It's the Economy. Again.
“The economy, stupid.” — James Carville, 1992
I recently met an old high school friend, Ed, who was in Washington for the Desert Storm memorial dedication. It reminded me of an enduring political lesson: Americans may celebrate victories overseas, but elections are often decided much closer to home—at the kitchen table and the grocery store.
In 1992, George H. W. Bush had presided over the end of the Cold War and victory in the Persian Gulf. His approval ratings had soared. Yet none of it saved his presidency when Americans became dissatisfied with the economy at home.
Thirty-four years later, we're approaching another election, and Americans are once again being told how well—or how poorly—the economy is performing. The curious thing is that both arguments can be supported by statistics.
The stock market can reach record highs while families struggle to buy homes. Corporate earnings can grow while retirees wonder why groceries cost so much.
Inflation is a particularly good example. When inflation falls from 8% to 3%, economists quite reasonably celebrate the improvement. Prices are rising more slowly. That's good news. But a family whose grocery bill rose from $100 to $125 isn't celebrating. The bill hasn't gone back to $100. It's simply increasing at a slower pace.
Try explaining that distinction to someone standing at the checkout counter.
Also, investors and voters look at the economy differently. Most investors are concerned with future earnings, interest rates, and economic growth. Most voters are concerned with what has already happened to their purchasing power and standard of living.
Markets have often been volatile during midterm election years and have performed more strongly afterward. But averages don't pay the bills, and historical patterns are no substitute for understanding what you own and what you paid for it.
The election matters. Tax policy, regulation, government spending, and trade all have consequences. But neither party can legislate away the mathematics of an overpriced investment.
On November 3, Americans will decide who represents them in Washington. The following morning, politicians will explain what the results mean for the country.
Meanwhile, a family will walk into the grocery store, look at the receipt, and wonder what happened to their money.
It's the economy. Again.