But if we really love the party that brings us prosperity, how come Gore isn’t waltzing home? Almost all of us are better off than we were eight years ago. We’ve done particularly well since 1995. The apparent dead heat, this close to Election Day, raises the question of whether we’re as happy with this expansion as we say.
No one can doubt the gains. Jobs are easy to get. Poverty stands at its lowest rate in 20 years. Homeownership is at record highs. Median, real household income has risen for five years straight, to a record $40,816 (“median” means that half the households earned more and half earned less).
A whiff: There’s a whiff of sulfur in the air: higher oil prices, higher inflation, the burst dot-com bubble, a faint softening in consumer confidence. But nothing has turned the apple cart over. Business optimism remains near record highs, and shoppers are still out in force. Here’s the current state of our personal finances, along with some possible trouble spots:
Incomes. Real wages have risen sharply since the mid-1990s, especially for low-income workers and people in entry-level jobs. That’s a big change. Over the prior 20 years, real wages stagnated or fell. What hasn’t changed is the tendency for the rich to be rewarded more. At the top, family incomes rose almost 15 percent over the past four years; at the bottom, they rose just 9.5 percent, according to the Economic Policy Institute in Washington, D.C.
This raises the question of how people feel, relative to others. Are you pleased because you’re earning more or stressed by the cost of keeping up? When higher earners buy fancier toys, others feel they need similar things, says economist Robert Frank, author of “Luxury Fever.” People grow anxious if they lose their place in line. And even though incomes are up, prosperity hasn’t brought us ease. We’re working more hours to satisfy our wants.
Gore touches these issues with his appeal to “working families.” But he can’t address inequality directly (the gap widened on his watch, too). Bush doesn’t address the income gap at all (his constituency includes the group that did the best and hopes for more).
Wealth. You’ve probably heard that the average American has joined the “investor class.” Roughly half of us own stocks, directly or indirectly through a retirement plan. That’s a record high. But only a third of us have accounts that are worth more than a nominal $5,000. Virtually all of the stock market’s wealth is held by a bare one fifth of the players. Falling stock prices slow the sale of luxury goods, but not much more.
As for the total growth in America’s wealth, the lion’s share has gone to the top 1 percent (people worth $3 million or more). For them, the stock market is gravy. Their really big money comes from businesses they own, says economist Edward Wolff of New York University.
The story is very different for the middle class, whose wealth comes primarily from homes. They’ve borrowed heavily against their equity to buy larger houses and more consumer goods. But although they’re living better, they’re saving less. Since 1990 their net worth has barely risen at all. So far, so good–but their safety net has frayed.
Economist John Weicher, of the Hudson Institute in Washington, D.C., says it’s typical for wealth inequality to grow during business booms. But during recessions, he says, the rich lose proportionately more (think of the dot-com rise and fall). Over time, he thinks we all gain at about the same pace. Still, the gap is wide.
Debt. Voters probably don’t care a fig that the rich are rolling in it (a plus for Bush). Of much more concern is their personal level of debt. On average, credit-card borrowing has leveled out, relative to income. But mortgage debt is up, including second mortgages. A record portion of take-home pay is now being spent on debt repayment.
Most of us can handle it. But default risks are growing, especially for families with incomes in the $30,000-to-$40,000 range, says Stuart Feldstein of SMR Research in Hackettstown, N.J., which researches consumer debt. Bank “subprime” lending programs are extending more credit to people who can barely cover what they have. Pawnshops and shops giving “loans until payday” are sprouting in the suburbs. This class of Americans is also most apt to lack health insurance, so an illness could easily put them over the edge. Feldstein foresees an increase in bankruptcies and foreclosures in 2001.
No one knows how these crosscurrents play in the voting booth in a year when most Americans are feeling fine. “There might be diminishing returns for a good economy,” says political scientist James Campbell of the State University of New York at Buffalo. Interest may wander, above a certain level of growth. Campbell’s forecasting model, which called the past two elections right, picks Gore in a close race.
The election models, by the way, ignore the stock market’s ups and downs. The most useful economic predictor is general growth, especially during the election year.
Even more important is what people think about the economy, says Princeton political scientist Larry Bartels (perception can split away from fact). For this, the models may include consumer confidence, presidential-approval ratings or political polls. Some models take points away from a party that seeks a third presidential term.
This is art, not science. And we don’t vote only our personal interest, says political scientist Robert Shapiro of Columbia University. We tend to consider how well others are doing, too. And the candidate has to close the case. Is the good feeling strong enough to swing the vote? Next week we’ll know.
