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COOK REPORT

Democrats' Biggest Challenge

The party's fortunes this November are inextricably linked to the economy.

The pain and hardship experienced by Americans weathering the longest economic downturn since the Great Depression undoubtedly muted last weekend's Independence Day celebrations. Unemployment and underemployment are weighing heavily on people, as are worries about depleted savings for retirement and education and anxieties about their future and their children's future.

Early positive signs -- "green shoots," in economic parlance -- turned out to be premature, and it now looks more likely that the U.S. economy is in for an excruciatingly slow return to normalcy. Here's hoping that the most recent batch of bad economic news is just a soft patch, a typical occurrence in frustratingly long recoveries, and not an indication that economic growth is so weak that we may be sliding back into recession.

 

Though no one is content with these tough economic times, Democrats have the most to lose politically if things don't turn around soon. Democratic fortunes this November are inextricably linked to the economy. When one party controls government, voters view the midterm elections more as a referendum on the party in power than as a choice between candidates. Any notion to the contrary is wishful thinking, or even fantasy.

Many Americans may have misgivings about, or even oppose, the new health care reform law, cap-and-trade climate-change proposals, or other items on the Democratic legislative agenda, but they worry most about the faltering economy. It presents Democrats with their biggest challenge.

The prolonged economic drought exposes the shortcomings of the stimulus package and the decision to make health reform the primary focus of the first year of unified Democratic government. Once Democrats gained control of the White House and Congress, the stimulus package became their first opportunity to fund pet projects that had languished under a Republican president and GOP Congresses.

 

Much of the spending was certainly worthwhile, but some of it didn't give the country the most bang for the buck in terms of creating and saving jobs. An emergency spending package is supposed to jump-start the economy, not address long-term societal objectives. Medical research, for example, is great, but it isn't a particularly efficient form of economic stimulus.

Though no one is content with these tough economic times, Democrats have the most to lose politically if things don't turn around soon.

Unfortunately, there was enough extraneous spending to effectively discredit the entire package in the minds of about half the voters, according to a recent National Public Radio survey. The poll of 70 competitive congressional districts, conducted by Democrat Stan Greenberg and Republican Glen Bolger, made this point abundantly clear: The feeling among voters that the stimulus package was flawed and ineffective, combined with an almost unprecedented fear about budget deficits and debt, has depleted public support for doing more to boost the economy now, however badly it is needed.

The July survey of 45 top economists by Blue Chip Economic Indicators shows a consensus forecast of unemployment remaining at 9.7 percent for the just-completed second quarter of this year, the same as the first quarter, and dropping just a tenth of a point to 9.6 percent for the third quarter and another tenth for the fourth quarter. Those projections must be demoralizing for Democrats, who need much more progress on the job front than that. For those looking beyond the midterms, the forecast for unemployment in 2011 is 9.1 percent.

 

Real gross domestic product declined by 6.4 percent in the first quarter of 2009 and by 0.7 percent in the second quarter, then grew by 2.2 percent and 5.6 percent in the third and fourth quarters, respectively, when the stimulus package kicked in. As the spending peaked and began to decline, GDP growth slowed to 2.7 percent in the first quarter of this year. The Blue Chip consensus forecast is for 3.2 percent growth in the second quarter, 2.7 percent in the third, and 2.8 percent in the fourth, levels of growth insufficient to create enough jobs to reduce unemployment significantly. Almost 70 percent of the economists surveyed have revised their GDP forecasts downward for the second half of this year.

That's not the direction that Democrats need the economy to go.

This article appears in the July 10, 2010 edition of National Journal Magazine.

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