The U.S. economy has been recovering, agonizingly slowly, for three years. Voters want desperately to see faster growth, but they’re adjusting to the slow lane, and they increasingly believe that Washington can’t help. This is the simple reality of life after the Great Recession. But Mitt Romney hasn’t adapted to it, and that’s why President Obama appears on track to become the first president in 70 years to win reelection with unemployment over 8 percent.
Five weeks before the election, Obama has built a small but seemingly durable lead in national polls, and an even larger one in critical swing states such as Ohio and Virginia. Romney could still overtake him with a stellar debate performance or the help of an outside shock to the economy, such as renewed chaos in Europe or war in the Middle East. But at this juncture, pollsters and political analysts across the ideological spectrum agree: Obama is ahead, and he is defying historical expectations of an incumbent’s performance in a weak economy.
“What we’re seeing is the president over-performing the fundamentals of the economy,” says Tammy Frisby, a Stanford University political scientist who has advised the Romney campaign. On the most important issue of the election, she adds, Romney “clearly has not struck the right chord…. It’s not working so far.”
Obama’s fortunes are rooted in voters’ dimming expectations for the economy and the federal government, and their apparent conclusion that the country’s current misery is not entirely the president’s fault. Polls show Americans appear resigned to an economic future only mildly better than the status quo. Their disgust with Washington has left them skeptical that anyone can lead the country out of the slog. “Voters are economically stressed and have been bludgeoned into numbness,” said GOP consultant Rob Collins, who serves on the board of the powerful conservative advocacy group Crossroads GPS.
That changing economic calculation leaps from voters’ tongues on a weekday morning at a Dunkin’ Donuts in the Northern Virginia battleground of Fairfax County. Mark Jacoby, a 39-year-old lawyer who lives in Clifton, says he doesn’t blame Obama exclusively for the sluggish economy. “I think it’s a combination of the president and the Congress not doing their jobs,” he says. “[George W.] Bush did give us a hangover with the two wars. It’s not like Obama started with a clean slate.”
John Vena, a 49-year-old lawyer, pauses for coffee before he takes his daughter, happily sipping chocolate milk, to school. “I blame Obama for not improving the economy the way he promised, but he did inherit a bad situation,” he says. “We may be in a place where there’s no solution. Maybe we have to get used to this slow, incremental growth.”
Further muddling the economic dynamic is the emerging evidence that Americans have lowered their expectations for growth—yet they remain eager to grasp at any indication that they are wrong. Voters see the economy, ever so slowly, improving. It’s a critical distinction. If things were getting worse, economists say (and even Obama campaign officials concede), the president would likely be losing. Instead, he appears to be benefiting from voters seeing slivers of good news where economic data suggest there are none to be found. Optimism is rising, improbably, among consumers, small businesses, and stock traders, with Democrats and (more crucially) a share of independents feeling better about the future than Republicans.
Romney and his campaign continue to insist that such optimism will fade before the November election, and the sheer weight of his middling economic record will sink Obama. While acknowledging the GOP ticket can’t depend entirely on the economy and must offer an appealing alternative, Romney’s team refuses to accept the possibility that voters are lowering their expectations. One top strategist compares the increased optimism surfacing in polls—despite evidence to the contrary—to a weather forecast that predicts a sunny day when it is raining.
“The new normal is the old dismal,” says Ed Gillespie, the former chairman of the Republican National Committee. “If you believe that 1.5 percent economic growth rates and chronic unemployment around 8 percent and flat wages are our lot in life and that’s acceptable, if that mentality takes root and is acceptable to a majority of Americans, President Obama could get reelected. But I don’t believe that’s where a majority of Americans will be on Election Day.”
Each passing day and each new poll brings further evidence that the Romney team has miscalculated. Obama has erased a once-formidable Romney lead on the question of who would handle the economy better as president; in some polls, the president has actually seized the advantage on that front. Economy-first independent voters are drifting Obama’s way. Voters increasingly say that the economy is on the right track.
