June 21st was the first day of summer and the hottest day of the year so far, at least in the Northeast. It may also have been the day that Barack Obama lost the 2012 election.
Why? This was the day that the stock markets finally folded the tent and acknowledged that the U.S. economy is in a stall and may be on the edge of a full-blown recession. The Dow Jones Industrial Average lost 250 points, the Nasdaq 71 points, and the S & P 500 about 30 points. The Federal Reserve on Wednesday affirmed that the economy is slowing and that the unemployment rate would remain above 8 percent for the rest of the year. Goldman Sachs & Co. recommended that investors short stocks in recognition of the worsening economic picture. New unemployment claims edged higher, confirming the lackluster May employment report. The Philadelphia Fed reported a further contraction in manufacturing activity in June. Oil slipped below $80 per barrel for the first time in a year, another sign of a slowing economy here and abroad.
It is not impossible for an incumbent president to win re-election in the midst of a recession or a stalled economy, but it is extremely difficult to do so. No incumbent has won re-election under these kinds of economic circumstances since FDR was re-elected in 1936 in the midst of the Depression. On the other hand, Jimmy Carter and George H.W. Bush were defeated for re-election under conditions that were better than those Obama must deal with this year.
The problem for the incumbent this year is that he must confront the narrative that his policies of stimulus, more regulation, higher taxes, and health care reform have not turned the economy around as he promised. Gov. Romney will paint him as a failure; the President's attacks on Romney's business background will not immunize him against that narrative. That narrative will become impossible to deflect as more bad economic news pours in over the next three or four months.
Nevertheless, the election is likely to remain fairly close in the polls until mid-October, even if economic conditions continue to worsen, simply because many voters have not yet focused on the campaign. If the unemployment rate is still above 8 percent in mid-October, with no signs of immediate improvement, independent voters will at that point break for Gov. Romney, as they did for Ronald Reagan in 1980 and Bill Clinton in 1992. In that circumstance, Gov. Romney could easily walk away from the election with a margin of between five and seven points.
If this is in fact what happens, then we might look back to June 21 as the day when the dynamics of the election changed for keeps.
(James Piereson is a senior fellow at the Manhattan Institute.)
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