by John Tamny, Toreador Research and Trading (Guest Contributor)
With the Obama economy limping along thanks in part to the Administration’s policies in favor of extreme dollar weakness, there’s growing speculation as to his re-election chances in 2012. Will a difficult economic situation that includes high levels of unemployment make Obama a one-term president? History says no given the power of incumbency.
Added to that, another popular narrative of late points to an Obama victory owing to the supposed economic illiteracy of the electorate, along with a media that will provide our weakened president with positive media coverage no matter the state of the economy. Of course the problem with this bit of theorizing is that Americans aren’t stupid, and after that, past elections suggest that those same Americans tend to tune out the media.
Ronald Reagan’s two terms in office tell the tale here. As USA Today media reporter Peter Johnson has put it, “Over the course of his campaigns and eight years in office, Ronald Reagan’s press peaked and fell but was always negative. … In his re-election bid in 1984, 91 percent of his coverage was negative.”
The above is important. Despite a rising economy and millions of new jobs, the media invariably stuck to a number of gloomy themes during the Reagan years, including the rising homeless population, twin deficits, and a generalized assumption that the supposed economic gains of the 1980s were only being enjoyed by the wealthy few. Amidst this constant negativity, Reagan was returned to office in 1984 with one of largest landslide victories in electoral history.
Back then, stocks confirmed what voters already knew — that the economy was doing very well. Despite a major recession brought on by Paul Volcker and the Federal Reserve’s needless flirtation with quantity money targets in the early 1980s, the Dow Jones Industrial Average still returned 134 percent during Reagan’s presidency. Markets and the Electoral College told the truth about an economy and presidency that the media regularly tried to cast in a negative light.
To put it simply, voters aren’t dim and they know when the economy is performing well. Conversely, when the economy is acting badly, voters are well aware once again.
For evidence supporting the above, we must first journey back to Jimmy Carter’s presidency. As William Greider put it in Secrets of the Temple, “Despite the aggravations of inflation, President Carter had presided over one of the longest and most expansive periods of economic growth in postwar history, four years of recovery starting in 1976.”
So while GDP, the frequently faulty measure of economic health, was rising during Carter’s presidency, neither the stock markets nor the electorate were fooled. The recession during the Carter years was the falling dollar, as evidenced by spikes in gold and oil. A falling dollar is always recessionary for limited capital flowing into hard, commoditized assets, and away from innovative ideas that fund our economic advancement.
Though the media certainly preferred Carter over Reagan heading into the 1980 elections, the electorate felt differently and handed Reagan a 44-state landslide. The economy was weak, voters knew it, and the Reagan Revolution began.
Moving to George W. Bush’s presidency, GOP partisans continue to talk about “52 months of uninterrupted economic growth”, along with mostly low unemployment that prevailed during his presidency. But thanks to a falling dollar that once again drove gold and oil skyward, voters expressed their displeasure.
Luckily for Bush, the dollar’s most substantial decline began after the 2004 elections, thus saving him from certain defeat. But by 2005-06 the dollar was in freefall, real estate was the hot asset much as it was during the Carter years, and as capital flowed into the proverbial ground as an inflation hedge, voters knew something was amiss on the way to voting out happy talking modern Republicans who wouldn’t know a supply-side principle if it smacked them in the head.
Of all people, the usually brilliant economist Thomas Sowell opined about the Bush economy in 2006 that the “liberal media and intelligentsia are strenuously trying to preserve the vision of poverty and economic distress”, but in truth, the voters didn’t need a media that disliked Bush to tell them something was wrong. They knew things weren’t right, the symptoms (rising gold, oil and all other commodities) of a weak dollar were the telltale sign of a weakening economy, and the Republicans rightly experienced major losses in 2006, followed by the White House in 2008.
Moving to the present, no doubt most in the media worship President Obama, and because they do they’ll strive mightily to create the impression that all is well, or at the very least that the economic malaise isn’t Obama’s fault. They would have a point, though for reasons none could articulate. Simply stated, the Bush bailouts remain a big weight on economic growth for failure always authoring capitalism’s advancement, not to mention that the Bushies handed Obama a dollar that was already severely debased.
Basically the Bush bailouts of banks and car companies “in the name of free markets” disallowed the initial economic cleansing necessary for a massive snapback, and then once in office, Obama’s economic team poured gasoline on the fire; most notably with policies meant to mimic the Bush economic disaster in the form of nosebleed spending and an even weaker dollar. The economy is weak, its weakness by definition has Washington and the Obama administration’s fingerprints all over it, and no matter how the media spin that which isn’t working, Obama is in serious trouble.
What’s unknown is if there’s a Republican who truly knows why the Obama economy sags, and who can talk about anything other than tax cuts which, at this point, are not the point. Specifically, is there a Republican who can explain to voters that $100 trips to the gas station are the direct result of the Administration’s currency policies, not to mention that a weak dollar decreases the very investment that drives company formation and job creation.
If such a Republican exists Obama will be a one-term president. If not, the Republicans don’t deserve to retake the White House.