Perhaps most concerning for Romney: Obama is winning a healthy share of votes from people who think he has steered the country off course. One out of four Obama supporters in the most recent Allstate/National Journal Heartland Monitor Poll said that the country was on the wrong track—but they’re voting for the president anyway. That’s what defying gravity looks like.
“On every basic economic factor, this should be a very, very tough election for Obama,” says Democratic strategist Joe Trippi, who has observed more than 20 focus groups of undecided voters this year. “People are reacting to this economic reality, and no one really knows how to get out of it. There’s a sense of resignation, there’s no alternative. The more they feel that way, the more secondary considerations like familiarity and likability and trust take hold.”
THE NEW FRAME
For proof of Americans’ unspoken resignation in the face of economic stagnation, look no further than a McDonald’s television commercial airing nationally this month. In it you will find, locked forever in cultural and economic amber, the new normal of dreams deferred and youthful aspirations temporarily shelved.
The commercial opens with “Will” sitting in what looks like a bike shop having lunch with his young and approachably hip friends. All is well until someone asks Will where he’s living, and he is instantly filled with failure-to-launch mortification. Before taking a panicked bite from his value-menu cheeseburger, Will recalls walking back into his second-floor bedroom (“the only place I could afford”), complete with bunk beds, and hearing his mother’s comically poignant welcome: “Just like you left it.”
Will cannot admit this to his french-fries-devouring friends. He looks at the burger and tells himself that the same price-conscious insight that led to this purchase can save him now. With a suave white lie he answers: “I found a great condo loft space.” He’s met with approving nods and coos of “No way!” and “Cool.”
Not exactly a cheeseburger in paradise.
There are few more revealing or more ubiquitous repositories of the American zeitgeist than a McDonald’s commercial. In 30 seconds, Will’s story, perhaps unwittingly, explains why Obama has so far defied both history and gravity. The Obama economy is so bleak, it’s become a fast-food punch line. And the cheap chuckles of recognition from voters who have grown accustomed to America’s new economic normal appear to be sparing the president from punishment at the ballot box.
In addition, frustration with Washington, unfavorably represented by the ideologically rigid House Republican majority and the disengaged Senate Democratic majority, has led voters to believe that no one can materially change their short-term economic future. In ways never before seen, voters exasperated by the debt-ceiling fiasco and fearful of the looming fiscal cliff now just want Washington to hurt them less than usual. The only living president who inspires economic nostalgia, Bill Clinton, hasn’t been on the ballot in 16 years. “Cynicism has seeped in the culture and psychology,” says Democratic strategist Chris Kofinis. “And people will stay in that safe place of cynicism until someone shocks them out of it.”
Academic models that predict election results based on economic variables have been suggesting for a while that Obama faced an uphill climb to reelection. Yale economist Ray Fair projects a narrow Obama loss based on his well-known forecasting model; the “Bread and Peace” model developed by economist Douglas Hibbs Jr. predicts a more substantial Obama defeat.
History shows that no president since World War II has won reelection with unemployment above 8 percent. The current rate of 8.1 percent would be even higher if not for the legions of Americans who have given up looking for work (368,000 from July to August alone). What’s more, the jobless rate has dropped only four-tenths of a percent since December, a sure sign of economic torpor.
Other indicators are just as bleak. Poverty is at near-record levels; median family wages have fallen; gas prices have tripled from recessionary lows; and the national debt has reached $16 trillion. No president in the modern era of economic record-keeping has inherited a recession and seen weaker gross domestic product growth than Obama.
The most important gauges of consumer demand remain depressed. Many Wall Street forecasters have scaled back their already low predictions for growth next year amid concerns that Congress won’t reach a budget deal before tumbling over the fiscal cliff of tax increases and spending cuts. What’s more, economists can find little data to suggest that the Obama economy is poised for a comeback.
