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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 / November 2, 2010

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.

J. Scott Applewhite/AP

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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.

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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.

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.

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