The Reality Behind the 2010 Election: It’s the Economy

October 29th, 2010 // 4:00 am @ Oliver DeMille

The economy is struggling, and it is driving the election. As so many have said since the Clinton campaign made it popular in the 1990s, “It’s the Economy, Stupid!”

And many Americans believe the economy will continue to decline. If it does, the Obama Administration has very few tools to respond.

The White House has based its entire economic policy on an ideological belief in government spending and intervention, but further economic downturn will require it to take serious action.

What can it do that it hasn’t already tried? How much more can it spend? And at what point will it accept that such spending isn’t delivering fixes to unemployment and the economy as promised?

If the government increases spending, promotes more stimulus, raises taxes or increases regulations (or all of the above — which is what it has done so far), it will run into major difficulty.

So far none of these have fixed the economy. The nation now ranks Democratic leaders at their lowest rating ever compared to Republicans (42 percent to 52 percent).

And the major issues fueling dislike of the Obama agenda are unemployment (now 9.6 percent), the healthcare law and other increased government regulation, and massive government spending.

Some economists, like Paul Krugman, say the problem is that the stimulus should have been much bigger in the first place — since now there is very little support for more government spending.

The White House seems to agree, and it is preparing to raise taxes on big business. The problem with this strategy is that very few small businesses have a lot of extra cash right now. Big business, in contrast, has a lot more extra cash than the whole of government stimulus.

Unfortunately, with the Obama Administration promising to end tax cuts to big business, these companies are unlikely to hire or spend their cash on hand. And if President Obama does raise taxes on big business, they are likely to simply hold their cash or spend it in other countries.

A lot of corporations are seriously considering moving more of their operations abroad to find more favorable environments for profit. Many have already made this move, taking jobs and money with them.

Some countries are aggressively advertising their low tax rates to lure international investors. For example, a full-page ad in The Economist reads:

“Fact: the Gulf’s lowest taxes are in Bahrain. As are the region’s lowest living and operation costs. Which leaves more of the cake for you and your business.”

A lot of nations are using similar campaigns to lure investment, while the U.S. is actively adopting policies which drive capital away.

Why would businesses that can afford to move stay in the U.S. to face more White House attacks and increasing taxes and regulations?

This not only won’t help our economy. It will increase unemployment, make credit harder to obtain for small businesses, and convince consumers to buy less. In short, it will significantly hurt the economy.

The Obama plan claims to help small business, but in fact its proposed policies will do the opposite. One Harvard economist points out that our debt load is now even worse than that of Greece, which has just experienced major economic collapse and is being bailed out by international banks.

Open For Business?

The impact on the elections is obvious. If a lot of Republicans win, they will have more influence to argue for more business-friendly policies. But there is no guarantee they will do so.

After all, the Bush Administration significantly out-spent the Clinton Administration before it. No matter what happens in the election, the Obama team needs to take a different route if they want to reboot the economy.

Two years into Ronald Reagan’s presidency, the economy was struggling and unemployment was above 10 percent. Reagan pushed to cut taxes, reduce government spending, and, perhaps most importantly, sent out the message — over and over — that government needed to be reduced and that private business was the hope of the economy.

In retrospect, spending actually increased under Reagan, but his consistent message of promoting business, support for business growth and free enterprise, and the need to cut government and spending made business feel safe.

He spoke optimistically of business on all levels, and lauded the opportunities provided by free enterprise and free markets.

The result? Businesses hired and entrepreneurs went to work. Commerce soared. Growth quickly soared to 8 percent (the Obama “recovery” was around 1 percent) and unemployment rates came down. The 1980s became an era of economic boom, which grew into the roaring 1990s.

Too often the opposite message is coming from Washington. The White House repeats its “unfriendly to business” message over and over, calling businessmen “fat cats” and telling young people to work for non-profits and not go into business.

It constantly promotes increased government spending and ever-expanded regulations which drastically increase the cost to start and build businesses. It has publicly attacked the Chamber of Commerce, the ultimate small-business advocate, and in general it has sounded angry and dangerous to business.

