Clinton campaign strategist, James Carville, in 1992, nailed it with advice to his campaign staff, "It's the economy, stupid."
It still is. Voters overlook a lot of transgressions if they feel confident and doing well. If they don't feel that they are doing well, a lot can happen, most of it bad - like election of an egocentric strong man long on promise and short on substance.
We can assess the economy with cold analyses of standard economic statistics including unemployment, job growth, gross domestic product (GDP), financial markets, and distribution of income.
Another way to access the economy is by mood of the people. The University of Michigan's monthly consumer sentiment index is a formal measure. But the informal, and politically significant, measure is voter reaction at the polls.
Economists are sometimes criticized for their (our) cold analyses of economic statistics. But in their (our) defense, these same economists have long been citing the increasing inequality of income and wealth, attempting to explain why it matters.
Obviously, there is the matter of equity, or "fairness." If people work hard, follow the rules, and pay taxes, all while barely making it while others are making it big, widespread anger and disillusionment creates instability in the system. But there are technical reasons, covered in any decent college macroeconomics class.
In technical terms, the marginal propensity to consume (MPC) is higher for low-income recipients than for high-income recipients. In plain English, low- and middle-income recipients spend a greater proportion of additional income than the rich who would save a greater proportion.
Does this mean that saving is bad? Of course not - saving is necessary and desirable. But unless that saving is channeled back into the economy, such as through investment, the level of spending declines.
So, how can a Swiss farm boy who was raised with a strong saving ethic sing the praises of spending? That's easy - in the macroeconomic sense, spending equals income. Spending drives the economy. Without spending, there is neither income nor incentive to produce. When income is channeled to lower- and middle-income people, spending rises for necessities, creating demand for goods that stimulates employment. In contrast, further increased income to those already wealthy adds to some combination of idle balances, conspicuous consumption, and higher priced real estate in Aspen and Vail.
This relates to the fallacy of supply-side economic snake oil. Tax cuts oriented to the rich, and deregulation of banking, manufacturing and the environment do not put money in the hands of consumers that would create demand for goods and resulting incentive to produce and hire workers.
Most politicians have been at least exposed to a basic college macroeconomics course. Maybe they just didn't believe it, or it went in one ear and out the other. But more likely, they succumb to the seductive political ideology that production and employment depends more on tax cuts and deregulation than on effective consumer demand.
Since the trough of the Great Recession in 2009, unemployment has declined from 10 percent to 4.5 percent. Housing markets have largely recovered. We have had eight years of steady growth. But the distribution of income has become ever more unequal. Wages for many workers, adjusted for inflation, have barely moved for several decades.
It was the mood of the voters rather than statistics on economic inequality that finally grabbed attention of politicians, and eventually the out-of-touch mainstream media - characteristically the last to grasp what's going on. Two prominent politicians ascribe different blame, and prescribe differing solutions for it. But Sen. Bernie Sanders and Donald Trump, each in their own way, recognized income inequality, and made it central to their presidential campaigns of 2016.
If the American economy were humming along and voters felt economically secure with a sense of optimism, Mr. Trump would still be a harmless, egocentric television personality, and Senator Sanders would be dismissed as a back-bench Socialist from Vermont where liberals wear funny shoes.
But both candidates recognized, and capitalized on, what establishment Democrats, Republicans, and the media failed to grasp. Income has stagnated for a broad swath of workers. Vast numbers of workers, largely through structural changes in the economy, have been totally left behind. This highlights the central economic challenge of our time, namely, making American capitalism work so that the fruits of the system are broadly distributed, and faith is restored in the system.
Here is a partial list of issues:
• How to assure affordable health care to all is far from resolved. "Leaving it to the market" won't do it. For-profit insurance companies have no incentive to insure the poor and the sick.
• Manufacturing and mining jobs, and the communities they supported, cannot return to anything like the post-WWII period. Automation and robotics have precluded millions of jobs that were central to middle class. Manufacturing and mining will require fewer workers.
• International trade is an issue. But the role of wages of foreign labor has been neglected.
• Nevertheless, there will be many jobs requiring human hands, such as caregivers for an aging population. These jobs, necessary and socially beneficial, have traditionally been at the bottom of the wage scale. A way must be found to provide a living wage and an equitable income to workers performing these useful and essential tasks.
• We will still need people who can weld, lay pipe, and perform many skilled jobs, including high-tech manufacturing. Technical and vocational education will be increasingly important.
• We will continue to rely on foreign labor for staffing meat packing plants, harvesting crops and picking fruit, even milking cows on factory farms. We need rational immigration and foreign worker policy.
• The current "anti-science" mood and federal budgets reducing funding for research will be a drag on economic growth, leaving our nation behind.
• Our deteriorating infrastructure will further inhibit American productivity.
