Why does high unemployment persist under Obama? There are several answers to that question: Obama has overspent, overtaxed, overregulated, over-used inflammatory rhetoric against job creators etc.
Another answer that often comes up is that Obama has misprioritized: Instead of focusing solely on the jobs issue he just passed a poorly crafted stimulus bill early in his term and then went right onto his health care reform (and his golfing).
Why is this? That’s the question I’ll try to answer in this post. Many people claim that Obama prioritizes the way he does because he is incompetent, or because he has a messiah complex and believes he can solve all the problems at the same time. This may be part of the answer for sure, but I think the real problem is something that affects every democrat: A conflict of interest.
You see, unemployment doesn’t really hurt the democrats that much.
Mitt Romney was absolutely correct in that 47 % of the voters are essentially “lost” from a Republican point of view. These people, because they don’t pay the federal income tax and in many cases rely heavily on government assistance (whether it’s in the form of unemployment benefits, medicaid or something else), have a great incentive to vote for the Democrats to keep the milk coming from the government’s teat.
But surely, if they voted Republican, they could get real jobs in the private sector? Jobs that would pay more than whatever money the receive on the dole. So why don’t they?
As usual, economics has the answer: Risk aversion. If Republicans are elected (and by Republicans, I mean the real, conservative type – not the Rudy Giuliani type), they will get their benefits cut – this is 100 % certain. However, it is not 100 % certain that they will get a job, even with Republicans in charge. They may estimate that their chance of getting out of unemployment is only 10-15 % (it may in reality be higher of course), and determine that the risk just isn’t worth it. What if they become one of those unlucky few who remain unemployed (or otherwise dependent on the government) after Republicans take over? Risk aversion means they just won’t take that gamble.
It may seem strange to people who have never been long-term unemployed that an unemployed person wouldn’t do everything in his or her power to get a job; including voting Republican. But government dependency, if held on to for too long, becomes a lifestyle. Once you’ve adjusted to a lower income, and possibly moved to an area where there are more government-addicted people like yourself, you may not think it’s so bad after all. Humans can adjust a wide range of circumstances, that’s how we survive. The scariest effect of unemployment has never been the one it has on the economy, but rather the one it has on the individuals unemployed.
My point is: The Democrats really don’t have that much of an incentive to turn the economy around. The more people who are unemployed, underemployed, who have given up looking for jobs, or who are jumping between temporary, part-time jobs – the more votes for them. Yes, they would lose votes from private sector workers, but the net effect may still be positive or insignificantly negative. The incentive to fix the economy just isn’t as strong for the democrats as it is for us republicans.
For those of you who are now screaming “But the unemployed will be angry with the Democrats who made them lose their jobs!”, you ought to think about this: When you lose your job, who are you most likely to blame? The government? The central bank? Your employer? Your former employer’s competitors? Yourself? The first two most likely carry some of the blame, but yet the government and federal reserve are usually not the ones a blue-collar worker blames when he or she loses his or her job.
But does this even matter? Sure, there is a conflict of interest – on the one hand, democrats may want to fix the economy, but on the other, the increasing government dependency of the population gives them more votes – but what difference does it make? In the end, certainly they’ll do the right thing, won’t they?
The truth is that conflicts of interest affects everyone. Doctors are often treated to dinners and conferences by pharmaceutical companies, and this has been proven to affect what medications they prescribe. Not that a doctor would ever prescribe a medication to patient if the medication wouldn’t have any effect at all or even be harmful for the patient. It’s more a case of a doctor choosing between prescribing medication A or medication B, and chooses to prescribe medication B because the company that produces this medication essentially bribed him with a fancy dinner or a luxury conference, even though medication A is cheaper and would have helped the patient just as much.
If doctors can be affected by conflicts of interest, why wouldn’t politicians? Government-dependent voters is the only reason the Democrats has ever won an election. Why wouldn’t they want more of those?
This also explains why the stimulus was directed towards creating government dependency rather than jobs. The stimulus was not only wrong in principle – it was so inefficient you’d think it was designed not to work. The most efficient stimulus consists of the government dropping money off helicopters. There is no better way to boost consumption and provide the economy with a “vitamine injection” (which is what stimulus programs are supposed to do – they’re not supposed to boost the economy in the long term). Now I of course don’t think boosting consumption would really be a solution to the current crisis, but the point remains: Even by Keynesian standards, the stimulus was a failure.
For Republicans, the incentive to reduce unemployment and government dependency on the other hand is very strong: Every time someone becomes unemployed, we basically lose a voter. So not only do we have altruistic reasons to want the economy to do well; we have egoistic reasons as well (our % of votes depends more directly on it).
History supports this claim: Bush 41 didn’t survive the bad economy (that was a lot better than the current one) in 1992, despite the dissolution of the Soviet Union having happened under his watch. Carter almost survived in 1980 – only an excellent GOP candidate with great debating skills stopped him. FDR not only survived, but won in a landslide in 1936 due to a legion of New Deal-dependent voters. “It’s the economy, stupid” only seems to apply to Republicans.
Of course there are many more factors than just whether you are “dependent” on the government that decide who you are going to vote for – but unless you’re a political junkie with strong ideological views, chances are you are going to vote based on what is best for your personal finances. Hence, the point still remains.
Another thing that very few people realize is how tough it is to design economic policy. It is arguably the toughest area of applied economics. In order to develop a good economic policy that gets the economy moving and creates private sector growth, you need to be fully committed to that goal. A half-hearted effort (which is what Obama has made) just isn’t enough. The thing is, Obama has never been interested in economic policy – he just wanted to get the recession over and done with, so he dumped a trillion stimulus dollars on it and called it a day. Why would he care? It’s not like his political future depends on the economy anyway.
One final reason why Democrats are not as motivated to fix the economy as Republicans: Their core voters don’t need the economy to improve as badly as the Republican core voters do. I’m not just talking about the unemployed, but public sector union members as well. Since their jobs are not (as much) on the line during recessions, and since they’re not in the private sector, you can’t really woo them by promising or working for private sector growth (even though, indirectly, the public sector depends on the private sector). These people are more worried about getting free health care (paid by the private sector) than they are about job growth, so for a democrat President it makes sense to pass Obamacare and just pretend the unemployment crisis doesn’t exist.
This will do for now. Thanks for reading.
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