Abacus: The Economy And Its Effect On Midterm Elections

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The economy: an ambiguity, even to the politicians that tout figures to represent it. Nothing seems to reassure voters and campaigners alike than a few solid numbers that either prove politician’s capabilities of managing the nation or to prove why they are needed to fix it. Alas, the objective and profound art of economics is a tool for political means. Lucky for you, there are still some of us who care about seeing things as they truly are.

A generic fact: the economy is actually doing pretty well right now. However, if your memory stretches back to a decade ago, perhaps you can piece together that “pretty well” can turn hellish overnight. That aside, looking at staple measurements can show that the economy is returning back to its normalized state, leading to debates on whether the Fed should consider increasing interest rates. If we’re talking about the economy, I have to bring out some numbers.

Currently, unemployment is at an eighteen-year low at a rate of 3.9 percent. 201,000 new jobs were created, particularly in the professional and business services, healthcare, wholesale trade, transportation and warehousing, and mining industries, according to the Bureau of Labor Statistics. Inflation is near 2.9 percent, below the 3 percent expected figure but still at a six-year high. Gross Domestic Product during Q2 of this year stood at 4.2 percent. According to the Bureau of Labor Statistics, productivity increased 2.9 percent in Q2 and average hourly earnings increased by 2.9 percent. One of the quickest and far-reaching ‘temperature checks’ for the economy can be by checking the state of the real estate market; not too long ago I wrote about a tight housing market. It was a “seller’s market,” with little wiggle room for buyers’ pockets. However, according to CNBC, the market has now shifted to a “buyer’s market” which means that buyers have more negotiating power in the economy. Looks like we’re reaching that “perfect balance” state, right?

Now the thing about this data is, that there are nuances to what sets, figures, and representations are used. For instance, the most predominantly used figure for unemployment is the U3 measure, that accounts for a limited set of individuals that are actively looking for work. This can paint a pretty picture for those who want to take credit for a “strong economy.” In this case, the Trump Administration has been using present-day figures to boast a strong administration with complete control of the economy. This, paired with tax cuts and tariffs on imports, creates the image of the ideal game plan for the U.S - in the short term.

Recently, in the lead up to the midterm elections (which are also being referred to as the Trump Referendum) the GOP has been speaking about implementing further tax cuts. The only issue is, such expansionary policies cannot possibly be funded efficiently. The Washington Post wrote that these second round of tax cuts could place a $2 trillion burden on the federal deficit for a decade. Imagine this is a candy shop, the tax cuts are lollipops and the people receiving these tax cuts are children. The shop owner wants the children to like their shop, as it will keep them around, so they keep giving the children lollipops. Sounds like a sweet deal for the children, until they bear tooth and stomach aches.

Furthermore, there is much skepticism on the actual effect of these tax cuts. Besides the argument that only the rich will benefit from such cuts, there has not been much wage growth in comparison to company profits after Trump’s first round of cuts. Frankly, tax cuts seemed worthwhile as businesses seemed to be inhibited by regulations and fears from the Great Recession. Freeing up their revenue for company and employee growth seemed to be progressive. According to the Wall Street Journal, Corporate Profits jumped 7.8 percent during Q1 2018. Wage growth, however, has been largely unchanged, according to the Bureau of Labor Statistics. This begs the question: are the tax cuts even worth it? Stagnant wages may have more to do with employers being afraid of another financial letdown. They may choose not to raise wages and salaries but rather to give big one-time bonuses and pay-offs, to decrease the possibility of needing to lower wages should the economy dwindle down.

The Trump administration seems to be pleased with their work on the trade war against China. On September 7, President Trump stated that another round of tariffs could be slapped on Chinese imported goods worth $267 billion. While Trump places the ball in China’s court, China is looking to the World Trade Organization to arrange sanctions on the United States. Now, some industries may actually benefit from this opportunity to develop their goods for the American consumer. However, with American companies like Harley Davidson looking to move their headquarters to Europe and burgeoning fears that the cost of the tariffs will be shifted onto the consumer, the long-term outlook is not all too sunny. In the process of a trade war, international relations can turn sour. China has strengthened its relationship with many nations placing the U.S. in a tricky situation should it choose to address the matters of diplomacy, not to mention that an unnatural barrier and obstacle in the economy never provides enough incentive for natural industrial development. Instead, had the current administration utilized the “funding” it has for tax cuts for industries that could use some development, perhaps our competitive strengths would have organically flourished.

The success of the economy also depends a lot on consumer sentiments. One thing that can factor into consumer sentiments is their political affiliation. After Trump’s election, the University of Michigan published a study showing how different political parties view the current economy.

Economic Sentiments by Political Affiliation

Economic Sentiments by Political Affiliation