The result of the election lies in the wallets of U.S. voters

Press, 14 September 1988, Page 20

The result of the election lies in the wallets of U.S. voters

The “Economist” examines a sure guide to the Presidential race

TIE UP the sailing boat, pack away the golf clubs, send the children off to school. With the passing of the Labour Day holiday on September 5, America’s collective mind came back into focus after the summer. What people tell opinion pollsters starts to make sense, and what politicians tell each other starts to matter. The campaign, in other words, has begun in earnest. So far, the presidential campaign has consisted mainly of charges and counter-charges of a trivial kind, attempts by each side to impugn the patriotism or judgment of the other. Now, however, the candidates must find a way to answer what they know will be the main question in the voters’ minds. It is the one asked with monotonous regularity by Mr Ronald Reagan in 1980: are you better off now than you were four years ago?

The answer then was no. The answer now, for the majority of voters, is yes. Mr George Bush would like to leave it at that. Mr Michael Dukakis hopes that enough people will say “Yes, but... ” and go on to a litany of complaints about the injustice and discomfort of life in the 1980 s. Yes, but I am scared about the deficit. Yes, but we’re in debt to foreigners. Yes, but my wife has to work as well as me so we can pay the bills. Yes, but we cannot afford to send the kids to college. Yes, but the poor are poorer. American presidential elections have been coming round with such regularity for so long that reading the omens to predict their outcomes has grown into a regular pastime. Such tea-leaf reading means little, as illustrated by the fact that two absurdly simple rules predict the outcome with what seems like astonishing accuracy: the taller man wins (Mr Gerald Ford was a rare exception), or the .Republicans win if the American League wins baseball’s World Series (1980 was the first exception since 1948). Nonetheless, there are some slightly more plausible formulas that work with what Mr Roger Brinner of Data Resources calls "shocking” accuracy. His own model predicts the incumbent party’s share of the vote to within an average of one percentage point for each of the past six elections. It is a simple equation that subtracts a point for every point of inflation, adds a point and a half for every point of real growth in the previous year and awards the incumbent party a bonus of six and a half points. Mr Brinner admits that the electorate is more sophisticated than that, but he says adding any other factors simply makes the formula less accurate. Basic economic factors, in other words, loom surprisingly large in voters’ minds. In March the formula gave Mr Bush 53 per cent of the vote.

Today, it gives him 55 per cent. There is no question that the economy’s health is Mr Bush’s biggest asset. G.N.P. is growing at an annual rate of 3.3 per cent; the expansion, now 69 months old, has lasted longer than any other since the second world war. Unemployment, at 5.4 per cent, is lower than it has been for 14 years. Factories are working at fuller capacity than at any time this decade.

The trade deficit, though horrific by the standards of the 19705, is smaller than last year’s. Even the rising inflation rate, which is probably heading for 5 per cent, looks less frightening now there are signs of the economy slowing down (the index of leading economic indicators fell by 0.8 per cent in July). Besides, rising prices can for a while be blamed mainly on the drought.

One of the few clouds on the horizon is the upward course of interest rates. The discount rate reached a low point of 5.5 per cent in 1986, but has since been nudged up twice by the Federal Reserve to 6.5 per cent. The latest rise, on August 9, was prompted by Mr Alan Greenspan’s fears about inflation. The markets would probably like still another upward nudge, the Bush campaign would not. American incumbents cannot,

like their British counterparts, engineer a boom for the election, but they can try, to talk the Federal Reserve into co-opera-tion. Voters notice rising interest rates; the number of people behind on their mortgage payments, which had been falling, rose again in the second quarter of 1988.

Mr Dukakis cannot quarrel with the figures. Doom-monger-ing, a la Mondale, will lose him the election. Generous promises of new spending leave him open to a charge of fiscal profligacy and tax raising. Nor can he hope for a change in the trends. It is almost too late for a hiccough in the economy to affect the two things voters seem most to care about: whether the unemployment rate is rising or falling, and whether real disposable incomes are rising or falling. Instead, he must try to find holes in the economy that he can promise to mend.

The obvious one is the budget deficit and the nation’s growing foreign debt. The Government, he said this week, “is borrowing billions and billions of dollars from foreign banks to finance our debt. The cost of capital is twice what it is in Japan.” He described the latest round of interest-rate rises as "the legacy of eight years — borrow and spend, borrow and spend —

another Republican tax on middle America.” But the truth is, interest rates aside, few voters feel any direct pain from the deficit. Although as consumers they expect a reckoning, as voters they never seem to worry about tomorrow. Last year’s stockmarket crash has faded in their minds, and Mr Reagan’s claims have got through to them: about half the people polled tell pollsters that they believe Congress is to blame for the budget deficit. The trade deficit did worry people, but now it is falling a bit there is little to be got from Japan-bashing, a sport that in any case neither candidate relishes. What is more, Mr Dukakis refuses to put a credible deficitreduction plan on the table (if he has one), lest it be torn to shreds as Mr Bush’s “flexible freeze” has been. Mr Dukakis’s second hope is to portray the jobs created in the Reagan years as second-class jobs, paying poor wages in services not high-paying manufacturing jobs. Hence his mantra “good jobs at good wages.” True, the man who has swapped a $2O-an-hour job in manufacturing for a $lO-an-hour job elsewhere is less than thrilled with the boom of the 1980 s. But it is hard to find evidence that suggests such tran-

sitions are the rule rather than the exception. Mr Bush claims that more than half the net new jobs created in the past five years pay more tha« $20,000 a year. Real personal disposable income is growing at about 3 per cent a year. Mr Dukakis also believes he can win votes by drawing attention to how pay has not kept pace with inflation. The purchasing power of-the average hourly wage has barely changed since 1973. Pay has risen more slowly than the inflation rate for most of the decade. Men are working longer hours and more of their wives are working. Although median family income is rising (in 1987 it reached $30,850), the extra income disappears down a black hole of new costs. Just as self-sufficient farmers found their costs growing as fast as their incomes when they left the land in the nineteenth century, so families now find costs growing as they stop finding time to cook their own meals or look after their own children. The American voter, according to those who observe him closely, flirts with other issues early in the campaign, but always, in the end, comes back to his wallet as election day approaches. Mr Dukakis’s best hope lies in persuading him that it is not as full as it feels.