08.31.11

Debt Debate Killed Our Confidence

Consumer confidence has plummeted to its lowest level since 1952 after the partisan battle over the debt ceiling, and that’s a reelection nightmare for Obama and all incumbents, says Mark McKinnon.

Democrats and Republicans fought furiously to gain advantage during the debt-ceiling debate. And they both lost. Big time. And so has the country.

Bill McInturf of Public Opinion Strategies, one of the smartest pollsters in the business, has just released research findings on the consequences of the debt debate that are jaw-dropping.

As a result of the politics of the debate—not just the outcome but the way it was handled—consumer confidence, interestingly, has dropped 15 points in two months to its fourth-lowest level since the survey began in 1952. The wrangling in Congress over the debt ceiling joins the Iraq invasion of Kuwait, 9/11, and Hurricane Katrina in terms of impact on our national economic psyche.

“Make no mistake,” McInturf notes, “this collapse of economic confidence is not an independent event driven only by economic reality. This sharp a drop in consumer confidence is a direct consequence of the lack confidence in our political system and its leaders.”

As a result, American trust in government has collapsed, and along with it so has confidence in the economy. Which has only added to the ugly economic death spiral.

The bad news for President Obama cannot be overstated. Put into historical context, it is a political nightmare.

The average measure of the Michigan Consumer Confidence Index (the gold standard) for incumbent presidents when they win is 95.9. For incumbents when they lose, the average is 78.4. The index today is at 55.7.

In October of 1982 when Ronald Reagan was president, the index was at 73.4. At the same time in his presidency, the number for Jimmy Carter was 79.8.  For Obama it was 67.7.  In August of 1983, for Reagan it was 90.9.  For Carter it was 64.5.  Today for Obama it is 55.7.  In October of their reelection years, Reagan’s index was 96.3 and Carter’s was 62.1.

So, if historical averages hold up, the consumer confidence level must improve for Obama by more than 23 points between now and next November. 

Washington Post polling of adults also shows the political consequences of the debt debate. When asked if voters had confidence in Obama to make the right decisions about the economy, 33 percent said yes, and 67 percent said just some or none, a gap of -34. That compares with January when 43 percent said yes and 55 percent said no, a gap of -12.

The bad news for President Obama cannot be overstated.

But before Republicans go popping their corks, as remarkably bad as the news is for Obama, it’s even worse for the GOP. A stunning 81 percent of Americans have just some or no confidence in Republicans to make the right decisions about the economy, while only 18 percent do have confidence, a gap of -63. (In January, the gap was -27:  35 percent said yes, and 62 percent said no). So, Republicans are bearing the brunt of voter backlash to their intransigence and hyper-partisanship. (The poll didn’t ask about confidence in Democrats specifically; presumably their numbers are much worse than Obama’s and probably pretty close to the GOP figures).

Though Americans are blaming Obama, Democrats, and Republicans equally for the government’s focus on the wrong things, Obama is the president. And it’s a shame he didn’t have the courage to truly lead and adopt the recommendations of his own fiscal commission. By ignoring the obvious and taking the political route rather than the bold course, he led us into the fiscal train wreck, the consequences of which McInturf’s research painfully reveals:

  • Fewer than three out of 10 working Americans expect a wage increase this year. There has been no change in this measure within the margin of error in the last two and a half years.
  • A majority of Americans believe it is a “bad time” to invest in the stock market. This is the highest net negative level in four years of tracking for CNBC.
  • Home values have dropped roughly 25 percent in the last five years. For most Americans, the equity in their homes is their largest investment. But, alarmingly, a new high of three out of 10 Americans who own a home are reporting that they believe their homes will decrease in value over the next year.

Wages, investments, and home values are the three legs of the economic stool for most Americans. And no matter how you look at the numbers, those legs are short and wobbly. Not firm footing for the future.

For the economy. Or for politics. Or for any incumbent in either party.