Now, in the name of “helping small business,” it is increasing taxes on big business and people who succeed in small business — many of those above the $200,000-$250,000 threshold are small entrepreneurs.

And, as I said above, many big businesses which hold a lot of cash are making plans to take it abroad. These realities are a serious problem.

Americans now believe Republicans (49 percent) “would do a better job of dealing with the economy than Democrats (38 percent).” But what exactly is the Republican plan? It is unclear.

Americans seem to believe that at least Republicans will stop increasing taxes and regulations on business, and perhaps be a lot more friendly and welcoming to business.

Whom Do Voters Support?

Perhaps the most significant reality is that Democrats and the Obama Administration now have a 60 percent disapproval rating among independents.

Of course a lot of Republicans support Republican politicians and a lot of Democrats support Democrats. But President Obama was swept into office by independents, and now most of them no longer support his policies.

Independents are mostly for fiscal responsibility, lower taxes and lower levels than the current government intervention in the economy. Indeed, many of them supported Candidate Obama because they disliked the Bush Administration’s high-spending, over-regulating policies.

It seemed to independents that Candidate Obama promised new leadership and a new direction for Washington. Many independents have been shocked and dismayed by the Obama Administration’s move to the left. But they could have supported this surprise if there wasn’t such a lack of new-era leadership.

For example, as an independent, I expected President Obama to be liberal. I closely read The Audacity of Hope (affiliate link) before the election and I was clear that he would govern from the left.

But I also thought he would bring a new brand of leadership — a fresh, charismatic, Generation-X-style emphasis on American growth and vibrancy rather than old-line Washington politics.

Unfortunately for all Americans (left, right and independent), that did not occur.

Many independents feel abandoned by President Obama less for his liberalism than for his return to “Washington politics as usual.” This shift occurred within days of inauguration, and his popularity among independents has consistently fallen ever since.

We live in an era where the key to winning elections is to combine support from your base (liberal or conservative) with the support of independents.

This is true nationally and in most locales as well. For Democrats, who will get the bulk of Democratic votes no matter what, the goal right now should be to bring in independents by pushing through many tax breaks and finding ways to deregulate business requirements.

When asked who they will vote for in the 2010 Congressional election, 62 percent of registered independents said they support Republicans; 30 percent plan to vote Democrats.

This is a huge split in American politics, where voting differences are usually 1-3 percentage points and a 6 percent split is a landslide.

As a result, many current Democratic candidates are frequently using the phrase “I’m independent.” As the election season kicked off right after Labor Day, the Obama Administration changed its message —apparently to attract independent voters.

President Obama said in his speech on September 8th that it is American business which drives the economy, and Timothy Geitner said the same day that American businesses are very innovative and able.

This change is a good move for the administration, but President Obama still managed to include disparaging remarks about privatization and Wall Street.

Despite the fact that there may be truth to what he says, it is the tone of anti-business that reverberates. He may get past this bias in the weeks and months ahead, but will it last after the election?

From an independent perspective, it doesn’t seem like it.

Business really does drive the economy, and we need to genuinely embrace and support this.

Independents are tired of the constant attacking between parties. Instead of Republicans attacking President Obama and the White House attacking Republicans, why can’t either just get serious about enacting policies that actually help small business?

It’s the Economy!

Our leaders must find ways to significantly help business.

Proposed tax cuts for small business, payroll tax holidays, and not taxing research and development are good starts with bipartisan support. The Obama Administration deserves praise for these proposals. But a lot more is needed.

If the government is going to spend money regardless of what the voters want, the current push to spend it on infrastructure is probably the best plan.

Still, spending $50 billion of taxpayer money is quite an expense. And nearly all infrastructure contracts will go to big firms, further excluding and in places even hurting many small businesses.

Unless private business is convinced to rebuild the economy, one business at a time, government spending will just make the problem worse.

Harvard economist Niall Ferguson responded to President Obama’s new plan by pointing out that the $50 billion of infrastructure expenditures will do little or nothing to boost the economy since the plan is built on faulty economic reasoning that is good for politics but bad for the economy.

