Thought Theater

Doubts About Economy Grow: It's The Stupid Iraq War? genre: Econ-Recon & Just Jihad & Six Degrees of Speculation

The view of the economy by the voting public seems to be moving from bad to worse. In the latest Gallup poll, only 23 percent of Americans think the economy is getting better...a full 5 percent drop in the past month. The number of Americans that feel the economy is getting worse jumped ten percent since April.

PRINCETON, NJ -- Food and gasoline prices both rose last month. At the pump, gas prices increased about 10% in May and are up almost 40% since January. In addition, average weekly wages for non-supervisory workers fell, after adjusting for inflation, for the second consecutive month in May. At the same time, the stock market continues at record highs and manufacturing output is edging upward, making factories a tad busier this year.

Such conflicting economic reports make it difficult to explain exactly why Gallup's June reading of Americans' economic views remains as negative as seen in May. A modest one in three Americans rate the economy today as either excellent or good, while the percentage saying the economy is getting better fell slightly, from 28% to 23%. Fully 7 in 10 Americans now say the economy is getting worse, the most negative reading in nearly six years.

For the first time this year, a majority of Americans are negative about the employment market, saying it is a bad time to find a quality job. Generally however, this measure remains more positive than in the period from 2002-2005.

While the numbers seem puzzling to a number of observers, I would suggest that voters have taken a longer view on the economy. There is little reason to expect energy prices to improve...the housing industry is struggling, foreclosures are up, and the prospects of low interest loans may be waning...leaving borrowers struggling to pay adjustable rates that will continue to climb.

Further, despite the relatively low unemployment rate, the real question is whether the available jobs pay enough to meet the growing costs encountered by families. We rarely see an analysis of how many Americans are in jobs they view as temporary stop gap positions that are intended to keep the family fed but that they know will not suffice in the long run.

A quick look at the rise in credit spending demonstrates as much...suggesting that many workers are able to justify the taking of lower paying jobs in the short run by using their credit to augment the deficit in income. Unfortunately, available credit is eventually exhausted and the overall debt burden coupled with the insufficient income will lead to increasing bankruptcies and a worsening economy.

Factor in voter pessimism with the Iraq war and the huge costs associated with prosecuting that war and no doubt Americans expect to bear the brunt of those expenses in reduced funds available for programs that could benefit the average worker...especially with regard to rising health care costs. If we couldn't justify a revamped healthcare system prior to the war in Iraq, what are the prospects of having the funds to enact one now?

It doesn't take an economist to understand that when a country has already doled out half a trillion dollars and counting...dollars that it is borrowing...that there will have to be sacrifices. This new trend in polling simply reflects that Americans have already begun to factor that reality into their view of the future.

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