These issues will require effort at the federal level; serious government attention and political will that we have yet to see.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
It still is. Voters overlook a lot of transgressions if they feel confident and doing well. If they don't feel that they are doing well, a lot can happen, most of it bad - like election of an egocentric strong man long on promise and short on substance.
We can assess the economy with cold analyses of standard economic statistics including unemployment, job growth, gross domestic product (GDP), financial markets, and distribution of income.
Another way to access the economy is by mood of the people. The University of Michigan's monthly consumer sentiment index is a formal measure. But the informal, and politically significant, measure is voter reaction at the polls.
Economists are sometimes criticized for their (our) cold analyses of economic statistics. But in their (our) defense, these same economists have long been citing the increasing inequality of income and wealth, attempting to explain why it matters.
Obviously, there is the matter of equity, or "fairness." If people work hard, follow the rules, and pay taxes, all while barely making it while others are making it big, widespread anger and disillusionment creates instability in the system. But there are technical reasons, covered in any decent college macroeconomics class.
In technical terms, the marginal propensity to consume (MPC) is higher for low-income recipients than for high-income recipients. In plain English, low- and middle-income recipients spend a greater proportion of additional income than the rich who would save a greater proportion.
Does this mean that saving is bad? Of course not - saving is necessary and desirable. But unless that saving is channeled back into the economy, such as through investment, the level of spending declines.
So, how can a Swiss farm boy who was raised with a strong saving ethic sing the praises of spending? That's easy - in the macroeconomic sense, spending equals income. Spending drives the economy. Without spending, there is neither income nor incentive to produce. When income is channeled to lower- and middle-income people, spending rises for necessities, creating demand for goods that stimulates employment. In contrast, further increased income to those already wealthy adds to some combination of idle balances, conspicuous consumption, and higher priced real estate in Aspen and Vail.
This relates to the fallacy of supply-side economic snake oil. Tax cuts oriented to the rich, and deregulation of banking, manufacturing and the environment do not put money in the hands of consumers that would create demand for goods and resulting incentive to produce and hire workers.
Most politicians have been at least exposed to a basic college macroeconomics course. Maybe they just didn't believe it, or it went in one ear and out the other. But more likely, they succumb to the seductive political ideology that production and employment depends more on tax cuts and deregulation than on effective consumer demand.
Since the trough of the Great Recession in 2009, unemployment has declined from 10 percent to 4.5 percent. Housing markets have largely recovered. We have had eight years of steady growth. But the distribution of income has become ever more unequal. Wages for many workers, adjusted for inflation, have barely moved for several decades.
It was the mood of the voters rather than statistics on economic inequality that finally grabbed attention of politicians, and eventually the out-of-touch mainstream media - characteristically the last to grasp what's going on. Two prominent politicians ascribe different blame, and prescribe differing solutions for it. But Sen. Bernie Sanders and Donald Trump, each in their own way, recognized income inequality, and made it central to their presidential campaigns of 2016.
If the American economy were humming along and voters felt economically secure with a sense of optimism, Mr. Trump would still be a harmless, egocentric television personality, and Senator Sanders would be dismissed as a back-bench Socialist from Vermont where liberals wear funny shoes.
But both candidates recognized, and capitalized on, what establishment Democrats, Republicans, and the media failed to grasp. Income has stagnated for a broad swath of workers. Vast numbers of workers, largely through structural changes in the economy, have been totally left behind. This highlights the central economic challenge of our time, namely, making American capitalism work so that the fruits of the system are broadly distributed, and faith is restored in the system.
Here is a partial list of issues:
• How to assure affordable health care to all is far from resolved. "Leaving it to the market" won't do it. For-profit insurance companies have no incentive to insure the poor and the sick.
• Manufacturing and mining jobs, and the communities they supported, cannot return to anything like the post-WWII period. Automation and robotics have precluded millions of jobs that were central to middle class. Manufacturing and mining will require fewer workers.
• International trade is an issue. But the role of wages of foreign labor has been neglected.
• Nevertheless, there will be many jobs requiring human hands, such as caregivers for an aging population. These jobs, necessary and socially beneficial, have traditionally been at the bottom of the wage scale. A way must be found to provide a living wage and an equitable income to workers performing these useful and essential tasks.
• We will still need people who can weld, lay pipe, and perform many skilled jobs, including high-tech manufacturing. Technical and vocational education will be increasingly important.
• We will continue to rely on foreign labor for staffing meat packing plants, harvesting crops and picking fruit, even milking cows on factory farms. We need rational immigration and foreign worker policy.
• The current "anti-science" mood and federal budgets reducing funding for research will be a drag on economic growth, leaving our nation behind.
• Our deteriorating infrastructure will further inhibit American productivity.
These issues will require effort at the federal level; serious government attention and political will that we have yet to see.
- John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Fridays in The Monroe Times.
