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Democrats' Double Trouble Democrats' Double Trouble

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OFF TO THE RACES

Democrats' Double Trouble

Which Is More Likely To Happen For Democrats: A Health Care Bill Passes That Voters Like, Or Unemployment Improves Dramatically?

When Democrats make the case for their fortunes rebounding in time for the November midterm elections, almost invariably their hopes are built around a rather significant improvement in the unemployment situation or the passage of major health care reform legislation that becomes popular with voters, or both.

This week, the House is slated to vote up or down on the Senate's health care bill. Presumably, the vote would not have been scheduled unless Speaker Nancy Pelosi and other top Democrats in the House were convinced they had or would have sufficient support to pass it. With Democrats having consistently lost the health care messaging battles over the last year, it's far from clear that if they do pass it, voters will suddenly have a change of heart between now and Nov. 2 and decide that it was a good thing.

 

But if given the choice of trying desperately to do something that voters don't like and failing, or just doing something that voters don't want, it is probably better to appear competent and out of step than incompetent and out of step. Assuming they get something through, Democrats will have to hope that voters change their minds. We will know soon enough on health care reform.

Privately, some business leaders and bankers say that beyond small-business owners' concerns about the direction the economy and the durability of this recession, political concerns have crept in.

The unemployment argument that pops up so frequently is even less convincing. In the Economic Report of the President, released last month, the President's Council of Economic Advisers predicted that the average unemployment rate for this year would be 10 percent, while the official Labor Department unemployment numbers were 9.7 percent for both January and February.

 

The March Blue Chip Economic Indicators survey of 51 top economists predicted an unemployment rate of 9.8 percent for the year, specifically 9.8 percent for the third quarter and 9.6 percent for the fourth quarter. In that Blue Chip survey, the most optimistic forecast of the 51 economists surveyed was 9.5 percent, and the most pessimistic was 10.1 percent, so there really isn't much variance in the projections.

In short, the top economists in the country, both in and out of the administration, do not believe there will be any material improvement in the unemployment rate this year.

Not since the Great Depression has this country seen a solid year of unemployment at even 9 percent, let alone a figure not dropping below 9.5 percent during the 12 months leading in.

Part of the challenge is that even though the consensus forecast for change in real gross domestic product for the year is 3.1 percent, this recovery doesn't seem to be creating many jobs, particularly in the small-business sector, which has traditionally been the source of job creation.

 

Economists tell us part of the reason is a lack of access to capital. While big business has access to various forms of financing, these days small business is having a very hard time getting financing -- and thus has a smaller safety net and less maneuverability in these tough economic times.

But more than access to capital, business is doing everything it can to boost productivity, using technology and smarter management to get more work from fewer people, paying more overtime if necessary and even bringing in temporary workers, all in an effort to not take on the obligations that come with hiring full-time workers.

That lack of a safety net, for small-business owners, makes them particularly skittish about the potential for either a double-dip recession or an L-shaped leveling-off with insufficient growth for a sustained period of time. A Wall Street Journal article on this subject last week quoted David Altig, head of research for the Federal Reserve Bank of Atlanta, saying that while small business accounted for just 9 percent of the job losses in the 2001 recession, in the current one, 45 percent of all job losses have come from small business. These small-business owners have felt the brunt of this recession and are exceedingly reluctant to bring on new people during such uncertainty.

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But privately, some business leaders and bankers say that beyond small-business owners' concerns about the direction the economy and the durability of this recession, political concerns have crept in. There seems to be a profound mistrust of the Obama administration and the Democratic Congress, a sense that, at best, this president and Congress lack an understanding of small business. But among many, it goes much further than mistrust. They see Democrats in Washington as hostile forces that could implement policies that would effectively destroy their businesses.

While I don't think that is true -- and Democrats are quick to say it's important to get health care costs under control, with their unsustainably high increases jeopardizing the ability of almost any business to make money -- a lot of these business owners simply don't see it that way, or they choose not to see it that way.

In short, even inadvertently, Democrats have made their own job harder by alienating the one group of people they want to be hiring and turning the unemployment rate around.

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