Wednesday, April 26, 2006

Political Crises and the Consequences of Economic Growth

An experienced person whose judgment I respect recently offered the following as major concerns/crises facing the administration:
  • a wavering domestic political consensus to stay the course in Iraq;
  • the controversy over Rumsfeld's tenure;
  • Hamas' election;
  • Iran;
  • Russia's potential backslide toward regional strong-man status;
  • Stalemate on North Korea;
  • Oil price instability leading to domestic political foment;
  • Domestic immigration debate.
I don't disagree with any of these, but find it striking that the last two are, essentially, economic issues.  And the first two are, more or less, reflections of a President's popularity in the polity.  When people start questioning a President's decision making, it is because there is instability or uncertainty in their own lives and they are seeking reasons for it.  When issues like oil-price or immigration start mustering political force in the country, it is because the economy is slipping and people have little confidence in near-term economic expansion. 
But we've had a booming economy for 15 years now, so what's happening?
My guess is that the average person is feeling the crunch of the new (and newly competitive) global economy far more acutely than the executives and boards of the companies they work for.  Small business owners--accountants, IT consultants, machinists--are having to compete with Bangalore and Beijing in ways they've never had to.  So even though overall economic growth is high and productivity is rising, real wage rates (when accounting for inflation and reduction in benefits like health care) are declining. 
Apparently the old adage is true: people vote with their pocketbooks.  Regardless of what the broad economic numbers suggest, it appears that globalizations unequal distribution of benefits are starting to pinch at average American's bottom-lines.

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