“It is the economy, stupid”, Bill Clinton memorably said when asked what matters to people while choosing their President. The economy was also supposed to be the principal issue in the US elections this year. But what is ‘the economy’ and why does the economy matter to people? Many economists would judge the health of the US economy principally by the size of its fiscal deficit, its trade balance, and the rate of growth of GDP. The US economy has been doing very poorly on these counts. (See the box alongside with key numbers on the US economy). Indeed, if the US’ trading partners, especially China and Japan, did not keep investing in it, the US economy would be broke. Therefore economists are rightly alarmed and want political leaders to fix these macro-economic problems.
But to the majority of citizens, it is jobs that matter. They want secure employment and steady incomes. For them anecdotal evidence of job losses amongst their acquaintances (and employment numbers), are the most important indicators of the condition of their nation’s economy. They want a leader who understands this. Therefore both candidates in the election talked about what they had done in their varied careers to create jobs—and what the other had done to destroy them. While they tried to convince people’s minds with numbers, both also tried to reach people’s hearts with anecdotes—an ability that Bill Clinton has par excellence, and showed again in this campaign. What Clinton, the heart-string (and vote) puller, had not revealed earlier but knew very well was, “The economy is not the numbers, stupid: it is the people.”
The problem with good macro-economic policies is that while they are good for the long run, they can create immediate pain. Budgets must be balanced. However budget balancing by reducing government expenditures can throw people out of work and also reduce their medical and other social benefits. And balancing the budget by increasing taxes depletes wallets too. Similarly, while everyone is expected to be a winner with open markets in the long run, there will be winners and losers in the short run when job opportunities shift between countries along with their development and growth.
As much as jobs, the question of fairness also weighs on people’s minds. Who bears more pain and who gets bailed out when times are tough? Austerity programs during economic down-turns require reduction of social security costs to balance budgets just when bread-earners in families are losing jobs. Often, at the same time, to grow the economy again, an economic prescription is to give more tax incentives to capitalists to induce them to invest. Thus those who already have less get lesser and those who already have more are given even more in the name of good macro-economic management.
Ronald Reagan’s fixes for the US economy were to stamp out unions, reduce the role of Government in the economy, and let the free market find solutions. The economy grew: though, as longer term historical comparisons now reveal, less than it had in earlier eras. At the same time those reforms created another structural weakness in the economy, that of rising inequality. Since the 1970s, most of the gains of economic growth have gone to the richest 10% and amongst them, to the very richest 1% of the people. The bottom10% has become relatively much poorer. Robert Reich writes in Supercapitalism: The Transformation of Business, Democracy, and Everyday Life that something must be structurally wrong in the economy when the wealth of only two persons, Bill Gates and Warren Buffet, is equal to the wealth of the 100 million poorest Americans. He says both are his friends and have earned their wealth honestly. He worries that there must be something wrong with a system that can produce such wildly unequal outcomes.
Egregious inequality is morally repugnant to some, while their opponents label their repugnance as dangerous socialist tendencies that will sap animal spirits in the economy. An increasing body of economic evidence, marshaled by Richard Wilkinson and Kate Picket in The Spirit Level: Why More Equal Societies Almost Always Do Better and by Joseph Stieglitz in The Price of Inequality: How Today’s Divided Society Endangers Our Future, shows that inequality impedes economic growth. But this evidence too is dismissed by other economists who viscerally believe that private is good and government is bad.
Though Obama won easily with more Electoral College votes, the popular vote was evenly divided between the two candidates. President Obama, in his acceptance speech, called on Americans to unite as one to build their country. This is much easier said than done, as he well knows, because the divisions amongst Americans are not simply political but ideological too. There seems to be no rational way to reconcile pro-abortionists with pro-life advocates, gun lovers with their opponents, and Right-wing ‘government is the problem’ followers of Reagan with those labeled ‘socialist’ because they say ‘we need more government for the people’.
To unite, people must listen and seek to understand others’ points of view. The shallowness of public discourse has become the Achilles Heel of 21st century American democracy (and is becoming a problem in India too). The explosion of channels of information, with the internet, social media, and competing news channels, inundates citizens 24x7 with information and opinions. What shall a citizen pay attention to? She cannot afford to stay too long with any source because she will miss another. Society is suffering an acute ‘attention deficit disorder’. Therefore broadcasters present information in shrill, brief bits to get attention. And even then there is too much. So citizens choose some channels to see, some tweets to follow, and some media to read whose ideological leanings they are aligned with. Thus they get locked into their intellectually and ideologically gated communities, shutting out other evidence and views.
Political leaders perforce have to use these same channels to reach people. So they tweet too, reacting to the event of the moment in word-bites and shrill debates that are entertaining but hardly edifying. The possibilities and limitations, and costs, of modern communication formats are challenges for leaders. Therefore they feel compelled to spend more on communications than their opponents, to stand on higher mountains for their sermons to be heard above the noise, which is the principal reason for the escalating costs of US elections, with as much as $ 6 billion spent in the recent Presidential elections.
In the ultimate analysis, it is not only how much a politician spends that will determine what people are inspired by. They need a message that touches their hearts. The Founding Fathers of the US offered such a vision to unite a nation, and Gandhi too united Indians with a vision which inspired almost everyone. A shared vision of the good society it wants to be and that citizens will unite and strive for, is required to break the US (and India too) out of the political arguments of credit and blame, and the policy log-jams, both societies and economies are stuck in. This is the leadership task Obama has yet to complete to fix the US economy in his second term.