It Was the Economy After All

November 25, 2004
ECONOMIC SCENE

By JEFF MADRICK

DESPITE all the talk that the presidential election turned on the issue of moral values, it turns out that economics did indeed matter, and mattered a lot.

Those households with incomes above $50,000 benefited most from President Bush's tax cuts, and they voted decisively for him. In fact, according to the surveys of voters leaving the polls, the higher the income, the more the support for Mr. Bush.

And those households with incomes below $50,000 generally voted for Senator John Kerry. The poorer the household, the more likely its members voted Democratic.

But the below-$50,000 group did not completely break Mr. Kerry's way. In particular, consider those households with incomes of $30,000 to $50,000 a year. In 1992 and 1996, Bill Clinton won this demographic slice. In 2000, Al Gore split it evenly with Mr. Bush, and that happened again with Mr. Kerry. Not counting minorities, Mr. Kerry probably lost the group by a substantial margin.

Yet these are the households most hurt by a changing economy, and they were once consistently Democratic, counting on the party's social policies to help keep them afloat as their incomes shrank. In 1979, the average hourly wage for a male high school graduate was $16.32 in 2003 dollars, according to the latest edition of "The State of Working America," published every two years by the Economic Policy Institute. In 2003, the average wage was $15.07.

Moreover, only about one of three recent high school graduates now looking for work will receive health insurance on the job. In 1979, two out of three entry-level jobs for high school graduates provided health insurance.

Why couldn't Mr. Kerry capture more of these voters? Some political analysts say they may be lost to the Democratic Party. They turned against government and the Democrats in the late 1970's, when inflation was soaring under President Jimmy Carter. According to an analysis done in the early 1980's by Douglas A. Hibbs Jr., then a Harvard professor of government, nearly 80 percent of Americans had come to believe by April 1980 that government spending caused inflation.

But if economic frustration is at least partly behind this change, then a presidential campaign that emphasized strong policies for economic growth and reviving wages might bring them back.

Even if moral issues were the reason Mr. Kerry lost voters, economic frustration may well be behind the rise of some of these values. "It should not be surprising at all," said Richard Sennett, the New York University sociologist whose latest book is "Respect in a World of Inequality" (Norton, 2003). "When people are confronted with uncertain economic times, of course they would turn to cultural certainty."

Promising credible economic relief may have reduced anxieties about moral differences with the Democrats. But Mr. Kerry often diverted to other issues.

There is another reason to think a good economic plan might have overcome the moral questions. Moral values have been an issue in several recent elections. As two specialists on public opinion polls, Robert J. Blendon and John M. Benson, both of Harvard University, point out, surveys of voters leaving the polls that are conducted by The Los Angeles Times have included a question about moral values since 1992. Voters have consistently ranked moral values as either the first or the second most important reason for making their decision.

Yet a Democrat, Mr. Clinton, won in 1992 and 1996, and Mr. Gore won at least the popular vote in 2000. Mr. Kerry may not have had the same appeal on moral values, but Mr. Blendon and Mr. Benson say they also believe that a solid economic plan could have wooed more voters.

What is the source of the Democrats' inability to connect convincingly with their old base? The answer requires a little economic perspective. Despite the Clinton economic boom of the late 1990's, America's economic growth has been at historically low levels since the early 1970's. Had this country grown at the rates that were normal in America beginning in the late 1800's, revenue from federal taxes levied on that income growth would have been much higher than they are today, as economists like Martin Baily and Paul Krugman pointed out years ago.

A reasonable estimate is that the federal government would have had at least $300 billion more a year to spend, and probably more. With more revenue for social programs, Democrats could talk like real Democrats. Instead, they often try to offer social programs that appear costless, like Mr. Kerry's modest rules to limit the outsourcing of American jobs.

Mr. Kerry's first mistake was making the deficit the linchpin of his economic plan. He, like President Bush, would have cut the federal deficit in half in five years on the way to balancing the budget in 10 years. Even the credibility of his interesting but complex health care plan was undermined because balancing the budget would leave little, if any, room for expanding social policies.

Mr. Kerry's second error was to promise tax reductions to the middle class. More consistent with Mr. Kerry's position would have been to claim that the American government has too much work to do to cut taxes. Economists at the Economic Policy Institute point out that federal taxes as a proportion of the gross domestic product now come to just over 16 percent, the lowest level since the 1950's. Are Democrats bound to reduce them still more?

A third possibility for Mr. Kerry might have been to seek more federal revenue in indirect ways. He occasionally alluded to such possibilities, but never forcefully enough to make an impact. He could have argued more strongly to raise the salary ceiling on Social Security taxes, which is now about $88,000 a year. The ceiling on allowable home mortgage interest deductions could also be lowered.

President Bush claimed that the country could have tax cuts, pay for the war in Iraq, and have a good education and health care system at the same time. With more revenue to spend, Democrats need not have seemed like they, too, were trying to offer Americans a pipe dream. Mr. Kerry could have proposed a better health care plan. He could also have called for a stronger safety net for those who lose jobs because of globalization or technological change, including access to community colleges rather than just job training.

Economics did matter this time around. If Democrats think they lost simply on moral values, they are missing the message.


Jeff Madrick is the editor of Challenge Magazine, and he teaches at Cooper Union and New School University. His most recent book is "Why Economies Grow" (Basic Books/Century Foundation). E-mail: challenge@mesharpe.com.



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