In contrast, Ferguson argues, we should be studying how Reagan and Thatcher successfully battled and overcame major recession in both the U.S. and Britain in the 1980s. Even experts from left agree that the proposed Obama plan won’t do much to help the economy.

President Obama’s speech included numerous jabs against Republicans, which many independents agree with. But it didn’t include much that could really help the economy.

This has many independents frustrated. It feels too much like more politics, not better leadership.

For example, the proposal to put freezes on non-security spending is a good idea, but it rang hollow, sounding more like a political debating point than something the president really cares about.

If he gave it the same support as health care, and kept pushing it with tenacity and refusals to give up on the idea, many independents would be impressed.

Instead, it seemed to come across like the right thing to say in this election season, but prone to be ignored in favor of big government spending after the election.

If that isn’t true, if the Obama Administration really does follow through on this proposed freeze on the non-essentials, many independents will swing back to supporting President Obama.

But I think that most independents will wait until after the election to see if this happens.

The president’s speech was excellent in many ways, and independents should be glad that he is now saying some of the right things. It felt like the return of Candidate Obama.

But therein is the problem. Is it just campaign rhetoric? The contrast between Obama’s campaign persona and his Head Democrat persona is so dazzling that it’s more challenging than usual to hope that Mr. President will lead out.

And why did he say a lot of the right things about fiscal responsibility but only get passionate when he was criticizing Republicans or talking about increased government spending?

It’s the Economy, Really!

The Democratic narrative seems to be that without the stimulus the recession would have been much worse.

But many independents don’t buy it. They didn’t like many of President Bush’s policies, but they are just as frustrated with the current administration’s strategies.

They believe the stimulus was a flop and healthcare and other massive regulations have seriously hurt the economy. They blame both Obama and Bush for the current economic mess.

But since Bush is out of the discussion, their frustration is pointed at President Obama.

American independents aren’t the only ones who feel that the Obama Administration’s stimulus and massive spending/regulating strategy has worsened the economy.

Some international analysts, for example, say: “[The stimulus] has not worked. The whole thing has failed. And that is why America, of the big economies, is the one that is now teetering on the brink.”

Some say, “I think in Europe it’s very clear the direction the Europeans are going down, which is to basically start bringing public debts and deficits under control. Obama is still worried about the polls….Personally, I think the best thing they could do is probably just sit on their hands in the U.S. …”

If the plan is to spend more, tax more and increase regulations, then I agree — let the politicians sit on their hands and do nothing!

But what if, instead, they cut taxes, deregulated small business, changed the healthcare law to incentivize business investment, and extended an olive branch of friendship and thanks (yes, genuine gratitude) to entrepreneurs and business for their vital contributions to our prosperity?

Doing nothing, as good as it may sound to Tea Partiers and some independents, is not enough. Washington needs to reverse the bad-for-business policies accumulated since 1987 — or at least during the Bush/Obama growth of anti-business policy since 2001.

If this sounds impossible, we may be in for a very long period of economic struggles.

In Conclusion: It’s the Economy!

The future of the economy depends on the willingness of small business to take risks and the willingness of big business to hire, spend and invest.

Until our national leaders are willing to cut government spending, lower taxes, reduce government interventions in almost every sector of business, and show more genuine friendliness to business, our economic problems will continue.

Whatever the results of the 2010 election, Washington has got to make friends with business. We simply must make those who spend their lives in business feel safe and excited about building, hiring, investing, growing and spending. Otherwise, deepening economic troubles are ahead.

We desperately need real leadership in Washington, leadership which will actually incentivize, promote and reboot the economy.

The best-case scenario would be for the Obama Administration to lead out in this direction. After all, they’ll be in the White House for at least the next two years.

This pro-business outline (cut taxes, significantly reduce regulation on business, get government spending under control, and make friends with business) should be the guiding principle to every voter in every election across the nation this year.

We need to pay little or no attention to political party and instead elect leaders who will help kick-start, encourage, and stimulate the economy.

This is a true mandate, and our national future depends on it.

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Oliver DeMille is the founder of the Center for Social Leadership, and a co-creator of TJEd.