Momotumbo
09-29-2012, 08:04 PM
Common Sense
By JAMES B. STEWART
Published: September 28, 2012
“This president cannot tell us that you are better off today than when he took office,” Mitt Romney said as he accepted the Republican presidential nomination. Since then, “Are you better off?” has become a central theme of the campaign, and is likely to surface next week at the first presidential debate.
Are Americans better off? By one important measure, that depends on who you are. Unfortunately for Mr. Romney, the group most likely to answer with a resounding “no” — those who should be most receptive to his message — appear to be the least likely to vote for him.
In raising the issue to such prominence, Mr. Romney is echoing Ronald Reagan’s famous closing during his 1980 debate with Jimmy Carter, which is widely credited with swinging the election in Mr. Reagan’s favor. Exactly what he and other politicians have meant by the phrase “better off” is vague, but many commentators have looked to the unemployment rate, gross domestic product, household income and inflation rate as relevant statistics for comparison.
By these measures, the answer is mixed. The unemployment rate in August was 8.1 percent, down from 10 percent in October 2009 but higher than the 7.8 percent in January when President Obama took office.
Gross domestic product increased at an estimated 2 percent rate in the first quarter and 1.3 percent in the second. While slow, that was a substantial improvement from the 3.8 percent contraction reported in January 2009, which was the worst drop in 27 years. Inflation was 1.7 percent in August, well within the Federal Reserve’s target range and much better than the modest but worrisome deflation of early 2009.
Median household income for 2011 was an estimated $50,054, compared with $52,546 in 2008, according to the Census Bureau. About the best the Obama administration has been able to say is that trends show slow but steady improvement.
This ambiguity shows up in the latest polls. In a Quinnipiac University/New York Times/CBS poll released this week, likely voters in Florida split 40 percent to 43 percent on the question of whether the United States is better off today than it was four years ago, with 40 percent saying the country is better off. In Ohio, it was tied at 39 percent, and in Pennsylvania it was 35 percent to 41 percent. Remaining voters thought the country was about the same or were undecided. But disaffection with the economy didn’t translate into support for Mr. Romney, who trailed Mr. Obama by widening margins in all three states.
There’s another measure that may help explain why Mr. Romney seems to be getting so little traction from the “are you better off” issue. It’s the wealth effect, which occurs when rising asset prices make people feel more secure. And in that respect, the answer is clear. As Mark Zandi, chief economist for Moody’s Analytics, told me this week, “From the perspective of the aggregate household balance sheet, we’re unambiguously better off than four years ago and are almost all the way back” to the peak before the financial crisis.
That’s because of a combination of rising asset prices, especially American stocks and real estate, and lower household debt. Total household net worth, which is assets minus liabilities, was $50.4 trillion in the first quarter of 2009 when Mr. Obama took office. It was $62.7 trillion in the second quarter 2012, which ended June 30. Mr. Zandi and other economists predict that it will be significantly higher for the third quarter ending this month thanks to this summer’s stock market rally and recent strong gains in housing prices. It might soon hit the peak of $67.4 trillion reached in the third quarter of 2007.
A healthy household balance sheet is a crucial measure of financial security, and it affects a majority of the population. According to a Gallup poll this year, 54 percent of Americans said they owned stock either directly or indirectly through mutual funds, exchange-traded funds and retirement plans. In that regard, they are much better off now than when Mr. Obama took office.
From January 2009 until this week, the Standard & Poor’s 500-stock index had gained over 55 percent. The Nasdaq composite index has surpassed levels last reached in 2007. There has been a stream of headlines and news reports about stocks hitting new highs.
Even more Americans own real estate. Sixty-two percent reported owning homes in April, according to Gallup. Housing prices are still far below their 2006 peak, but most of the collapse took place before Mr. Obama took office. The Case-Shiller index of 20 cities stood at 146.34 in January 2009 and hit a low of 134.10 in March of this year, according to Standard & Poor’s, which compiles the index. This week it was 144.61, a steep 1.6 percent monthly rise from August. Even the hardest-hit low end of the market showed strong gains, and many commentators predicted housing prices had bottomed and begun a sustained rise.
The luxury housing market, especially in cities like New York, Los Angeles, San Francisco and Miami, has fared even better, with many properties selling at headline-grabbing record prices. At the extreme upper end, several Manhattan condos have recently sold at prices close to $100 million.
For voters with short-term memories, these trends have been even more pronounced in the last year. Stock prices are up about 14 percent so far in 2012, and much of the gain in housing prices has come in recent months.
And a wide array of assets typically owned by the wealthy have surged in value, from jewelry to wine, antiques and art.
The combination of rising stock prices and a rebound in the real estate market may be a reason consumer confidence rose sharply this week to its highest level in seven months. The survey shows that the confidence is even stronger among people with higher income levels.