“This is the most sluggish recovery of the postwar period, no question about it,” says Nariman Behravesh, chief economist for the financial analysis firm IHS. Americans, he adds, have begun to realize that emerging from a financial crisis is “kind of like coming out of a stroke. It’s a major process, and it takes time.”
HUNGRY FOR MOVEMENT
If voters have so lowered their expectations, how can they also still be hopeful? It’s easiest to explain it this way: Living in the U.S. and working in the sluggish economy over the last two years was like sitting in a lukewarm bath: The water wasn’t hot enough to be relaxing, but it wasn’t getting colder, either. Bathers got used to it. And every once in a while, the faucet dripped out a few scalding splashes that promised more comfort on the way.
The economy has grown, albeit at an uninspiring and historically behind-the-curve annual rate of 2 percent. About 150,000 additional workers per month have netted jobs. The private sector has replaced all the jobs it lost since Obama took office.
The recovery, however uninspiring, is a recovery. The economy isn’t contracting. Companies aren’t shedding more workers than they hire, and the unemployment rate isn’t rising.
Just as important, small rays of hope are appearing in sectors of the economy that voters notice most. Housing starts have steadily ticked up over the past 18 months. Home prices appear to have bottomed out nationwide around January and have been rising since. Foreclosures have slowed. In the past year, 1.3 million underwater homeowners who owed more than their homes were worth are now slightly above the surface. Small-business owners are reporting a mini-surge in plans to hire and invest, driven by rising hope that the economy is headed toward better days, according to the latest survey by the National Federation of Independent Business. Morgan Stanley has seen a big rise in its measure of corporate optimism. Consumer confidence rose for much of the past year, dipped in the spring, but then rose again in August, according to the University of Michigan. The unemployment rate for college graduates in August was just 4.1 percent; 6.6 percent for workers with some college experience. Both are statistically significant parts of Obama’s base.
Stock and mutual-fund holdings, often the basis of retirements savings, have grown in value from $9.1 trillion at the end of 2008 to $14.3 trillion in September, according to the Federal Reserve Board. Americans are saving more and are paying down credit-card debt, a process economists call “deleveraging.” Deutsche Bank economists wrote this month that household balance sheets have rebounded to their strongest levels in a decade. They calculated that household buying power is up “significantly” over the past year, thanks to rising home values. Taken together, they wrote, “these two developments are supportive of further modest gains in consumer spending and suggest household deleveraging is no longer a serious headwind to economic expansion.”
Voters appear to be prizing that (albeit slow) progress over the economy’s still-terrible levels of output and job growth. This attitude fits at least one historical pattern of American politics: University of Michigan economist Justin Wolfers studied more than 600 gubernatorial elections across recent American history—a much more robust sample size than presidential elections—and found that voters were much more likely to retain an incumbent when unemployment was falling, regardless of how high the rate was. It’s all about trajectory, no matter how slow or slight. Three years ago, the unemployment rate stood at 10 percent, meaning that it dropped almost 2 full points during Obama’s first term; those are the headlines voters remember, regardless of how the job data are interpreted.
As Jared Bernstein, the former top economist to Vice President Joe Biden, put it: “It makes a great deal of difference if you are sailing into a storm or sailing out of it.”
The implications for Romney are serious and, at this late stage, possibly fatal. Republicans were confident that the race would be a referendum on Obama’s record, as was the case with most reelection campaigns: The incumbent failed to fix the economy—case closed; president fired. “It’s the ultimate negative campaign ad—the reality of the economy,” says chief Romney pollster Neil Newhouse.
Yet signs are few that the ad is working. There is scant polling evidence to suggest that Romney has persuaded voters to hold Obama more accountable and to view him as a credible and trustworthy alternative. The Republican hasn’t held a lead at or outside a single poll’s margin of error since mid-February, and he has trailed Obama by an average of 4.6 points (the very edge of the margin of error) in 18 polls taken since the end of the Democratic convention. Romney’s supporters like to paint this election as similar to 1980, when challenger Ronald Reagan thumped a malaise-ridden Jimmy Carter. But Carter led Reagan in only four of the last 27 polls taken before Election Day and never by more than the margin of error.
