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September 26, 2012

Economics of campaign discussed

Rose-Hulman professors consider how factors will affect presidential contenders

Howard Greninger The Tribune-Star

TERRE HAUTE — Even with economic factors included, the U.S. presidential election remains tight, with a slight lead going to incumbent President Barrack Obama over Republican Mitt Romney, a panel of economists and a political scientist at Rose-Hulman Institute of Technology stated Tuesday.

Dale Bremmer, professor of economics, referred to the presidential prediction model developed by Yale economist Ray C. Fair, which in late April showed Obama gaining 50.2 percent of the vote. In late July, the model showed Obama at 49.5 percent of the vote.

Because the model has an error of plus-or-minus 3 percent, “it is just too close to call,” Bremmer said.

However, with unemployment at 8 percent, Bremmer said no incumbent president since Franklin D. Roosevelt has faced re-election with an unemployment rate higher than 7.8 percent.

The economy has good news and bad news for the incumbent. Good news is the stock market and the Dow Jones are on rising trends. The bad news for the incumbent is consumer confidence remains low, he said.

Kevin Christ, associate professor of economics, said the presidential election “is about a referendum on the size of government.” That has sparked a debate on the national deficit and debt.

“Our gross debt has increased 64 percent since 2008 and it has doubled in the terms of debt on the public. Our debt is now slightly larger than the size of our economy when measured as a percent of the gross domestic product,” Christ said.

“A large part of the blame for the growth in the debt over the last four years can be laid at the feet of the recession and the slow recovery,” Christ added.

The gap between federal spending and revenues started to widen in 2007 and accelerated in 2008 and 2009, he said. “This widening occurred because federal expenditures increased and revenues decreased sharply. This is what happens in a recession and we’ve had a pretty bad one,” he said.

Obama and Romney each have plans to address debt, Christ said, with neither balancing the budget, but the Romney/Paul Ryan budget closes the gap a bit farther, leaving the size of the federal government as a percent of the GDP at about 17 percent, with Obama at 17 to 21 percent.

“There is about a 2 to 3 percentage point difference in the vision of how large the federal government should be from the two budget proposals,” Christ said.

However, Christ said austerity would be detrimental to economic growth in the long term. “It is important that the economy keep growing and maybe even speed up a bit from where it has been,” he said.

“Consumer spending is not ticking up rapidly,” Christ said, and for the government to attempt to implement a new fiscal policy toward austerity “we run a real risk, I think, of returning to a recessionary environment that will only make debt as a percentage of GDP get larger, not smaller.”

Terrence Casey, professor of political science, said the question is at what time debt becomes a problem. “It does have to be solved, but it is a question of speed,” he said.

“It is a problem, and you just have to look at places like Greece and Spain to see what happens if you let that problem fester for too long. When does it becomes a problem that is unsustainable, we don’t know, and when you get to that point, it all goes really bad really fast,” he said.

Jong Hun Kim, assistant professor of economics, said presidential candidates must consider the long term. Kim said the expected inflation rate is not high, just 2 to 3 percent. “The longer-term issue is this cannot last forever. We need to think about an exit strategy, it will be hard and challenging. It is always easier in a political sense to put more money into the system than an idea of retraction,” he said.

Kim said the aging and retiring of baby boomers “will lead to a downward pressure on U.S. economic growth” at about 0.5 percent per year.

The integrated global markets of Greece, Spain and China are showing a declining growth and that can affect the U.S. export market.

Casey said it appears Obama is currently winning because the president has largely won the race on framing the election to be about the next four years, not the past four years as framed by Romney.

Also, while the economy is still down, it has improved at the right time, Casey said. In addition, Obama currently is projected to have 247 electoral votes, compared with 191 for Romney. The winner needs 270 electoral votes.

In addition, only about 6 percent of voters are undecided right now, Casey said.

However, races can be decided by a few thousand votes, and the election’s presidential debates have not yet been held. “Obama has the edge, but it is hardly a done deal,” Casey said.

Reporter Howard Greninger can be reached at 812-231-4204 or howard.greninger@tribstar.com.

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