What do these four things have in common?

  1. The short-term path of the U.S. economy;
  2. The Supreme Court’s upcoming decisions on the Affordable Care Act;
  3. The economic and financial mess in Europe;
  4. A possible Israeli attack on Iran and whatever Iranian response that provokes.

I see four commonalities:

  • Each has a moderate chance of going wrong before Election Day;
  • The short-term domestic economic policy effects of each are significant;
  • Each could change the agenda and course of the U.S. election;
  • Each is largely outside the President’s control.

James Carville’s line from the 1992 campaign, “The economy, stupid,” may be too narrow this year. Yes, the domestic economy is the most important subject for the election.  But the U.S. economy may not be the only subject this fall, and if we drill down further we can find complexities beyond the simplistic political analysis of “Economy bad, incumbent loses.” President Obama’s economic campaign challenge is multidimensional.

  • The recovery is weak and recent data make it hard to claim things are getting better. The level is bad (8.2% unemployment) and the direction and rate of change are nothing to brag about.  Today the Fed knocked half a percentage point off their projected GDP growth rates for the remainder of 2012. The President and his team made a tactical political error by betting on a continuing positive trend, hoping they’d be able to argue “Things may be bad but they’re getting better because of our policies.” This backfired with the last jobs report but could change again in the next four months.
  • Downside macro risks are more significant than upside risks. Europe teeters.
  • Stimulus is behind us. The Court may overturn health care reform next week. If it does this leaves Dodd-Frank as the only lasting major economic policy accomplishment of the President’s term.
  • Stimulus and health care are also unpopular.
  • Other than raising taxes on the rich and spending a few tens of billions of dollars more, the President is not proposing a significant domestic economic agenda for the second term. He’s saying a lot but has few big policy proposals and nothing to address our medium-term fiscal challenge.
  • He also doesn’t have a good answer for how to accelerate short-term economic growth other than “Be patient.”

The monthly jobs and GDP data are the most important data points affecting the choice this November, but they are not the only ones. It’s not just the economy.

(photo credit: Aaron Webb)