Category Archives: More Political than Economic

The UK Parliamentary Election Results: A Big Victory for the Conservative Party, While Voters Shifted to the Left

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UK Per Capita GDP 2008Q1 to 2015Q1 vs Great Depression

A.  Introduction

The recent Parliamentary election in the United Kingdom was without doubt a big victory for the Conservative Party and a loss for Labour.  The normally staid The Economist (which I try to read on a regular basis) sub-titled its Bagehot column this past week as “British voters have showed a crushing disdain for the Labour Party”, and in its first sentence termed the election a “calamitous defeat” for Labour.  Stronger language is available in other British publications, for those who are interested.

But while undoubtedly a defeat for Labour and a victory for the Conservatives (who gained a majority of the seats in Parliament, and hence will no longer need to rule in a coalition), one should not jump to what would seem to be the natural conclusion that voters shifted to the Right while abandoning the Left.  That did not happen.  Given the rules of the British electoral system, where Parliamentary seats are won by whomever gained most votes (not necessarily a majority) in each of the 650 constituencies (a “first past the post” system), plus the rise of significant third parties on both the Left and the Right, swings in voter support between Left and Right were quite different from swings in the number of seats won by the major parties.

This blog post will look at these election results, in comparison to the results from the most recent UK general election in May 2010.  That election brought a Conservative – Liberal Democrats coalition to power, replacing the previous Labour Government.  Some have argued (most strongly by the Conservative Party leaders themselves) that the recent election results mark a vindication of the economic program it launched soon after taking office, and a recognition of its success.  The first section below will examine very briefly whether that program can be termed a success, and the rest of the post will then look at the election results themselves.

B.  Growth Has Been Poor

Perhaps the best single measure of whether a government’s program succeeded or not is whether it led to good and sustained growth or not.  While there is of course much more to be concerned with, real incomes and living standards cannot increase overall unless there is growth.

The chart at the top of this post shows what happened in the recent downturn to real per capita GDP in the UK, measured relative to the peak level it had achieved before the downturn (in the first quarter of 2008).  It also shows the path followed by the economy during the Great Depression in the UK, from the peak reached in the first quarter of 1930. The recent data come from the UK Office of National Statistics, while the data on real GDP in the 1930s come from the data set (drawn from academic studies) released by the Bank of England and called “Three Centuries of Data” (a hot link is not possible, but just do a Google search to find it).

The rapid and steep decline in GDP at the start of the Great Depression, and then a delayed and initially slow recovery, had marked the worst previous period for the economy over at least the last century.  But the current recovery has been worse.

The downturn during the 2008 collapse initially traced very closely the path of the downturn during the first year of the Great Depression.  But the Labour Government in power until mid-2010 was able to turn this around after about a year with stabilization and stimulative measures, with the economy then starting to grow.  A Conservative led coalition (with the Liberal Democrats) then took power after the May 2010 general elections, and soon announced a sharp austerity program.  After one more quarter of growth (the new austerity measures began to be implemented in the fall of 2010), the economic recovery was brought to a halt.  Real per capita output was largely unchanged over the next two and a half years.

Policy then shifted, with an easing of the austerity measures.  Growth resumed in early 2013, to a modest rate averaging 1.9% a year (per capita) over the two years leading up to the recent election.  While better than no growth at all, as during the first two and a half years of the Conservative-led Government, such a modest growth rate for an economy coming out of the worst downturn since the Great Depression is poor.

Indeed, as the chart at the top of this post shows, the recovery was a good deal faster during the Great Depression.  At the same point in the downturn (after 28 quarters, or 7 years), real GDP per capita in the Great Depression was 7 1/2 % higher than it had been at its previous peak at the start of 1930.  In the current downturn, it is still 1% lower than it was at the start of 2008.

This is a terrible record.  While there is strong evidence in the political science literature that voters only pay attention to growth in just the year or so before a general election (rather than looking farther back to the full record of the administration), one cannot find evidence here that the austerity program of the Conservatives has been a great success. At most it says that voters can perhaps be fooled by timing the economic cycle to cut growth when first taking office to make it easy to have a “recovery” as the next election approaches.  But it is not clear that UK voters have in fact been fooled in this way, once one looks at whether voters indeed shifted to the Right or to the Left.

C.  Overall Election Results by Party

First the election results by party.  The figures are all taken from the BBC, and the comparisons are made relative to the results in the 2010 general election.  In terms of the number of seats gained or lost:

UK Parliament 2015 Election Results, Change in Number of Seats by Party

Labour lost 26 seats, and the Conservatives won 24, bringing the Conservative total to 331, or a majority in the 650 seat House of Commons in Parliament.  This was a major victory for the Conservatives and a loss for Labour.

