Hillary Clinton, 2016 Democratic presidential candidate, speaks at a campaign event on 6th February, 2016 in Portsmouth, New Hampshire. ©Dennis Van Tine/Geisler-Fotopres/DPA/PA Images
Read more: Donald Trump's genius
Read more: the US primaries: a political failure The New Hampshire primary, which takes place tomorrow, 9th February, has a poor record when it comes to picking the eventual president (unless they were already incumbents). Since 1976, its Republican nominees have only twice gone on to become president—Ronald Reagan and George H Bush, while only one Democratic nominee, Jimmy Carter, reached the White House. So, whatever happens in New Hampshire, political speculation about the presidential race will build through the spring, with intriguing implications for us all. This time round, the dysfunctional nature of both major political parties and their loss of popular support to fringe or non-traditional candidates, such as Trump, Cruz and Sanders, could spring a bigger, more awkward surprise than Leicester City winning the Premier League. At the very least, the presidential race has become a laboratory in which important economic issues are being re-framed, and sometimes in overtly populist fashion. It is widely acknowledged that the state of the economy exerts an important impact on the presidential race, often swamping other things such as personal attributes, debating skills, and campaign contributions. Bill Clinton’s campaign strategist in the 1992 contest, James Carville famously coined the phrase "the economy, stupid" to convey to activists the goal of associating the George H. Bush administration with the 1990-91 recession and aftermath. More recently Alan Blinder, one-time Vice Chair of the Federal Reserve, and Mark Watson of Princeton published a less visceral and more econometric attempt to attribute political success or failure to prior economic performance. In a 2014 paper, they demonstrated the significance of economic developments in delivering or dashing the Oval Office for presidential aspirants in every election since Harry S. Truman (a man who confounded expectations in 1948 on the back of a post-war expansion that arrived in the nick of time) President Obama’s victory in 2008 was in some measure a reflection of the public’s association of the financial crisis with George W Bush’s administration. By 2014, though, the Obama administration and Democratic standing in the country were under siege. In the mid-term Congressional elections and gubernatorial and state legislative contests, Republicans scored their strongest showing in almost a century, winning a majority in the Senate and increasing their majority in the House of Representatives. It would be myopic to attribute this entirely to the economy, but there is no question that the US today is suffering a sort of economic schizophrenia. In some ways it has been the surprising success story in the aftermath of the financial crisis, while in others, its voters feel disillusioned or detached. To hijack Charles Dickens, the economy is characterised by wisdom and foolishness, belief and incredulity, light and darkness, hope and despair and so on and so forth.
Income inequality has a lot to do with this. According to the Congressional Budget Office, the top 1% of households experienced a 275% gain in real incomes between 1979-2007, while that of the bottom 20% rose only 18%. The Economic Policy Institute says that between 1983-2010, 75% of new wealth created went to the top 5% of households, while it stagnated or fell for the bottom 60%.
Labour market conditions look very optimistic on the surface with unemployment down to 4.9% in January. Job creation in the same month slipped to 151,000, but the underlying trend has been running at about 210-215,000 a month. At the same time, though, important measures of well-being have been disappointing, notably what economists call the labour force participation and employment to population ratios. The decline in these measures, which predate the financial crisis, reveals how many Americans have left the labour force completely, some voluntarily (retirement for example). But many, including in the 25-54 year old age cohort, have left for reasons that suggest that they may not be able or willing to return to work. Stagnant wages and salaries have continued to bedevil the more optimistic looking labour market indicators. (It is too soon to tell, but there have been very recent signs that wages may be picking up, along with the participation rate. If these trends continue they could exercise a significant influence on the economy and voting intentions). Concerns about the growth slowdown or hiatus in China and emerging markets are washing over the US economy, as elsewhere. But this is in the lap of the gods, and in any event, for a large and relatively closed economy, these external influences are second order. Moreover, the crunch in oil and gas investment and the fall in employment in the sector have trumped, for the time being at least, the beneficial effects of the fall in petrol and other energy prices. US consumers have continued to spend their windfalls moderately, but they have also saved more. The savings rate had risen to 5.5% at the end of 2015, close to the highest rate since the 2009-10 recession. By November this year, incumbent politicians and those belonging more to the centre ground will be hoping that lower oil prices and rather less angsty consumers will be contributing to the economy in ways that are now detracting from it. And so to New Hampshire, which is a gateway to more substantial contests in the next few months. If the US economy continues to labour, whilst shocks such as those in the energy sector are being absorbed, it will not do any favours for more mainstream presidential aspirants, such as Hilary Clinton and Marco Rubio. Their hope must be, apart from wherever they think their own specific appeals to voters lie, that gradual economic improvements will neutralise at least some of the voter disillusion and alienation that is driving support for their opponents. If the US does slip into recession—and some forecasters maintain that it will—then "interesting times" lie ahead. That phrase, by the way, was a Confucian curse.
