lost decade

Understanding the Great Volatility in American Politics Today, Part 2

For years now American have been disappointed with those running the country.  In 2006 they swept the governing party from power.  In 2008 they gave the Democratic challenger, Barack Obama, a true outsider in every sense of the word, the largest share of the vote for a Democratic Presidential candidate since 1964. In this cycle we've seen establishment figures of both parties get roundly defeated again and again.  The disappointment with those in power continues.  So what gives?

In 2005 Rob Shapiro and I wrote then that the lack of wage and income growth we had seen in the US economy in the first five years of the decade, if unaddressed, would begin to sweep those in power from office.  As the appendix to this essay I wrote recently about the centrality of the economy to American politics today shows, public opinion about the state of the economy tanked in 2005, years before the Great Recession.  Since 2005 the economy has consistently been the number one issue in most polls.  Since 2008 it has been the overwhelmingly dominant concern of Americans.  As it should - the last decade was a lost decade for the American people.  We just finished an entire decade where the average American gained no ground, with many - way too many - even ending the decade with lower wages and income than they began it. 

It has been our contention that the performance of the American economy has been the central driver of the great volatility in the American electorate these past several cycles.  While Americans are concerned about many things - education, immigration, health care, terrorism at home and wars oversees - there is really only one issue the American people have been and will continue to vote on until they see improvement.  And that is their sense that their economic struggle has increased, their leaders seem inadequately focused on their plight, and have certainly been unable to make it better.  They will continue to "throw the bums out" until they see their own lives getting better.

What that means for the fall is more than anything else voters are looking for a party, a set of leaders with a plan for them and their families. They are looking to see if their leaders "get it," and are offering a plan - a set of actions, proposals, arguments - which has a reasonable chance to end the conditions which created the lost decade, is commensurate to the size of the problem itself, and will help them and their families have a change to improve their station in life.  This plan must be focused on rising standards of living and growing employment for every day people, and not on important but more distant concerns of fiscal austerity or Wall Street Reform.   It is, to quote an old line, about "putting people first."

My gut is that this fall will be all about winning the economic debate.  The party that wins the big economic argument and convinces voters they have a plan for the future will prosper.  The parties which talk about other matters, or fail to make a convincing case they have a plan will once again be rebuked by a public asking for more than they have been getting from their leaders for way too many years now.

More on this tomorrow.

PS - Was quoted talking about these matters in the FT yesterday.

Lost Decade Narrative Picks Up Steam, NYT Worries About Another

In December, NDN made the decision that the most appropriate term to describe the last decade was as a lost decade for everyday Americans. I blogged on this topic on December 3 and published a white paper on December 17 entitled, A Lost Decade for Everyday Americans.

Since that time, the lost decade narrative has been discussed in a variety of other sources. On Saturday, Neil Irwin in the Washington Post covered the lack of job growth over the last decade:

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism -- there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.

Paul Krugman called the decade a “Big Zero,” and yesterday, the New York Times editorialized on the need for the next decade to avoid looking like Japan’s Lost Decade and worried that not enough is being done to avert such a scenario. 

Thankfully, 2009 ended better than it began. Economists talk about green shoots of recovery taking hold. Consumer confidence has improved. Equity markets have soared. But for all the progress, the American economy remains extremely vulnerable.

To understand those economic risks, it is worth considering Japan’s experience in the 1990s. A bursting housing bubble there sparked a banking crisis that was followed by a decade of economic stagnation.

The Japanese government lacked the resolve to do what was necessary. It failed to fix its banks and stopped its early fiscal stimulus before recovery had taken hold, leaving the economy all too vulnerable to outside shocks, including the Asian currency crisis and the dot-com collapse in 2001. Japan’s annual growth rate — which had averaged 4 percent since 1973 — slowed to less than 1 percent, on average, from 1992 to 2003.

While obvious, it bears repeating that American economic policy must, first, account for fact that the last decade was already lost for everyday Americans, and, second, do everything to avoid another one. The economic, social, and political consequences of back-to-back lost decades would be catastrophic, and such a scenario is a legitimate possibility. 

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