The wealth effect may also help explain why the rhetorical question was so successful for Mr. Reagan. The S.& P. 500 gained 27 percent during the Carter presidency, but those gains were more than eroded by inflation, which was near 14 percent when Mr. Carter left office. Median home prices went from $45,500 in January 1977 to $67,600 in January 1981, close to a 50 percent rise. But those otherwise impressive gains were similarly undercut by inflation, not to mention widespread anxiety about whether it could be contained. Inflation has been negligible during the Obama presidency.
Of course, the wealth effect benefits only those who own assets that are appreciating in value. “It’s a higher-end story,” said Dean Baker, co-director of the Center for Economic and Policy Research, who has written extensively about the wealth effect. “For most people, their wealth is their house. But I think housing and stock prices are having an effect. People are reading that the stock market is hitting new highs and that housing prices are rising. That affects future expectations. Look at consumer confidence, which is way up. It doesn’t mean they’ll go out and buy big-ticket items, but it does affect how they feel.”
Mr. Baker added, “The irony is that the Obama administration has done very well for the top 10 percent of households and certainly for the top 1 percent.” Mr. Romney himself surely falls into that category, given his high exposure to equity markets and the millions in capital gains he reported in 2010 and 2011.
By contrast, “For low-income households, their balance sheets are still under pressure,” Mr. Zandi said. “Many have been through foreclosure. They may have student loans, and they’re still struggling with credit card debt and auto loans.”
This is the group most likely to feel they aren’t better off, and thus be more inclined to vote for Mr. Romney. But they also tend to be among the 47 percent of the population with no exposure to rising stock prices. Although Mr. Romney has said he wants to be a president for all Americans, that’s the same percentage of the population he seemed to write off when he said “my job is not to worry about these people” at a Florida fund-raiser.
Conversely, people who are unambiguously better off would seem likely to vote for Mr. Obama. But wealthy people aren’t flocking to the president. “It’s much more complex,” Mr. Zandi said. Household net worth, no matter how much it’s improved, “isn’t what really drives people’s thinking. Many wealthy people prefer Romney’s tax policies, and believe they’d be even better off with him as president.”
Still, the wealth effect seems to be blunting the impact of the question, despite widespread public dissatisfaction with the economy. “If you look at the upper end of the scale, maybe the top third, their balance sheets are as good as they’ve ever been,” Mr. Zandi said. “They’ve got a mortgage at 4 percent and they’re refinancing lower. It’s basically free money. Their stock portfolios are back up and housing is kicking in. They’re feeling good.”
(New York times)
By JAMES B. STEWART
Published: September 28, 2012
“This president cannot tell us that you are better off today than when he took office,” Mitt Romney said as he accepted the Republican presidential nomination. Since then, “Are you better off?” has become a central theme of the campaign, and is likely to surface next week at the first presidential debate.
Are Americans better off? By one important measure, that depends on who you are. Unfortunately for Mr. Romney, the group most likely to answer with a resounding “no” — those who should be most receptive to his message — appear to be the least likely to vote for him.
In raising the issue to such prominence, Mr. Romney is echoing Ronald Reagan’s famous closing during his 1980 debate with Jimmy Carter, which is widely credited with swinging the election in Mr. Reagan’s favor. Exactly what he and other politicians have meant by the phrase “better off” is vague, but many commentators have looked to the unemployment rate, gross domestic product, household income and inflation rate as relevant statistics for comparison.
By these measures, the answer is mixed. The unemployment rate in August was 8.1 percent, down from 10 percent in October 2009 but higher than the 7.8 percent in January when President Obama took office.
Gross domestic product increased at an estimated 2 percent rate in the first quarter and 1.3 percent in the second. While slow, that was a substantial improvement from the 3.8 percent contraction reported in January 2009, which was the worst drop in 27 years. Inflation was 1.7 percent in August, well within the Federal Reserve’s target range and much better than the modest but worrisome deflation of early 2009.
Median household income for 2011 was an estimated $50,054, compared with $52,546 in 2008, according to the Census Bureau. About the best the Obama administration has been able to say is that trends show slow but steady improvement.
This ambiguity shows up in the latest polls. In a Quinnipiac University/New York Times/CBS poll released this week, likely voters in Florida split 40 percent to 43 percent on the question of whether the United States is better off today than it was four years ago, with 40 percent saying the country is better off. In Ohio, it was tied at 39 percent, and in Pennsylvania it was 35 percent to 41 percent. Remaining voters thought the country was about the same or were undecided. But disaffection with the economy didn’t translate into support for Mr. Romney, who trailed Mr. Obama by widening margins in all three states.
There’s another measure that may help explain why Mr. Romney seems to be getting so little traction from the “are you better off” issue. It’s the wealth effect, which occurs when rising asset prices make people feel more secure. And in that respect, the answer is clear. As Mark Zandi, chief economist for Moody’s Analytics, told me this week, “From the perspective of the aggregate household balance sheet, we’re unambiguously better off than four years ago and are almost all the way back” to the peak before the financial crisis.
