US Feature: Six Months to Go --- Why a "Re-Recession" Might Put Obama Back in Office

This week marked the six-month countdown to the election for the next President of the United States, and it would take a brave man or woman to place a wager on the eventual outcome. Neither candidate has yet to promote policies that seem destined to draw the support of the crucial Independent swing vote. Just as importantly, and rather more unusually, both candidates are struggling to stoke the enthusiasm of their core supporters.

Mitt Romney's inability to attract conservatives to his cause, or the lack of a credibly conservative cause to be more accurate, was well-documented in his primary campaign to become the Republican candidate. President Obama has faced similar discontent from his progressive allies, who regard him as a disappointment for not pushing hard enough to implement the change he promised in his 2008 campaign.

There are two related consequences of this lack of fervour for both candidates amongst their party faithful. One is that this election will be fought almost exclusively on negative grounds, with a deluge of attack ads designed to remind the base support of each party, "Hey, I might not be your favourite politician. But at least I'm better than the other guy."

Demonisation of your opponent in politics is nothing new, but this election, because of the rise of Super PACs, will see more money spent than ever before on campaign advertising. As importantly, with the rise of social media, these advertisements will be everywhere to anyone with a computer or phone can turn.

The second consequence follows. Both candidates will try to combat the perception that they are "negative" by promoting a message of a brighter future for the American economy. Obama will hammer away at his mantra that everyone must pay a "fair share" to reduce the deficit. Romney will hold to Republican orthodoxy that only tax cuts will stimulate the investment needed for a growing economy. Those two positions are now set in stone.

As the American economy currently stands, with weak growth predicted for the near future, this will be a close election with neither candidate displaying a vision that will sweep them to victory. There is nothing novel enough in either candidate's ideas to overcome a voter's natural inclination for simpler choices such as "for" or "against" the Bush-era tax cuts.

But what if the economy changes enough between now and November to shift the fortunes of the two candidates?

Despite the flutters of this week, in November not many people will cast their ballots based on May's headline news, such as whether President Obama has over-celebrated the anniversary of the death of Osama Bin Laden. Instead, their immediate concern will be their personal circumstances.

In that light, let's note a warning by Jeffrey Snider, "Europe Is in Recession, The US Isn't Far Behind". Much of the article is a technical explanation of why bailing out the banks, instead of boosting demand in the real economy, was a mistake, but Snider makes a strong case for his concluding argument:

Europe is already in re-recession, one that will, in my opinion, be worse than predicted by economic professionals (admittedly a low bar). The U.S. is not that far ahead, and by summer I have little doubt we will again, for the third time in as many years, be joining Europe in the re-recession chatter.

The logical initial reaction to that prediction is that Obama is doomed to lose the election in a slumping economy. But, paradoxically, an economy that is threatening to go back into recession may more opportunity for the President than the current insipid growth in GDP and employment.

If the economy does enter a re-recession, after the recent, brief optimism over a rebound in growth, the President can argue that the slump is due to the end of the effects of his stimulus package. The spurt in growth, he will maintain, was a result of government spending on investments. The subsequent dip is the result of cuts in spending forced upon him by Republicans in the Congress.

That argument is never going to convince Republicans to vote for Obama, but if he campaigns on a promise to increase government spending on essential infrastructure and programmes to help low-income and middle-class families, Obama's supporters from 2008 will come out for him in droves. And while this might not seem an approach to attract Independent voters, Obama has this advantage: the conservative belief that cuts and austerity can promote economic growth has failed spectacularly in Europe.

As Paul Krugman recently wrote in The New York Times:

This was the month the confidence fairy died. For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.

What Krugman calls the “confidence fairy" the belief that cutting government spending and business taxes alone can promote growth, the BBC's Paul Mason has likened to Fantasy Island. In an even more harrowing warning of the roblems caused by the politics of austerity, Mason sees a danger of traditional centre-oriented politics disintegrating into support for extremist positions, as in the 1930s. Mason notes this weekend's elections in Greece:

In the last opinion poll, the combined ratings of the two main parties, socialist and conservative, was 36%; the combined poll ratings of the Communists, Eurocommunists, Trotskyists and Greens was 37%. A new, more effective nationalist right-wing grouping has been formed, and is polling 11% (the old right party LAOS is languishing at 3% after it eviscerated itself by supporting the austerity plan). And Greeks will soon get to see a 45-minute primetime interview with the candidate of Golden Dawn, whose flag looks like [the Nazi swastika in 1930s Germany].

This is not to suggest that a similar splintering of political allegiances will occur in the US, but to highlight what may be the economic story as the Presidential election nears. Social chaos and breakdown in Europe, caused by an adherence to the Fantasy Island politics of austerity by European governments, and a corresponding slip into another US recession: this could be the catalyst Obama needs to convince Independents that his pro-growth economic policies, and not the austerity politics of Mitt Romney, are the best hope for a brighter economic future for America.