One explanation may be that voters started growing more optimistic about the Obama economy even before Romney locked down the nomination in April, according to Allstate/NJ polling. The December 2011 survey found that only 20 percent of adults said the country was going in the right direction; 70 percent said it was on the wrong track. In March, 30 percent said right direction, 60 percent said wrong track. By mid-September, 35 percent said right direction, while 56 percent said wrong track. Two in five survey respondents said that Obama’s policies have not significantly helped the country but are starting to move it in the right direction.
Add in the respondents who said that Obama was already significantly improving things, and nearly three in five voters expressed some optimism about the administration’s policies.
“People don’t just take one data point in a black box to the polls,” says Ben LaBolt, Obama’s campaign spokesman. “Context matters.”
Romney’s team acknowledges that voters care less about the raw numbers or the percentages of unemployed workers and more about whether the figures are going up or down from month to month. Still, the campaign dismisses the notion of an upward trend in right-track perceptions, insisting that a majority of voters will ultimately reject the economic status quo.
In a widely distributed campaign memo last month, Newhouse called the uptick a “sugar high” from the Democratic convention, inspired mostly by Clinton’s widely praised, feel-good speech. Newhouse says that optimism will dissipate by November.
“It’s doubtful it lasts because it is resting on quicksand,” Newhouse says. “There’s no there there. The economy is not getting better. President Obama wants people to settle, and we’re saying that’s not good enough.”
In other words, Romney’s campaign depends on voters ultimately rejecting “the new normal.” Obama’s reelection hinges on embracing it as a starting point for future recovery. The president’s wager is evident in the television ad it began airing last month that aims to turn Romney’s question—Are you better off than you were four years ago?—on its head. The Obama spot features doomsday images from 2008, disappointing but improved statistics from 2012—and a cameo from Clinton at the Democratic convention asserting that Republicans will drag the nation backwards.
Even worse for Romney, he appears to be running out of persuadable voters. The Allstate/NJ survey should worry the Romney campaign: Only a small slice of adults—5 percent—remain undecided. Even if Romney wins a majority of the 68 percent who said that the country is on the wrong track, he would still lose.
So for Romney to win the election, he has to persuade undecided voters to vote for him and peel away supporters from Obama. That seems unlikely, barring some economic catastrophe that would jolt Obama supporters into changing their minds.
Thus the hand-wringing that has consumed much of the Republican establishment in recent weeks seems justified. Still, Obama has no reason to be overconfident. There are three debates, two job reports, and untold numbers of unforeseen events on the campaign trail and in the world that could inject Romney’s campaign with momentum. Says former Florida Gov. Jeb Bush: “Everyone has said the race will be close. Everyone is correct.”
REACHING HIS LIMITS
Perhaps Romney’s biggest problem is simply that he is an uninspiring candidate running a Grade B campaign. A tenuous relationship with the conservative base of his party has kept him from distinguishing himself from George W. Bush, even though voters blame the former president more than Obama for the economy’s current state. Romney has chased daily news cycles—his release of his tax returns after a particularly unflattering week is only the latest example—at the expense of long-term strategic decisions. He comes off as stiff and rich at a time when recession-weary voters are looking for authenticity and empathy.
“He’s a technocrat. His style is very formal,” says 43-year-old Annandale resident David Holland, another Dunkin’ Donuts customer in Fairfax County, who describes himself as a Republican but hasn’t committed to Romney. “I think it’s hard for some Americans to relate to him if they don’t come from a country club.”
Here’s what the Romney campaign knows about undecided voters like Holland: They are upset about the state of the economy. They think Obama has failed. But they are unsure about Romney. Will he fix my economy?
