The Numbers Behind President Obama’s It-Could-Have-Been-Worse Midterm Message

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Most American politics is transactional. Politicians offer tax cuts, benefit increases and all kinds of other things–a new road, the right to carry a concealed handgun, etc.–in exchange for your vote. The assumption is that you are rational; you will do what you believe is in your interest. Re-election campaigns tend to serve as referendums on how well the transaction has gone. If voters feel they have benefited, politicians tend to head back to Washington. If voters feel short changed, a new crop comes to town.

This dynamic explains, in large part, why President Obama and the Democrats face such a tough time in the coming elections. No one would argue that the last two years have left the great bulk of Americans feeling more prosperous, significantly more secure or more confident in the political process. So what is the message of Obama and his Democratic peers? It could have been worse, much worse.

“I know that sometimes people don’t remember how bad it was and how bad it could have been,” Obama told a rally in Racine, Wis., last month. In other words, the thing of value that Obama is saying he provided to voters was preventing a negative. Instead of giving you a thing, he has prevented an un-thing. This is, for obvious reasons, not an ideal message, largely because it is based on an unknowable. How bad could it have been? Your guess is as good as mine.

But some people’s guesses would be far better than both of ours. In a new paper, two well-respected economists, Alan Binder and Mark Zandi, try to estimate exactly how much worse the economic crisis would have been without various government interventions. They find that “government’s total policy response” prevented the nation from lapsing into a new Great Depression, preventing an additional drop of 6.5 percent to GDP, the loss of another 8.5 million jobs and a nation that would be experiencing deflation, a scary financial spiral in which the best thing to do with your money would be to stuff it in a mattress.

That “total policy” includes the response of the Federal Reserve and both the Bush and the Obama Administrations–TARP, the stimulus, the bank stress tests, the auto industry takeover and the Fed’s dramatic increase in the money supply, among other actions. Binder and Zandi do a second analysis that finds the stimulus alone had a “very substantial” impact, by rising GDP about 2 percent and adding 2.7 million jobs. That is in line with most of the other outstanding analysis.

Politically, these estimations are unlikely to matter much. The government programs all remain very unpopular. People don’t feel they have benefited even as they have. Which raises another issue with the transactional nature of our political process. It doesn’t work like a candy store in which you hand over a concrete thing of value (money) for a concrete thing of value (candy). More often than not, people are offering their vote for something intangible, like “hope,” for instance. As long as Americans perceive that the Obama administration’s response has not helped them, that may be all that matters.