The Liberal Democrats also lost, but by much more.  They had won 57 seats in the previous election but only 8 now, for a loss of 49.  They had joined as the junior partner in the Conservative-led coalition of the previous Parliament, and provided the key votes that allowed approval of the conservative agenda of austerity (as well as tax cuts, mostly benefiting the rich).  Voters who had supported the Liberal Democrats before clearly did not like what their party representatives had done, and the party was decimated.

But the biggest winner by far in terms of number of seats was the Scottish National Party (SNP), which gained 50 seats.  This was more than double what the Conservatives gained. The SNP advocates policies well to the left of Labour in terms of support for social programs (in addition to its support for a Scottish nation).  This hints at the need to start to break down the results to see what really happened.

The first step is to look at the swing by party in the share of votes cast.  Because of the UK “first past the post” system, plus the existence of significant smaller parties, swings in votes cast can differ significantly from swings in seats won.  The changes in the shares of the vote gained were:

UK Parliament 2015 Election Results, Change in Share of Vote by Party

Here the Labour Party actually gained, increasing their share of the UK vote by 1.5% points.  They gained in terms of their share of the vote, but still lost 26 seats.  The Conservatives also increased their share of the vote. but only by 0.8% points, about half of what Labour gained, even though this led to their gaining 24 seats in the new parliament. One cannot conclude from this that there was a big swing in sentiment away from Labour and towards the Conservatives.  Labour increased its share of the vote, and by more than the Conservatives did.  But with the UK first past the post system, what matters in terms of seats won is how these votes are spread across constituencies and what gains and losses are being made by third parties.

Among the remaining parties, the Liberal Democrats saw their share of the vote collapse by over 15% points, to a total in 2015 of less than 8% of the voters.  They were decimated, and their losses in seats are consistent with this.

The SNP, as noted above, won big in terms of seats gained, but at a national level their share of the vote rose by just 3% points.  But the SNP contested only seats in the 59 districts in Scotland (and took 56 of them), and there their share of the vote rose by 30% points.  The 50 seats the SNP gained came mostly from Labour (which lost 40 seats in the Scottish districts) and the Liberal Democrats (which lost 10 seats).  The Conservatives had one seat before in Scotland and one seat after, for no net loss, but they basically had nothing to lose there to start with.

The Green Party, with a focus on environmental and social issues, is also on the left. While they gained no new seats in parliament, they increased their share of the UK vote by close to 3% points.

On the right is UKIP (UK Independence Party), a radically right-wing populist party advocating exit from the EU and conservative social programs.  They increased their share of the vote (relative to the 2010 elections) by 9.5% points and gained one seat relative to their 2010 results (when they won zero seats; in by-elections since 2010, UKIP won two seats, so their one seat now is a reduction relative to what they had immediately before the 2015 elections were called).

The BNP (British National Party) is an even more extreme right wing, anti-immigrant and anti-EU, party.  It had close to 2% of the vote in 2010, but dropped to essentially zero now, with most of its supporters likely shifting to UKIP.  It held no seats before or after.

Finally, the other category is comprised of a fairly large number of mostly small parties. The more important among them are regional parties in Wales and Northern Ireland, whose primary focus is on regional issues.  They had no net gain or loss of seats, but they hold a not insignificant 21 seats in the Parliament.

 D.  Left, Center, or Right

Given this distribution across parties, how would the vote and seat count add up if one grouped the parties by ideology?  The Left is made up of Labour, the SNP, and the Greens; the Center is the Liberal Democrats; the Right is the Conservatives, TKIP, and BNP; and Other is everyone else.

The results in terms of share of the vote is:

UK Parliament 2015 Election Results, Change in Share of Vote by Left, Center, Right

The Left gained 7.4% points of the vote, while the Right gained 8.4%.  And the Center (the Liberal Democrats) lost over 15% points.  This is hardly a resounding trouncing of the Left, or a renunciation of their views.

There is then more of a consistent result in the number of seats won or lost:

UK Parliament 2015 Election Results, Change in Number of Seats by Left, Center, Right

The Left won 24 seats, the Right won 25, and the Center lost 49.  It is hard to argue the Left lost in this election.  It is more correct to say that the Center lost, with almost even shares then going to the Left and to the Right.

E.  Just Left or Right

Finally, it is arguable that the Liberal Democrats can no longer be considered a centrist party.  They have been coalition with the Conservatives in the most recent Parliament, and provided the critical votes they needed to implement their austerity program of cuts in government programs (while at the same time granting tax cuts mostly benefiting the rich). While I would not want to argue the point too strongly, for completeness it is of interest to look at how the results add up if one combines the Liberal Democrats with the right-leaning parties.

In terms of voting shares, there is now a clear shift from the Right to the Left:

UK Parliament 2015 Election Results, Change in Share of Vote by Left, Right

The Left gained 7.4% points of the vote, while the Right lost 6.7% points (while the Other category lost 0.7%).  This would then be a pretty sharp swing to the Left.

