Economic Amnesia Buoys Incumbents

Sen. John Kerry was on the campaign trail last week, attacking President Bush’s management of the economy. It’s a tough sell, given the notable upturn in economic conditions in recent months. The government’s latest figures show robust growth in disposable income and gross domestic product; jobless claims are down to pre-recession levels; the Federal Reserve said industrial production surged in May; and the Conference Board’s index of leading indicators is up again.

Kerry contends that this overdue improvement from a dismal baseline is insufficient to merit Bush’s reelection. As his economic advisor, Gene Sperling, put it, “If you get D-minuses for 3 1/2 years in college, one semester of a B-minus does not get you on the honor roll.”

Unfortunately for Kerry, the history of economic voting in presidential elections suggests that a good semester or two is often enough to make voters overlook an otherwise undistinguished record of economic stewardship. Over the last 14 election cycles, each percentage point of real-income growth during the year of the election has translated into a substantial 4-percentage-point increase in the incumbent party’s popular vote margin. But real-income growth during the earlier years of each president’s term has had no effect on election outcomes. Lackluster sophomore and junior years seem to be irrelevant, as long as the economy is rolling in the months leading up to the election.

Bush’s late-term economic cramming might not, in the end, earn him a passing grade from the electorate. His father’s failed reelection bid provides one example of what can go wrong. Bush senior presided over solid economic growth in 1992 as the previous year’s recession came to a decisive end. But the government’s own preliminary economic numbers understated these gains, the news media continued to portray the economy in harshly negative terms and voters’ subjective sense of economic pessimism trumped the reality of economic recovery. The same thing could happen again this year, especially if economic progress is overshadowed by turmoil in Iraq. What is more likely, though, is that voters will forget their past economic pain and grade the president’s performance based on how the economy is doing now. That would be good news for Republicans.

As it happens, Republican presidents have historically been remarkably successful at profiting from voters’ economic forgetfulness.

Whether by clever planning or sheer luck, they have regularly presided over higher income-growth rates in presidential election years than in the rest of their time in office. In the last half-century, the only exception was Dwight D. Eisenhower in 1960, who passed the GOP baton to Richard Nixon in the midst of an economic slowdown. Ronald Reagan won a landslide reelection in 1984 by producing more income growth during the election year than in the previous three years put together -- and more than in the next three years overall.

The tendency of contemporary American voters to focus so myopically on current economic conditions is eerily reminiscent of the description provided by a distinguished foreign observer of U.S. politics, Moiseide Ostrogorski, more than a century ago: “Of all races in an advanced stage of civilization, the American is the least accessible to long views. ... Always and everywhere in a hurry to get rich, he does not give a thought to remote consequences; he sees only present advantages.... He does not remember, he does not feel, he lives in a materialist dream.”

The danger of seeing only present advantages, from the standpoint of democratic accountability, is that it leaves voters vulnerable to systematic manipulation. As political scientist Edward Tufte warned in the wake of Nixon’s fiddling, in the run-up to reelection, with wage and price controls, Social Security and veterans’ benefits, and payroll taxes: “There is a bias toward policies with immediate, highly visible benefits and deferred hidden costs -- myopic policies for myopic voters.”

If election year gains in jobs, real income and output earn Bush a passing grade from the electorate in November despite lackluster economic performance through most of his administration -- and despite the deferred hidden costs of massive tax cuts and a soaring budget deficit -- that will only suggest, once again, that the American voter lives in a materialist dream.