Forget debt, deficits— it’s jobs that matter

For all the frenzy in Washington on debt and deficits, President Barack Obama's political strategists realize jobs are more important in next year's elections. They see the two different scenarios.

In one, voters conclude that while the incumbent is a nice fellow, the administration's policies have failed, the economy isn't getting better and whatever the reservations about the opposition, change is needed. The other (more likely, the advisers insist) is that while times remain tough, the president inherited a huge mess, has made a good start in cleaning it up and has a vision for where we need to go that's a lot better than the one put forth by Republicans.

If 2012 brings the equivalent of this year's Japanese trauma or Greek crisis and persisting higher gas prices, with a relatively anemic 1.5 percent to 2 percent growth and joblessness stuck around 9 percent, the first scenario may be more likely.

On the political economy front there are mixed messages of late. After playing on Republican turf all year, the president has captured the public high ground in the ferocious fight over the debt and deficits. He can maintain that advantage as long as the debt ceiling doesn't lapse and global markets crater.

He has been criticized since last December for failing to embrace the recommendations of the deficit commission he appointed that was led by Alan Simpson and Erskine Bowles. The White House view is that by staying on the sidelines, they forced the House Republicans to unveil Rep. Paul Ryan's budget, which, with its huge Medicare cuts, has proved wildly unpopular with the public. This, the president believes, has given him the leverage he needed in the current negotiations.

On the other hand, the recent economic news has been gloomy. Goldman Sachs downgraded its economic forecast for next year, predicting the unemployment rate would drop only "modestly" to 8.75 percent at year's end. Stories of layoffs are dominating headlines.

David Plouffe, the White House political guru, says voters focus on their own personal situation and don't "vote based on the unemployment rate." Experience suggests that's misleading. The jobless rate, and its direction, usually is a good psychological and political indicator of the electorate.

Since World War II, no incumbent president has been elected with a jobless rate higher than 7.2 percent. That was the number when Ronald Reagan won a landslide victory in 1984; in the 40 years before that no president had been re-elected with an unemployment rate of more than 5.3 percent.

Many Democrats say that if the economy is on an upswing a year from now, the president can persuasively argue he's clearing up the disaster he inherited — in the financial and automobile industries in particular — and set the stage for better economic times ahead. That is, if the unemployment rate is declining.

More instructive than national data may be the numbers in the important states. There are two caveats: Too much attention is paid to the Electoral College; with the exception of the 2000 election, it always follows the popular vote. And there are other factors: Two of the three states with the highest unemployment rates, California and Rhode Island, are certain to be in the Obama column 15 months from now. The three states with the lowest jobless rate, all under 5 percent, Nebraska and North Dakota and South Dakota, are just as certain to vote Republican.

Nevertheless, it's instructive to look at the blue states (which went for Obama in 2008) that will be most hotly contested this time.

When it comes to jobs numbers, they can be divided almost in half. In June, four had unemployment rates well above the national average: Nevada (the highest, at 12.4 percent), Michigan, Florida and North Carolina. Ohio, with an 8.8 percent jobless rate last month, is close to the national average. It'll be a tough slog in these states, which have a combined 84 electoral votes. (Adjusting for census changes, Obama won the Electoral College 360 to 178.)

Other battleground states, such as Pennsylvania, Colorado, Virginia and Wisconsin, have unemployment numbers below the national average, though they all have added more than 100,000 people to the jobless ranks over the past three years.

If the debt ceiling is increased, avoiding a potential cataclysm, the president has a chance to stay on the offensive on the deficit issue, particularly if he offers significant budget cuts and revenue increases now and next year that are supported by the public.

Whether the jobless rate is closer to 9 percent or 8 percent a year from now, Obama will be in trouble if he doesn't rise to this challenge.

Albert R. Hunt is the executive editor for Washington at Bloomberg News.

© 2011 Bloomberg News

Forget debt, deficits— it’s jobs that matter 07/25/11 [Last modified: Monday, July 25, 2011 6:36pm]

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