And in terms of seats won:

UK Parliament 2015 Election Results, Change in Number of Seats by Left, Right

The Left gained 24 and the Right lost 24.  Under a different voting system than that used in the UK, this would have been a major victory for the Left.

F.  Conclusion

There can be no dispute that the Conservative Party won big in this election, while Labour lost.  The Conservatives gained an absolute majority in the new Parliament, and no longer need to rule in coalition.

But this win was a result of the particular electoral rules used in the UK.  The rules are what they are, and those who win by those rules are those who form the new government, but one should not then jump to the conclusion that this win by the Conservatives reflects an endorsement by the voters of their economic program.  There was, rather, a big move to the Left among the electorate as a whole, to parties that strongly criticized the austerity policies of the Conservative-led government.

More fundamentally, the UK recovery from the 2008 downturn has been far too slow, with growth that is not only well below where the economy was at the same seven-year mark during the Great Depression (8% lower in real per capita terms), but also even still below where the economy was in 2008.  No one can dispute that this is a terrible record.

How Much Was Bank Regulation Weakened in the New Budget Bill? And What Can Be Done Now?

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A.  Introduction

In a rare, late-night and weekend, session, the US Senate on Saturday night passed a $1.1 trillion government funding bill to keep the government running through to the end of fiscal year 2015 (i.e. until September 30, 2015).  The House had passed the bill on Thursday, and it has now gone to Obama for his expected signature.  Had it not been passed, the government would once have been forced to shut down due to lack of budget authority.  It was a “must-pass” bill, and as such, was a convenient vehicle for a number of provisions which stood little chance to pass on their own, but which could only be blocked by opponents now at the cost of forcing a government shutdown.  The specific provisions included were worked out in a series of deals and compromises between the leadership of the Republican-controlled House and the now Democrat-controlled (but soon to be Republican-controlled) Senate.

One such provision was an amendment to the Dodd-Frank Wall Street reform bill, originally passed in July 2010, which enacted a series of measures to strengthen the regulatory framework for our financial sector.  The failure of this framework had led to the 2008 economic and financial collapse in the last year of the Bush administration.  The amendment in the new budget bill addressed just one, and some would say relatively minor, provision in Dodd-Frank.  But its inclusion drew heavy criticism from liberal Democrats, led by Senator Elizabeth Warren of Massachusetts.  Senator Warren argued that the amendments to Section 716 of Dodd-Frank would “would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system.”  The amendments were reportedly first drafted by lobbyists for Citibank, and would benefit primarily a very small group of large Wall Street banks.

The amendments do reflect a backwards step from the tighter controls on risk that Dodd-Frank had provided for.  In my view, it would have been better to have kept the original provisions on the issue in Dodd-Frank.  But with a positive response now by the regulators to the reality of this new provision, the impact could be negated.  This blog post will discuss what was passed, what could be done now by bank regulators to address the change, and the politics of it all.

B.  The Amendment to Dodd-Frank, and the Economics of Derivatives

The amendment to Dodd-Frank addresses one specific provision in a very large and comprehensive bill.  An important link in the 2008 financial collapse was the risk major banks had carried on their books from certain financial derivative instruments.  “Derivatives” are financial instruments that derive their price or value from the price or value of some other product.  For example, oil derivatives derive their value from the price of oil (perhaps the price of oil at some future date), foreign exchange derivatives are linked to foreign exchange rates, credit default swaps are linked to whether there is a default on some bond or mortgage or other financial instrument, and so on.

Derivatives can be quite complicated and their pricing can be volatile.  And they can lead to greater, or to reduced, financial risk to those who hold them, depending on their particular situation.  For example, airlines must buy fuel to fly their planes, and hence they will face oil price risk.  They can hedge this risk (i.e. face reduced risk) by buying an oil derivative that locks in some fixed price for oil for some point in the future.  An oil producer similarly faces an oil price risk, but a bad risk for it is the opposite of what the airline faces:  The oil producer gains when the price of oil goes up and loses when it goes down.  Hence both the airline and the oil producer can reduce the adverse risk each faces by entering into a contract that locks in some future price of oil, and derivative instruments are one way to do this.  Banks will often stand in the middle of such trades, as the buyer and the seller of such derivative instruments to the airlines and the oil producers (in this example), and of course to many others.

Derivatives played an important role in the 2008 collapse.  As the housing bubble burst and home prices came down, it became clear that the assumptions used for the pricing of credit default swaps on home mortgages (derivatives which would pay to the holder some amount if the underlying mortgages went into default) had been badly wrong.  Credit default swaps had been priced on the assumption that some mortgages here and there around the US might go into default, but in a basically random and uncorrelated manner.  That had been the case historically in the US, for at least most of the time in the last few decades (it had not always been true).  But this ignored that a bubble could develop and then pop, with many mortgages then going into default together.  And that is what happened.

