections. At the top of the chart, alternating in blue (Democrat) and red (Republican) shading, are the last name initials of the successful presidential candidate in each election, beginning in 1948 with Harry Truman (T).

The idea that elections are decided by important macroeconomic variables, such as the prevailing unemployment rate or inflation rate (or the sum of the two) is not well supported by the history of postwar US presidential outcomes. Some incumbents have won despite high or rising misery indices, including Harry Truman (1948), Richard Nixon (1972), or Barack Obama (2012). Other candidates have lost even though their party had presided over low or falling misery index readings, including Adlai Stevenson (1952), Richard Nixon (1960), Hubert Humphrey (1968), Gerald Ford (1976), Al Gore (2000), Hilary Clinton (2016), or Donald Trump (2020). Of course, in some cases, the candidate was not an incumbent. But they were the nominee of the incumbent party and might have been expected to enjoy the benefits of a strong economy, yet they did not.

Chart 1: US Elections and Misery Index

Source: Federal Reserve, Bureau of Labor Statistics, Jackson Hole Economics

Indeed, of the 19 postwar US presidential elections, only nine (Dwight Eisenhower 1956, Lyndon Johnson 1964, Ronald Reagan 1980 & 1984, George H. W. Bush 1988, Bill Clinton 1992 & 1996, George W. Bush 2004, Barack Obama 2008) follow the pattern of winning with the misery index in their favor. 

That’s less than half the time.

Implications for 2024
That ought to be a sobering message to President Biden, Democrats, and their strategists, who hope that voters in November 2024 will reward them for a ‘soft landing’ and a sharply falling ‘misery index’. Low unemployment and low inflation, history suggests, may be helpful for an incumbent to be reelected, but those outcomes alone are insufficient to ensure four more years in the White House.

There are at least two problems with a Biden campaign premised mainly on its achievement of lower inflation and low unemployment.

The first is that the labor market may yet soften this year. After all, monetary conditions remain tight. Inflation has fallen faster over the past year than borrowing rates. In real (i.e., inflation-adjusted) terms mortgages rates, auto financing rates, consumer credit card rates, revolving credit rates, and student loans borrowing rates are higher today than at any time in the past decade. That’s already showing up in household financial stress indicators, such as rising credit card and automobile delinquency rates.

Spending in the economy is also at risk for other reasons. According to Federal Reserve data, all income cohorts in the US population have spent their excess pandemic savings, apart from those in the top income quintile. Having depleted their ‘piggy banks’, spending by most Americans will probably slow. 

Meanwhile, according to the Brookings Institute, the US federal ‘fiscal impulse’—the measure of how much federal spending will boost or slow the economy in 2024—is expected to drag real US GDP lower by as much as a full percentage point this year.

In short, a Biden campaign that touts success in creating jobs and delivering low inflation might be confronted with a worsening economic backdrop just as voters enter the polls in November 2024.

But there is a second and arguably more important reason why running a campaign solely on the achievement of low unemployment and low inflation might come up short. 

That’s because what worries voters is not just high prices or the ease of finding a job. Rather it is another concern, less well measured but no less valid, namely that modernity—including rapid technological change, globalization, and social dislocation—is putting livelihoods and communities at risk. Those legitimate fears are not captured in employment and inflation statistics.

Those concerns are exacerbated by a sense that Democrats lack empathy for ordinary Americans. The Democratic Party is perceived to be beholden to the elites of Silicon Valley, Wall Street, and Hollywood, whose financial support offers them unbridled access to the corridors of power, creating the perception that the needs, desires, and fears of ordinary Americans go unheard.

In 2024, democracy may be on the ballot. A strong economy may be on the ballot. Climate change may be on the ballot. And infrastructure may be on the ballot.

But if the Biden campaign believes it can win an election based primarily on messages, however legitimate, that Democrats stand for democracy and are responsible stewards of the macroeconomy, they may still fail at the polls if they cannot connect with voters who are looking for leaders that understand their fears and their aspirations.

Indeed, the candidates and the party that prevail in 2024 will be the ones that grasp:

‘It is more than the economy, stupid’.

Filed Under: Economics . Featured . Politics

About the Author

Larry Hatheway has over 25 years’ experience as an economist and multi-asset investment professional. He is co-founder, with Alexander Friedman, of Jackson Hole Economics, a non-profit offering commentary and analysis on the global economy, matters of public policy, and capital markets. Larry is also the founder of HarborAdvisors, LLC, an investment advisory firm catering to family offices and institutional clients worldwide.

Previously, Larry worked at GAM Investments from 2015-2019 as Group Chief Economist and Global Head of Investment Solutions, where he was responsible for a team of 50 investment professionals managing over $10bn in assets. While at GAM, Larry authored numerous articles on the world economy, policy-making, and multi-asset investment strategy.

From 1992 until 2015 Larry worked at UBS Investment Bank as Chief Economist (2005-2015), Head of Global Asset Allocation (2001-2012), Global Head of Fixed Income and Currency Strategy (1998-2001), Chief Economist, Asia (1995-1998) and Senior International Economist (1992-1995). Larry is widely recognized for his appearances on Bloomberg TV, CNBC, the BBC, CNN, and other media outlets. He frequently publishes articles and opinion pieces for Bloomberg, Barron’s, and Project Syndicate, among others.

Larry holds a PhD in Economics from the University of Texas, an MA in International Studies from the Johns Hopkins University, and a BA in History and German from Whitman College. Larry is married with four grown children and resides with his wife in Redding, CT, alongside their dog, chickens, bees, and a few ‘loaner’ sheep and goats.

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