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Chapter 19
Economic Policy
Election Connection
Jimmy Carter Links Presidential Fortunes to Economic Trends
n 1980 Jimmy Carter became the first elected president
since Herbert Hoover to lose his bid for reelection. Ironically, the close connection between presidential policy and
economic well-being that Carter had reinforced wound up
helping to defeat him.
In 1976 Carter added together the inflation and unemployment rates and named the resulting sum the “misery
index,” suggesting that it was a measure of the misery suffered by the average American. The misery index was 12.5 in
1976, up from 8.9 in 1972. Partly as a result of the poor economic conditions summarized by the index, Carter narrowly
defeated the unelected incumbent, Gerald Ford.
Carter was unlucky enough to hold office in the 1970s,
an era of “stagflation”—low growth (economic stagnation)
and high inflation. During his administration, inflation raged at
double-digit levels, interest rates exceeded 15 percent, and
even the unemployment rate seemed stuck at a relatively
high level. In the late 1970s, the Gallup Poll reported that the
Democrats had lost their traditional advantage of being perceived as the party best able to keep the country prosperous.
In 1979 Carter became alarmed by poll numbers that
seemed to show that Americans’ negative attitudes about
the economy, energy policy, and other issues threatened
“national cohesion.” Pollster Pat Caddell warned the president that he risked “being identified as the president who
presided over the dissolution of American political society.”
Instead of denying responsibility for negative economic
trends, Carter decided to acknowledge the negativity and
face it head-on. In a televised address on energy policy, he
warned of a “crisis of confidence” that “strikes at the very
heart and soul and spirit of our national will.” He called
Americans to join him in committing themselves to a
“rebirth of the American spirit.”
The president’s political advisors had hoped that the
public would view the speech as strong and presidential.
Instead, many Americans saw it as confirmation that Carter
was responsible for the economic decline and had no idea
what to do about it. In 1980 the misery index stood at 18.2,
one-third higher than when Carter defeated Ford. Former
California Governor Ronald Reagan campaigned across the
I
country, asking crowds, “Are you better off today than you
were four years ago?” And the crowds yelled back “No!”
Even former President Ford took up the battle cry, challenging voters to hold Carter to the standard he had set back in
1976. In the final days of the campaign, undecided voters
moved decisively to Reagan, and he won easily. In the next
few years, stern decisions by the Federal Reserve smashed
inflation, and in 1984 when Reagan asked voters whether
they had become better off in the last four years, they
answered “yes” overwhelmingly.
Jimmy Carter was by no means the first president to be
punished for a poor economy. But his decision to link presidents to economic performance explicitly not only came
back to haunt him but also affected presidential politics for
decades. Democrats labored under the burden of being associated with the “malaise days” of the Carter administration,
and George H.W. Bush was defeated in 1992, in large part
because of a recession that plagued his last year in office.“It’s
1980 all over again,” said one analyst at the time.
•
Is it fair to judge a president’s performance on the basis of the
misery index?
•
Why do many voters place economic issues ahead of other
issues in evaluating candidates?
•
Can future presidents learn from the experience of Carter and
the first President Bush?
SOURCES: Misery index data are taken from OECD Economic Outlook,
no. 58, December 1995 (Paris: Organization for Economic Cooperation
and Development); for the “national cohesion” and “dissolution” comments, see Diane Heith,“Polling and Leadership,” in Presidential Power:
Forging the Presidency for the Twenty-First Century, ed. Robert Y. Shapiro,
Martha Joynt Kumar, and Lawrence Jacobs (New York: Columbia University Press, 2000), p. 393; President Jimmy Carter, speech to the nation,
July 15, 1979; Ford in 1980 campaign, see David Broder,“Ford is Campaigning with a Vengeance—Against Carter,” Washington Post, September 26, 1980: A4; and “1980 all over again,” Nelson Polsby, quoted in
Jerry Roberts,“Why Bush Lost,” San Francisco Chronicle:, November 5,
1992: A1.
falling sharply in response to the rising casualty rate in Vietnam.13 Nonetheless, presidents usually do better in elections when the economy is strong.
