Obama Should Beware of Democratic Strategists

I was struck by this article in the Washington Post:  ”Obama campaign’s rough patch concerns some Democrats.” The Democratic establishment apparently believes that the team that got President Obama elected in a “change” election year is not adapting to the new realities of a sputtering economy, ballooning public debt, and widespread dissatisfaction with Washington.

“The bad thing is, there is no new thinking in that circle,” said one longtime operative in Democratic presidential campaigns who spoke on the condition of anonymity to be candid.

Eight other prominent Democratic strategists interviewed shared that view, describing Obama’s team as resistant to advice and assistance from those who are not part of its core. All of them spoke on the condition of anonymity as well.

The president’s definitely got his work cut out for him, but I’m terrified at the thought of the establishment political wizards riding in to take over messaging for his campaign. If they do for Barack Obama what they did for Al Gore, John Kerry, and Hillary Clinton, that is great news for Mr. Romney.

Don’t get me wrong. I think Stan Greenberg and James Carville (two of the Democratic strategists mentioned in the Post article) are brilliant, but their track record in post-Bill Clinton presidential elections is dreadful.  Obama and team ran a brilliant campaign in 2008 beating two formidable opponents, Hillary Clinton in the primaries and John McCain in the general election.  Somehow Obama and his group of Chicago greenhorns managed to excite the public in a way that no Democrat had done since Bill Clinton. Especially given the weak economy and the general sense of malaise, rekindling that excitement would seem even more important in 2012 than in 2008.

I don’t know whether that will be enough to get the president four more years, but I really worry about his chances if he returns to the the 2000 and 2004 game plan (and the team of strategists who produced it).

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Could Obama v. Romney Debate Push us Back Into Recession?

With the recovery from the deepest economic downturn since the Great Depression still very much a work in progress, it is natural that the presidential candidates tout their own economic credentials and attack their opponents’. The only problem is that the overheated rhetoric might itself be bad for the economy.

Recall that recessions and recoveries are dependent on what Keynes called “animal spirits,” which can provoke waves of self-fulfilling optimism or pessimism. For example, in Keynes’s time, if a bank failed and depositors thought it an isolated event, it was.  Other banks would do just fine. If depositors thought the failure signaled  systemic failure, though, they’d want to withdraw their deposits and the resulting bank run sank even the most prudent financial institution.  Pessimism, too, is self-fulfilling. (Deposit insurance was put in place in the 1930s to prevent bank runs, by guaranteeing most deposits, and that, combined with the Glass-Steagall regulations that prevented banks from gambling with their insured deposits, worked well until the regulations were repealed and bankers went wild.)

Recessions and recoveries also depend on confidence.  If households and businesses believed that the economy was on track for solid growth, firms would invest and hire more and consumers would be willing to spend more, unburdened by the fear of imminent job loss. The prospect of higher interest rates would encourage more people to buy homes, cars, or other big-ticket items.  The boost in hiring and spending would reinforce households’ and firms’ expectations and they’d ramp up economic activity even more.  State and local tax revenues would surge, and governments would start hiring back some of the workers they have had to lay off in the past couple of years, and the newly employed workers would spend more money.  Optimism would be self-fulfilling.

But pessimism is also self-reinforcing. If businesses and consumers are pessimistic or highly uncertain, they’re less likely to hire, invest, and spend, which means that more firms shut down or lay off workers, which boost unemployment and further depresses confidence.  If most Americans were convinced we were headed back into recession, we would be.

Which brings me to the election campaign… President Obama and Governor Romney are both doing a fabulous job of explaining why the other would be incompetent to manage the economy.  Anyone paying attention who believes the rhetoric of either candidate would be forgiven for guessing that economic disaster is a 50-50 proposition (given that the polls are about evenly split). Given how salient negative political messages seem to be, independents might place the odds even higher.  And this will only get worse as we get nearer the election and candidates and super-PACs inundate us with attack ads focusing on the economy.

This is certainly not a recipe for appeasing the animal spirits.  That said, I have no idea how important this insight is.  Only a handful of presidential elections have occurred during recessions since World War II and none has been as bad as this one.  In at least some prior elections, friendly legislatures have been more inclined to enact policies to mitigate the effect of the recession, while the House and a disabling minority in the Senate seem bent on undermining this president’s programs.

If it’s true that election rhetoric hurts the economy and if the conventional wisdom is right that the economy will decide the election, then this is good for Mitt Romney. Let’s hope President Obama is wrong about what that would mean for the economy.

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