By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at EconoSpeak
On many Mondays I indulge in taking Robert J. Samuelson to task after his regular Washington Post column of the day. Today he was almost right, or if you prefer, even mostly right. This one was titled “It’s Not the Economy, Stupid” about the outcome of the midterm election, as well as a delayed comment on the 2016 presidential election (although, of course, HRC did win the popular vote by three million popular votes, if not the electoral college). His main argument is that in both of these elections, but especially last week’s midterms, the state of the economy was relatively unimportant. The argument is that here is Trump with GDP growth exceeding 3%, the unemployment rate under 4%, inflation largely under control, but this supposedly good performance did not help him out much with his party taking a pretty serious hit (the size of which still being counted). He also sees something similar in 2016, although arguably the economy was not as strongly favorable, but still quite respectable while not obviously helping the incumbent party. Indeed, in 2016 many saw the economy as hurting the Dems, especially in the Rust Belt.
There is a lot of truth to this, with a lot more attention on ethnic and cultural issues, although it should be kept in mind that the top issue for Dems, health care, is at least partly an economic issue. Certainly one sign of the weakness of the economic issue is the matter of the big GOP tax cut. They were quite convinced when they passed it last December that this was their ticket to a strong showing in the midterm election. And indeed it is almost certain that at least some of the acceleration of GDp growth can be attributed to it even if it may be setting up the economy for slower growth down the road. So according the usual views, it should have helped the GOP. But in the end it seems to have been an electoral flop. It has consistently done poorly in the polls, and most GOPs running for reelection in the end barely mentioned it.
But then the major source of reported public unhappiness with the tax cut is revealing. It is the massive inequality obviously inherent in it: the vast majority of the gains went to the top ends of the income and wealth distributions, and everybody knows it. As it is, supposedly the vast majority of taxpayers did get a cut, but for vast majority of that vast majority, it was such a small cut that they barely noticed it. In fact, Obama gave a bigger tax cut back in 2009, but the same thing happened then. When the GOP claimed he had raised taxes, a majority of voters believed them. They barely noticed the actual cut they got. No, it does not seem voters are all that upset about the increased deficit, but they resent that so much of it went to the rich.
So in both 2016 and in 2018, a major problem was that while there were all these good looking aggregate statistics, a majority of people really did not notice much improvement. Yes, job security has steadily improved, but this still has not shown up in wage increases, although reportedly there has begun to be some increase of those recently. But as with the tax cut, not too much, or maybe too little too late. The bottom line here is that most people simply are not seeing all that much economic improvement, so while it is not a negative, the economy is not remotely the positive many think it might have been or should have been. Most of those gains have gone to the top, and that was going on while Obama was president as well.
There is another matter in the midterm election where economics may have shown its old important tole, curiously reported on in WaPo two days earlier. This is that it looks like Trump’s trade war may have impacted several congressional races, mostly not to the GOP’s favor. There seems not to have been much impact, if any, on Senate races, with Dem candidates in Indiana, North Dakota, and Missouri losing even while trying to score against Trump’s trade war. But supposedly the issue played for the Dems in in several races where growing soybeans is a big deal, notably two races in Iowa, one in western Illinois, one in southwestern Wisconsin, and one in southeastern Minnesota, with Dems flipping all these seats while pushing hard on the trade issue. OTOH, one of the two seats that flipped from GOP to Dem was the northeastern seat in Minnesota. This is where the Mesabi range is and still probably the largest source of iron ore of any House district in the nation. Anyway, its economy is booming thanks to the tariff on steel and aluminum imports. So, we know that so far basically the one industry that has really done well from the Trump trade war has been steel, and so it is not surprising that a district heavily dependent on producing iron ore would boom and favor the GOP, while districts with industries, like soybeans, hurt by the war would go the other way.
So, Samuelson’s claim that “It’s not the economy, stupid,” seems to be a bit overdone, if not completely false.