National economic conditions may influence congressional elections as well.14 In
1930 Democrats captured control of Congress when voters blamed Republicans for
the onset of the Great Depression. The Eisenhower recession of 1958 inflated the
narrow Democratic majorities in the House and Senate. The huge Democratic
majorities of 1974 were due both to the Watergate scandal and to an economic
downturn.15 When the economy dragged Carter under in 1980, the Republicans
took control of the Senate and made large gains in the House. To be sure, economics
is not the only force at work in congressional elections. The Democrats suffered serious congressional losses in 1966, even though the economy was fine. That election
turned on Vietnam and racial tensions. Similarly, the Republicans captured control of
both House and Senate in 1994, even though unemployment fell during Clinton’s
first two years.
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Chapter 19
Economic Policy
Election Connection
George W. Bush and United States Steel Policy
epublicans are supposed to be for free trade. At least,
that has been the case since the mid-twentieth century,
protectionists such as right-wing presidential candidate Pat
Buchanan notwithstanding. According to most economists,
free trade enables world markets to function with less distortion, leading to more robust and even economic growth
for all.
Because most Republicans accept this argument, it surprised some observers when, in 2002, President George W.
Bush approved a new system of tariffs on imported steel,
affecting up to $8 billion of imports annually from around the
world. Under the 3-year plan, steel entering the country
could be taxed at a rate of up to 30 percent. Steel industry
officials praised the new tariffs as necessary to enable U.S.
manufacturers to compete with foreign producers, many
of which had benefited from past subsidies from their own
governments. But others scoffed at these justifications.
According to one critic, the policy “is so wrong it makes
other kinds of wealth-destroying [government] intervention
feel inadequate.”
Surprise at the Bush action was muted by a recognition
of the electoral facts, however. The list of major steelproducing states reads like a list of the most hotly contested
states in presidential elections: Pennsylvania, Ohio, Indiana,
R
Maryland, West Virginia, Michigan. Three of these six states
voted for Bush in 2000; three voted for Democrat Al Gore.
Furthermore, in four of these states, the margin of victory
was 6 percentage points or less. Bush and his advisors clearly
recognized the potential benefits of paying attention to steel
workers in these states. In one appearance at a steel plant in
Pennsylvania, Bush assured an assembly of plant personnel
that their product constituted “an important national security issue.”
•
Do electoral considerations lead to distorted economic policies,
or are elected officials just doing a good job of representing their
constituents?
•
Do electoral considerations constitute a greater problem with
economic policy than with other policy areas?
•
Would the government’s steel policy have differed if Al Gore
had been elected in 2000?
SOURCES: The “inadequate” quote,“George Bush, Protectionist,” The
Economist, March 9, 2002; Federal Election Commission 2000 election
data; and the “national security issue” quote,“Romancing Big Steel,” The
Economist, February 16, 2002.
also try to shape overall economic conditions by using two major policy tools, fiscal
policy and monetary policy. We discuss these policy tools in the next two sections.
Section Summary
The business cycle is an irregular but recurring feature of the economy. Elected officials work to minimize its negative effects by keeping a close watch on both inflation
and unemployment, both of which can upset voters by disrupting their economic
security. Elected officials at all levels—but especially presidents—know that voters will
punish them if the economy turns sour. This is reason enough for them to pay close
attention to national economic policy.
Fiscal Policy
fiscal policy
The sum total of government taxing and
spending decisions, which determines the
level of the deficit or surplus.
deficit
The amount by which annual spending
exceeds revenue.
surplus
The amount by which annual revenue
exceeds spending.
budget
The government’s annual plan for taxing and
spending.
A government’s fiscal policy, the sum total of government taxation and spending,
determines whether government revenues exceed expenditures. When yearly spending exceeds tax receipts, the government runs a deficit. When the amount collected
in taxes exceeds spending, the government enjoys a surplus. When the two are
exactly the same, the budget is said to be balanced. The nation’s fiscal policy is formulated in a budget, the government’s annual plan for taxing and spending. The
budget sets funding levels for all government programs. In 2002 the federal budget
amounted to about $1.95 trillion, or 18 percent of the nation’s GDP.17 Since the
1970s, the president has proposed a budget to Congress each year, but Congress usually makes major changes to the president’s plan before passing it. (See Window on
the Past, page 598.) The largest portion of the federal budget—23 percent—goes to
the social security program, as Figure 19.3 indicates. Medicare and Medicaid claim 19