by Brian Hamilton, Chairman of LiveSwitch and Founder of Sageworks (now Abrigo)
Over the past century, there has been a clear pattern in presidential elections: candidates tend to win when the economy is strong and lose when it is weak. While the extent of a president's influence on economic conditions is debatable, it is undeniable that people prioritize certain factors when evaluating the state of the economy.
What Matters in the Economy
When assessing the economy, there are four key aspects that most individuals care about:
- Employment: Are there ample job opportunities available?
- Affordability: If I need to finance a purchase, what will be the cost?
- Currency Value: Will the value of the dollar decrease significantly over time?
- Growth and Well-being: Do I perceive the economy as flourishing? Do I feel optimistic about its future?
To answer these questions, we often look to indicators such as the unemployment rate, interest rates, inflation levels, and real gross domestic product growth. These factors play a vital role in shaping our perception of the economy.
The Common-Sense Understanding
The good news is that most individuals have an inherent understanding of these common-sense factors that drive economic perceptions. Paradoxically, it is often economists and politicians who tend to complicate matters rather than clarify them.
To simplify the evaluation process, let's create a report card for the current state of the economy. Here are our assessments:
Unemployment Rate: The current unemployment rate stands at less than 4%, an impressively low figure in historical terms. This suggests that there are ample job opportunities available. Grade: A.
Interest Rates: Unfortunately, interest rates are currently excessively high. Mortgage rates, in particular, have seen a significant increase over the past two years and now average above 7%. Grade: D.
Inflation: Inflation had been a major concern since two years ago, but there has been a recent slowdown with the rate dropping to 3.7%. While there is still room for improvement, it is a positive trend. Grade: B-.
Economic Growth: The economy is currently experiencing a growth rate of approximately 2%. While this is not outstanding, it is not entirely disappointing either. Grade: C.
Depending on your criteria for evaluation, an overall responsible assessment of the economy would likely fall within the C+ to B- range.
What Lies Ahead for Bidenomics and the Election?
Differing Perspectives on the Economy
Predictably, President Biden is optimistic about the state of the economy, emphasizing its positive trajectory. On the other side of the aisle, Republicans paint a grim picture, asserting that things are far from satisfactory. During the recent Republican presidential debate, passionate voices were raised to decry today's economic policies. Entrepreneur Vivek Ramaswamy labeled them as "disastrous," while former Vice President Mike Pence asserted that "Bidenomics has failed." Adding to this chorus, Governor Ron DeSantis of Florida highlighted what he perceives as "our overall economic decline" under Biden. The hard truth is that the economy currently finds itself in a complex and ambiguous state – certainly far from neat and clean.
Historical Precedents: The Economy and Elections
Turning our attention to earlier times when the economy's condition added uncertainty to elections, we arrive at 1960 – the year John F. Kennedy campaigned on a platform targeting lower inflation. Although the economy at the time wasn't terrible, it certainly wasn't flawless either. Similarly, in 1984, Ronald Reagan secured a landslide victory over Walter Mondale. However, it's crucial to remember that just a year prior, the nation was immersed in a recession. This illustrates the immense impact a single year can have on political outcomes.
In 1991, Bill Clinton announced his run for president amid low odds for Democratic success. His competitor, George H.W. Bush, enjoyed high approval ratings. However, within the following year, the economy stumbled slightly (despite not being the dire "worst economy in 50 years" as Clinton claimed), and the rest becomes history. This serves as a poignant reminder that politicians often employ falsehoods while speaking – their lips may be moving, but lies may be the content delivered.
A Voting Public Focused on Present Matters
The sentiment of "What have you done for me lately?" resonates deeply with the voting public – and perhaps rightfully so. Ultimately, the bottom line is that it's anyone's guess as to how the economy will fare in the coming year and, consequently, what impact it will have on Biden's chances of re-election.
The Power of Discernment
Optimistically, the majority of people possess the ability to discern the reality of any given situation. It is this ability that will enable them to evaluate the true state of affairs and make informed decisions. Let us hope that as we navigate these uncertain times, this power of discernment will guide us towards a future defined by clarity, progress, and prosperity.
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