It's the Economy, Stupid!

James Carville famously said, “It's the economy, stupid!” Carville was an elections strategist for then-Governor Bill Clinton, and he helped Clinton beat President George H.W. Bush in 1992 in the midst of a recession that left many Americans out of work and in debt. It has been a hallmark of political wrangling ever since. The 2024 election is no different, with many of the GOP candidates espousing how they will improve the economy.

Bidenomics:

Let’s be real here. No “President” alone can affect change in the economy by themselves. Now, they all will take credit for it when it’s good and blame others when it’s bad. That’s politics 101. But for the most part, the economy is a function of dozens of interrelated technical factors and is influenced by a multitude of international politics and unforeseen events from war to weather events. 

But on some level, the American political climate and the party in power can “guide” policy and focus to make the economy turn in one direction or another.  However, new policies and funding efforts often take years to show promised results. 

Case in point:

For decades, analysts predicted China would be the next country to dominate the global economy. However, the data shows the U.S. still leads its geopolitical rival. It comes down to the level of Foreign Direct Investments (FDIs). That is the amount of money invested from one country into another. For fifty years, China was the #1 hotspot for global investments. But since 2020, surprisingly, the U.S. is the world’s largest recipient of FDIs.

According to Wide Moat Research, 2022 saw another $216.8 billion in fresh capital flow into the U.S. from top investors in the U.K. and Germany.

Today (July 2023), total FDI in the U.S. stands at over $5 trillion, and that’s in addition to enormous reinvestment by companies returning jobs to the States.

In 2021 alone, U.S. companies brought back over 260,000 jobs from overseas. In 2022, it climbed to 350,000.

While Biden gets the credit for these gains, much of the policy emphasis came from the Obama and Trump administrations as they both attempted to moderate the level of reliance on foreign suppliers, with Covid being a catalyst that showed the importance of diversifying the supply chain. That has continued under Biden. The previous three administrations had a hand in the movement toward “Made in America,” but the rewards are just now becoming evident. 

I make this case because I want you to understand that no politician can put money in your pocket, cut taxes or lower your expenses. It takes a political ‘village’ and a long slog of politicians that are committed to the same thing.

The business climate is strong with the 2023 stock market and many 401K portfolios approaching a five-year high. The consumer climate is not quite as impressive, but inflation is down considerably, gas prices are down, and home prices are beginning to level off after major interest rate hikes.  But the future also looks much better than the recent past for consumers.

Unemployment rates are at an all-time low, and household income is rising. So any politician that is running on improving the economy will have a hard time with the facts.

The Elephant in the Economic Room:

Where there is room for improvement (tremendous improvement) is the national debt and the exorbitant deficit. It recently caused the U.S. global credit rating to DROP from AAA to AA. Most of the rating analysts' concern was the recent clash over extending the national debt ceiling. We came perilously close to default.

While I can lay the cause of the 2023 debt ceiling ‘crisis’ directly at the feet of a Republican-led House of Representatives, I cannot blame either party for the staggering debt. It has been a shared act of incompetent spending over the last 50 years. However, four of the five biggest overall increases in the national debt came from Republican administrations (see my 2021 post on the prior debt limit fiasco.).

Recently, President Biden created a team to assess ways to avert future standoffs over the country's debt limit. "Now that the latest debt ceiling crisis is behind us, it is necessary to explore all legal and policy options to prevent Congress from ever again holding hostage the full faith and credit of the United States," the White House statement said at the time. 

Rather than creating a “Team” and throwing the other political party under the bus, we should be focused on seeing that a debt limit raise is never going to be needed again. We must cut the pork out of spending bills (giving line-item veto authority to the President - every President) and reduce our defense budget by getting rid of rip-off contractors[1] that charge inexcusable bloated amounts for materials and services.

There is also a significant amount of contractor bloat in the government overall. We need to upgrade our federal services, incorporate AI to get things done faster, and improve technology to serve the people faster and with greater integrity. We need to get more done - the right way - with fewer contractors. I have worked on government contracts, from the IRS to DHS, and I can tell you that most government contractors rip off American taxpayers with impunity.

Give your representatives a piece of your mind before contributing to a campaign or giving them your vote. Let them know what you expect them to continue, as well as what you expect them to change.

JWB

[1] The Billionaire Who Built A Fortune ‘Price-Gouging’ Customers Like The Pentagon, Forbes, Retrieved 8/7/2023 from: https://www.forbes.com/sites/jeremybogaisky/2023/08/07/meet-the-billionaire-who-built-a-fortune-price-gouging-customers-like-the-pentagon/?sh=4a1ae5d11658