Why is Obama Winning?

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James Carville, Bill Clinton’s chief campaign strategistin 1992, famously expressed a bit of established insider wisdom about winningelections: “It’s the economy, stupid.” Incumbents win if the economic outlookis rosy, and are vulnerable – as George H. W. Bush was – when times are hard.Indeed, throughout Europe – in France,Greece, Ireland, Portugal,Spain, and the United Kingdom– governments have been turned out of office in the face of a crisis that theyhave seemed unable to address.

By this standard, President Barack Obama should now be in a hopelesssituation. According to United States Censusdata, householdincome fell in 2011 for the fourth consecutiveyear. Unemployment remains persistently high, despite the $787 billion stimuluspackage in 2009, and house prices, though recovering slowly, remain far belowtheir pre-2008 peak.

And yet Obama seems likely to be reelected in November. One reason is thatthere is no reliable way to render an instant judgment about economiceffectiveness, and the legacy that Obama inherited – coming to office in themiddle of a major economic and financial catastrophe – clearly matters.President George W. Bush and Prime Minister Gordon Brown are obviously moreresponsible for the financial crisis than are their successors, who have to clean up the mess.

Moreover, as Zhou Enlai memorablyresponded when Henry Kissinger asked him about the effects of the FrenchRevolution, “It is too early to tell” (though Zhou apparently thought he wasbeing asked about the consequences of the 1968 Paris student uprising). Tracing the preciseconsequences of policy measures or institutional reforms – and estimatingwhen they might “pay off” – is hopelesslycomplex. Much else is happening. Obama could not have known that a Europeancrisis would have a big impact on US banks, and he could not have done muchmore to get European leaders to solve their problems.

The long-term success of the economy, and its capacity to build wealth andjobs, depends on productivity gains, which in turn depend on technical andorganizational innovation. Governments cannot justconjure that up by waving a magic wand.

But governments can influence the development of productivity. Andthis is where legitimate debate begins, because immediate action to save jobsdoes not necessarily help.

The wrong kind of stimulus may get in the wayof future productivity growth by channeling workers into the wrong kind ofemployment (or keeping them there). Large-scale public projects, particularlywhen they are aimed simply at putting as many people as possible quickly backto work, will lead to a shortage of labor available for more productive jobs.

In the 1930’s, somegovernments tried to make themselves popular with large-scale public workprograms. John Maynard Keynes and his disciplespushed the idea that even apparently useless projects, such as pyramidconstruction in ancient Egypt, made sense. Keynes’s Cambridgedisciple, Joan Robinson, was particularly worried because Hitler seemed to havegrasped this point more quickly thandemocratic governments had. Hitler, she noted sarcastically,had solved Germany’s problemby “paintingthe Black Forest white and putting down linoleumin the Polish Corridor.”

In fact, increased spending, which the Keynesians saw simply as boosting aggregate demand, produced distortions. UnderHitler, the German economy in the 1930’sshifted to a lower-productivity mechanism in order to churnout armaments and shoddy manufactured goods, neither of which wouldhave any use in a market economy.

Such misallocation of resources was not just a menaceof the interwar period. The big pre-2008 construction boom in Spain did asmuch harm as subsequent high unemployment, because it encouraged a generationof young people to take high-paying, low-skill jobs in the building industry.

But simply permitting the crisis to continue is a terrible option. Asevere and long-lasting episode of large-scale unemployment is devastating, becauseit erodes an economy’s skill base, undermines human potential, and affrontshuman dignity.

Government policy should thus be subject to a longer-term test: Howeffectively is initiative being enabled and skills developed? But the answer tothat question is not why the pundits arecheering Obama. They are cheering because financial markets are cheering,following the Federal Reserve’s recent announcement of further stimulus.

Though the evidence that monetary stimulus produces increased investmentand a business upturn is patchy, its effectson financial markets and asset prices are very easy to document quickly. Assetprices create a large “wealth effect” thatdetermines how financially well off people feel. With many Americans anxiouslymonitoring the monthly performance of their private pension plans, the onlyeconomic statistic that matters is that theS&P 500 has returned to its pre-2008 level.

As a result, the lesson about the economy’s electoralsalience is being subtly reformulated. It is no longer the real state ofthe economy, but rather the perception of asset markets, that is crucial. Andthe perception can be far removed from reality, which means that the more theprevailing political wisdom assigns decisive electoral importance to theeconomy, the greater the temptation to view monetary policy’s impact on assetprices, and not on long-term growth, as crucial.

In America,the Federal Reserve is bound to become much more politicized as a result.Republicans will blame their defeat in November on the Fed’s monetary stimulus(if not on the ineffectiveness of Mitt Romney’s blunder-filledcampaign).

Meanwhile, in Europe, many nationalleaders, looking at Obama and the Fed, may conclude that they would do betterwith more direct control over the central bank. Given the difficulty ofestablishing such control over the European Central Bank, the euro’s next greatchallenge may be growing sentiment in favor of a return to national currencies.

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关键词：Winning Obama ning Ama BAM expressed campaign economic insider office

James Carville, Bill Clinton’s chief campaign strategist in 1992, famously expressed a bit ofestablished insider wisdom about winning elections: “It’s the economy, stupid.”Incumbents win if the economic outlook is rosy, and are vulnerable – as GeorgeH. W. Bush was – when times are hard.By this standard, President Barack Obama should now bein a hopeless situation。（traditional view about the election）
And yet Obama seems likely to be reelected inNovember. One reason is that there is no reliable way to render an instantjudgment about economic effectiveness, and the legacy that Obama inherited clearly matters.

The long-term success of the economy, and its capacity to build wealth andjobs, depends on productivity gains, which in turn depend on technical andorganizational innovation. Governments cannot justconjure that up by waving a magic wand.But governments can influence the development of productivity. Andthis is where legitimate debate begins, because immediate action to save jobsdoes not necessarily help.The wrong kind of stimulus mayget in the way of future productivity growth by channeling workers intothe wrong kind of employment (or keeping them there).In fact, increased spending, which the Keynesians sawsimply as boosting aggregate demand,produced distortions.misallocation of resources was not just a menace of the interwar period. The big pre-2008construction boom in Spaindid as much harm as subsequent high unemployment, because it encouraged ageneration of young people to take high-paying, low-skill jobs in the buildingindustry。

But simply permitting the crisis to continue is a terrible option. Asevere and long-lasting episode of large-scale unemployment is devastating, becauseit erodes an economy’s skill base, undermines human potential, and affronts human dignity.(government interference may be wrong,but doing nothing is devastating)

Government policy should thus be subject to alonger-term test: How effectively is initiative being enabled and skillsdeveloped?But the answer to that question is not why the pundits are cheering Obama. They are cheeringbecause financial markets are cheering, following the Federal Reserve’s recentannouncement of further stimulus.Asset prices create a large “wealtheffect” that determines how financially well off people feel

As a result, the lesson about the economy’s electoral salience is being subtly reformulated. It is no longer the real state ofthe economy, but rather the perception of asset markets, that is crucial. Andthe perception can be far removed from reality, which means that the more theprevailing political wisdom assigns decisive electoral importance to theeconomy, the greater the temptation to view monetary policy’s impact on assetprices, and not on long-term growth, as crucial(what's the real standard of people to judge government's policy? wealth effect , people's perception of asset markets rather than the real economy)