That’s because of a combination of rising asset prices, especially American stocks and real estate, and lower household debt. Total household net worth, which is assets minus liabilities, was $50.4 trillion in the first quarter of 2009 when Mr. Obama took office. It was $62.7 trillion in the second quarter 2012, which ended June 30. Mr. Zandi and other economists predict that it will be significantly higher for the third quarter ending this month thanks to this summer’s stock market rally and recent strong gains in housing prices. It might soon hit the peak of $67.4 trillion reached in the third quarter of 2007.
A healthy household balance sheet is a crucial measure of financial security, and it affects a majority of the population. According to a Gallup poll this year, 54 percent of Americans said they owned stock either directly or indirectly through mutual funds, exchange-traded funds and retirement plans. In that regard, they are much better off now than when Mr. Obama took office.
From January 2009 until this week, the Standard & Poor’s 500-stock index had gained over 55 percent. The Nasdaq composite index has surpassed levels last reached in 2007. There has been a stream of headlines and news reports about stocks hitting new highs.
Even more Americans own real estate. Sixty-two percent reported owning homes in April, according to Gallup. Housing prices are still far below their 2006 peak, but most of the collapse took place before Mr. Obama took office. The Case-Shiller index of 20 cities stood at 146.34 in January 2009 and hit a low of 134.10 in March of this year, according to Standard & Poor’s, which compiles the index. This week it was 144.61, a steep 1.6 percent monthly rise from August. Even the hardest-hit low end of the market showed strong gains, and many commentators predicted housing prices had bottomed and begun a sustained rise.
The luxury housing market, especially in cities like New York, Los Angeles, San Francisco and Miami, has fared even better, with many properties selling at headline-grabbing record prices. At the extreme upper end, several Manhattan condos have recently sold at prices close to $100 million.
For voters with short-term memories, these trends have been even more pronounced in the last year. Stock prices are up about 14 percent so far in 2012, and much of the gain in housing prices has come in recent months.
And a wide array of assets typically owned by the wealthy have surged in value, from jewelry to wine, antiques and art.
The combination of rising stock prices and a rebound in the real estate market may be a reason consumer confidence rose sharply this week to its highest level in seven months. The survey shows that the confidence is even stronger among people with higher income levels.
The wealth effect may also help explain why the rhetorical question was so successful for Mr. Reagan. The S.& P. 500 gained 27 percent during the Carter presidency, but those gains were more than eroded by inflation, which was near 14 percent when Mr. Carter left office. Median home prices went from $45,500 in January 1977 to $67,600 in January 1981, close to a 50 percent rise. But those otherwise impressive gains were similarly undercut by inflation, not to mention widespread anxiety about whether it could be contained. Inflation has been negligible during the Obama presidency.
Of course, the wealth effect benefits only those who own assets that are appreciating in value. “It’s a higher-end story,” said Dean Baker, co-director of the Center for Economic and Policy Research, who has written extensively about the wealth effect. “For most people, their wealth is their house. But I think housing and stock prices are having an effect. People are reading that the stock market is hitting new highs and that housing prices are rising. That affects future expectations. Look at consumer confidence, which is way up. It doesn’t mean they’ll go out and buy big-ticket items, but it does affect how they feel.”
Mr. Baker added, “The irony is that the Obama administration has done very well for the top 10 percent of households and certainly for the top 1 percent.” Mr. Romney himself surely falls into that category, given his high exposure to equity markets and the millions in capital gains he reported in 2010 and 2011.
By contrast, “For low-income households, their balance sheets are still under pressure,” Mr. Zandi said. “Many have been through foreclosure. They may have student loans, and they’re still struggling with credit card debt and auto loans.”
This is the group most likely to feel they aren’t better off, and thus be more inclined to vote for Mr. Romney. But they also tend to be among the 47 percent of the population with no exposure to rising stock prices. Although Mr. Romney has said he wants to be a president for all Americans, that’s the same percentage of the population he seemed to write off when he said “my job is not to worry about these people” at a Florida fund-raiser.
Conversely, people who are unambiguously better off would seem likely to vote for Mr. Obama. But wealthy people aren’t flocking to the president. “It’s much more complex,” Mr. Zandi said. Household net worth, no matter how much it’s improved, “isn’t what really drives people’s thinking. Many wealthy people prefer Romney’s tax policies, and believe they’d be even better off with him as president.”
Still, the wealth effect seems to be blunting the impact of the question, despite widespread public dissatisfaction with the economy. “If you look at the upper end of the scale, maybe the top third, their balance sheets are as good as they’ve ever been,” Mr. Zandi said. “They’ve got a mortgage at 4 percent and they’re refinancing lower. It’s basically free money. Their stock portfolios are back up and housing is kicking in. They’re feeling good.”
(New York times)