Iraq aside, economy tops voter concerns

Democratic presidential hopefuls may try to capitalize on dissatisfaction with the economy.

The economy may be playing second fiddle to the Iraq war in the race for the White House in 2008, but pocketbook issues are emerging as important voter concerns.

Even though jobs are relatively plentiful, polls show strong undercurrents of public anxiety about healthcare, gasoline prices, and the effects of global competition.

Many families feel they are falling behind with incomes that aren't keeping pace with inflation.

The result, analysts say, is a financial landscape that may benefit Democrats, as the party now out of presidential power.

In a Wall Street Journal/NBC poll last month, for example, 34 percent of Americans cited Iraq as the top national priority. The next closest issue was healthcare, at 15 percent. But others selected economic issues including job creation and growth (8 percent), energy and the cost of gas (6 percent), and the federal budget deficit (4 percent).

"You have to add them up," but 33 percent of Americans see an economic issue as the top priority, says Robert Schmuhl, professor of American studies at the University of Notre Dame in South Bend, Ind. "Collectively, economic issues contribute to the generalized worry about the direction of the country."

The electorate is in a generally sour mood, he says. America's travails in Iraq are the key reason, but economic issues aren't far behind.

A similar dynamic was visible in the 2006 race for Congress, when Democrats recaptured control in part by tapping economic anxieties.

As a result, the policy environment in Washington has already shifted. This week, in a nod to workers who feel left behind, the national minimum wage jumped to $5.85 an hour, after being at $5.15 for a decade.

Economic worries may be deepening, even though the economy is approaching seven years of growth since the last recession. A key reason: Rising energy costs have devoured pay raises for many households.

"Family incomes are down in recent years" when adjusted for inflation, says Jason Furman, an economist who directs the Hamilton Project, an effort by the Brookings Institution based in Washington, D.C. to develop broad-based domestic policies. This predicament for working-age households, as tracked by the Census Bureau, translates into a mandate for change, he says.

"No one wants more of the same," Mr. Furman says. "[Candidates] are really going to need to sketch out a new direction for economic policy."

So far, the candidate who has gone furthest to define himself on the economy, arguably, is John Edwards. He has detailed plans for an ambitious expansion of healthcare coverage for the uninsured, highlighted the growing gap between the fortunes of the wealthy and the middle class, and just toured several states to highlight the persistence of poverty.

He still lags behind the leading Democratic contenders, Sens. Hillary Clinton of New York and Barack Obama of Illinois. But analysts say that Edwards has been able to deploy a populist economic message to his advantage.

Historically, however, a populism carries pitfalls. "[Candidates] have a two-part challenge," Furman says. "They need to describe the challenges that people have today, and then they have to be optimistic" about the nation's ability to meet them…. That's the magic combination that you're looking for."

Indeed, candidates on both sides will have to navigate somewhat conflicted views of the electorate.

A Financial Times/Harris poll released this week, for instance, showed strong support in the US for raising taxes on the rich, with 61 percent saying the "highest earners" should be taxed more. Yet polls also generally show that Americans think their own taxes shouldn't be raised – offering some comfort to Republican candidates who are defending the virtues of low taxes for the economy.

The Financial Times survey also found deep doubts about another policy that has been championed especially by Republicans: free trade. Some 45 percent of Americans say globalization is having a negative effect on the country, versus 17 percent who say the impact is positive.

All this is puzzling to many economists who say that open commerce has been a large winner for the US economy in recent years, fueling "every day low prices" at Wal-Mart. "This unemployment rate is unbelievably low," at 4.5 percent, says Brian Wesbury of First Trust Advisors in Lisle, Ill. "Wealth in our economy has never been higher."

The explanation for pessimism, in his view, is rooted partly in the pace of economic transformation.

"We are in the midst of one of the most transformational time periods in terms of economic activity," Mr. Wesbury says.

Different worldviews, in response to this era of change, may explain part of the large gap in economic outlooks along party lines. In a recent Investors Business Daily/TIPP survey, Republicans posted the highest confidence level among 21 demographic groups tracked in the poll, with an economic optimism index of 58.9. Democrats had the lowest score, at 39.4. (A reading above 50 is generally optimistic.)

Differing views on the Iraq war may affect such surveys, analysts say.

The survey also found that Americans in general feel positive about their own financial outlook, but negative about the overall economy and government policies.

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