If he hopes to win, the time has come for Romney to make that case, forcefully. “What I’d like to see Mitt do is talk aggressively about why the economy is broken and how to fix it,” says Sen. Lindsey Graham, R-S.C. “ ‘Here’s why it’s broken, here’s how I would fix it,’ and talk in places where it really does matter. This is our election to lose.”
Some Romney allies, however, are wary of their candidate getting too entangled in policy weeds—especially since the president has mostly steered clear of detailing his second-term agenda. Voters should be nitpicking Obama’s record, not Romney’s tax plan, some Republican campaign veterans say.
“Obama has never proposed anything except to tax the rich,” says Washington lobbyist Charlie Black, an outside adviser to the Romney campaign. “If you’re getting more specific than that, you’re just setting yourself up for the other side to shoot at you. You don’t want to allow them to distract from our main message, which is about jobs and the economy.”
The campaign’s bedrock belief in the sheer force of economic gravity has hamstrung Romney in multiple ways: Confident in its message, it allowed Democrats to define Romney over the summer as an out-of-touch plutocrat without bothering to respond with ads in key states that would reassure voters about the candidate. And it failed to court two voting blocs—women and Hispanics—whose support is crucial to building a winning coalition in 2012.
The cracks started appearing in the unexpectedly challenging and protracted primary, as Romney took hard-line positions against illegal immigration and abortion to try to outflank his more conservative rivals. He vowed to veto the Dream Act, which would grant legal status to undocumented kids who go to college or serve in the military.
He allowed his campaign to become entangled in a prolonged debate over access to contraception in the spring while also pledging to defund Planned Parenthood, thus signaling that he would fight the party’s age-old culture wars. He should, instead, have been sounding daily alarms on the economy.
As his appeal in the Hispanic community soured and the gender gap widened, Romney’s advisers insisted that the nominee didn’t need to modulate his tone—the high unemployment rates among Hispanics and women would drive those voters away from Obama and into Romney’s arms. It hasn’t happened.
Only recently did Romney begin airing ads overtly appealing to women and talking about bipartisan immigration reform. “He dug himself into a hole on those issues and then tried to avoid them,” says Republican consultant Ana Navarro, who advised John McCain’s 2008 campaign on Hispanic outreach. “Now he dodges and weaves without providing clear answers or concrete proposals, and that becomes an obstacle for Hispanics to trust him.”
Romney’s inner circle remains undeterred amid the electorate’s changing demographics, shifting attitudes about the economy, Democratic-leaning polls, and carping by the GOP establishment.
“One of the things we have learned from the Romney team—like it or hate it, and at times it’s extremely frustrating—they are extremely patient about their strategy,” Republican consultant Reed Galen says. “They are very comfortable that in the end this will be an election based on the economy. You’d have to hit [campaign manager] Matt Rhoades with a baseball bat to get him to move off his plan.”
Some Republicans are openly fretting that Romney can’t reset the race without delivering a series of body blows in the three debates or by rising above a nerve-rattling economic crash in Europe or armed conflict with Iran.
“There are no more weeks to give up,” says Steve Schmidt, campaign manager for McCain’s 2008 campaign against Obama. “This is like a football game in the playoffs. The team with the most turnovers loses. There are no more interceptions to lose. They’ve used them all up.”
Polling experts at Stanford’s conservative-leaning Hoover Institution, including Frisby and the political scientist David Brady, are more blunt. To win, they say, Romney needs a full-scale repeat of the 1980 election, when economic anxieties drove voters en masse toward Reagan in the final days of the race. But the United States is a different country now—and not simply in terms of demographics. The odds of a similar shift happening this year, Frisby and Brady warn, are low. And absent that, Obama will make history one more time, by showing that a basic, once-immutable law of politics is now as unsteady and unreliable as the economy itself.
This article appears in the September 29, 2012, edition of National Journal Magazine.