Vote 2010: How did Obama, Democrats lose their way on the economy?

Obama stands at the head of a party poised to lose control of Congress in Vote 2010. Democrats' handling of economic issues and the high unemployment rate are key factors.

By , Staff writer

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    President Barack Obama makes a final get-out-the-vote push for Democratic candidates during a rally at Cleveland State University, in Cleveland, on Oct. 31.

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When Barack Obama set foot in the White House as president in 2009, Americans trusted Democrats by a roughly 2-to-1 margin over Republicans to do a better job dealing with America's major problems, according to an ABC News/Washington Post poll.

This echoed a pattern seen in other recessionary times, when voters pinned their hopes on Democrats to protect the pocketbook interests of regular Americans. Mr. Obama followed his election win with what many economists saw as a textbook policy response to recession: a fiscal stimulus package designed to boost the economy via government spending and tax breaks.

But now in Vote 2010, nearly two years later, Obama stands at the head of a party poised to lose control of Congress in a rebuke by voters.

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What went wrong? How did Obama and the Democrats lose their way on the pivotal issue of jobs and the economy?

The answer boils down to two narratives: The first involves their own missteps. The second focuses on a "perfect storm" of economic troubles that would have made these midterm elections rough for any party in power.

Although many policy analysts emphasize one explanation over the other, the most plausible explanation may be that both factors combined to dig Democrats into an electoral hole.

The perfect-storm narrative centers around the idea that this was no ordinary recession. This was a credit bust for households and banks, with high debts (mostly mortgages) and falling prices for the collateral (homes). Credit problems on that scale haven't been seen in the United States since the 1930s. As then, it could take years to bring down the unemployment rate.

Even professional forecasters were slow to pick up on the scale of the problem. As of January 2009, the consensus view in a survey by Blue Chip Economic Indicators was that the unemployment rate for 2010 would average 8.2 percent.

Obama's own economic advisers had a similar forecast – arguing that unemployment would stay below 8 percent if a big stimulus were enacted. In reality, the jobless rate surged during the first half of 2009, reached 9.4 percent by May, and has stayed at that level or higher ever since.

Republicans argue that Democratic policies have made the downturn even worse. Obama's supporters disagree.

"To this day, economists don’t fully understand why firms cut production [and jobs] as much as they did" during the depths of the recession, said Christina Romer in September, as she left her post heading Obama's Council of Economic Advisers. "Almost all analysts were surprised by the violent reaction."

Whatever the cause, a bad economy spells trouble at election season.

The party in power typically loses congressional seats during a midterm election, and a high jobless rate only adds to the damage. Economists don't blame Ronald Reagan for the 1981-82 recession, for example, but his party suffered a net loss of 28 House seats in the 1982 election.

The other story, however, involves Obama's own alleged mistakes. Although the president and his top officials have staunchly defended their actions, White House policies have come in for some harsh criticism.

Obama's push for health-care reform, at the very least, gave the appearance of a president distracted from America's immediate problem of unemployment. Worse, many employers say health reform adds costs and regulatory uncertainties that make them warier of hiring.

"When the public wanted to see greater attention to jobs, the administration seemed preoccupied with health care or something else," says Robert Schmuhl, a scholar of American politics at the University of Notre Dame in Indiana.

It's still possible that Obama's decision to pursue health-care reform will ultimately be viewed as a success – a political victory worth its temporary price in congressional seats. But for now, it's been a liability rather than an asset for Democrats.

The massive stimulus package that passed with a price tag of $787 billion also snared Obama in criticism. When it was passed early in 2009, economists typically supported the concept of a large stimulus, if not the details.

But some liberal economists warned that, in their view, the American Recovery and Reinvestment Act was too small to spur the economy back to solid growth.

At the same time, conservative economists questioned the merits of government spending as a means of economic stimulus, especially at a time when public debt is rising toward levels that could endanger the nation's ability to achieve normal economic growth in the future. The Recovery Act also included substantial tax cuts, but these critics argue they have done little to improve the economy.

Obama also had to decide on policy toward ailing US banks, and here, too, he has encountered criticism. Some finance experts say Obama should have taken a tougher line with Wall Street, such as forcing them to modify at-risk mortgage loans. Steps to reduce foreclosures and to clear bad loans off banks' books would result in a faster economic recovery, proponents argue.

In the eyes of some, Obama has struggled with a formidable public-relations challenge: how to persuade voters that things would be even worse without his policies. Recounting how tough his job is may be at odds with his effort to revive public confidence in the economy.

With Franklin D. Roosevelt, "there was a sense that we're all in this together,... and let's be optimistic about the future," says Mr. Schmuhl at Notre Dame. Today, by contrast, "it seems to be a joyless White House."

That said, defeat for Democrats in 2010 doesn't necessarily portend a long night for the party or their sitting president.

If Republicans gain control of one or both houses of Congress, they could share the blame if voters are still frustrated with the economy in 2012.

Even now, the disappointment that many voters have in Obama doesn't mean that most Americans are enamored of Republicans and their policies. The ABC News/Washington Post poll, for example, shows Americans split pretty evenly regarding which party they trust more.

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