Dodd-Frank in no way prohibits such derivative instruments.  They can serve a useful and indeed important purpose.  Nor did Dodd-Frank say that bank holding companies could no longer operate in such markets.  But what Section 716 of Dodd-Frank did say was that banks that took FDIC-insured deposits and which had access to certain credit windows at the Federal Reserve Board, would not be allowed, in those specific corporate entities, also to trade in a specifically defined set of derivatives.  That list included, most notably, credit default swaps that were not traded through an open market exchange, as well as equity derivatives (such as on IBM and other publicly traded companies) and commodity derivatives (such as for oil, or copper, or wheat).  The bank holding companies could still set up separate corporate entities to trade in such derivatives.  Thus while Citigroup, for example, could set up a corporate entity owned by it to trade in such derivatives, Citibank (also owned by Citigroup), with its FDIC-insured deposits and with its access to the Fed, would not be allowed to trade in such derivatives.  That will now change.

It is also worth highlighting that under Dodd-Frank, banks with FDIC-insured deposits could still directly trade in such derivatives as interest rate swaps, foreign exchange derivatives, and credit default swaps that were cleared through an organized public exchange.  That had always been so, and will remain so.  The banks could also always hedge their own financial positions.  But they will now be allowed to trade directly (and not simply via an associated company under the same holding company) also in the narrow list of derivative instruments described above.

It is arguable that this is not a big change.  All it does is allow bank holding companies to keep their trading in such derivative instruments in the banks (with FDIC-insured deposits) that they own, rather than in separately capitalized entities that they also own.  The then Chairman of the Federal Reserve Ben Bernanke noted in testimony in front of a House panel in 2013 that “It’s not evident why that makes the company as a whole safer.”

So why do banks (or at least certain banks) want this?  Banks with FDIC-insured deposits and who also have access to certain credit windows at the Fed, are seen in the market as enjoying a degree of support from the government, that other financial entities do not enjoy.  The very largest of these banks may be viewed as “too-big-to-fail”, since the collapse of one or more of them in a financial crisis would in turn lead to a financial cataclysm for the country.  Thus depositors and other lenders are willing to place their money with such institutions at a lower rate of interest than they would demand in other financial institutions.

Thus Senator Warren and others charge that the amendments to Dodd-Frank “would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten to blow up our financial system”, as quoted above.  To be more precise (and less eloquent), any bank with FDIC-insured deposits will make investments with those deposits, those investments will have varying degrees of risk, and if there is a threat that they will fail, the government may decide that it is better for the country to extend a financial lifeline to such banks (as they did in 2008) rather than let them fail.  The amendments to Dodd-Frank will allow these banks to invest in a broader set of derivative contracts directly (rather than only at the holding company level) than they could have before.  Thus they could end up investing directly in a riskier set of assets than they could have before without this amendment, and all else being equal, there could then be a higher risk that they will fail.

Finally, it should be noted that the amendments to Dodd-Frank will benefit largely only four very large banks.  The most recent quarterly report from the Office of the Comptroller of the Currency indicates that just four big banks (Citibank, JP Morgan Chase, Goldman Sachs, and Bank of America) account for 93% of derivative contract exposure among banks (as of June 30, 2014).  While this figure includes all types of derivatives, and not just those on the list that is at issue here, it is clear that trading in such instruments is highly concentrated.

C.  What Can Be Done Now? 

Over the objections of Senator Warren and others, the amendments to Section 716 of Dodd-Frank have been passed as part of the budget bill.  Banks, and in practice a limited number of very large banks, will now be able to take on a riskier set of assets on their balance sheets.  But Dodd-Frank, and indeed previous bank regulation, has established a bank regulatory and supervision regime that requires that banks hold capital sufficient, under reasonable estimates of the risks they face, to keep them out of insolvency and an inability then to repay their depositors.  The bank regulatory and supervision framework was clearly inadequate before, as the 2008 collapse showed.  Dodd-Frank has strengthened it considerably.  The specific rules are now being worked out, and like all such rules will evolve over time as experience dictates.

The amendments to Section 716 of Dodd-Frank will now change the set of risks the banks will possibly face.  I would suggest that now would be a good time for current Fed Chair Janet Yellen, or one of the other senior bank regulators heading up the process or even President Obama himself, to make a statement that they will of course follow the dictate of the law (as spelled out in Dodd-Frank, as it still stands) to take into account these possible new risks as they work out the capital adequacy ratios for the banks that will be required.

Specifically, the statement should make clear that the capital ratios required of banks that trade in these newly allowed instruments will now have to be set at some higher level than would previously have been required, due to the higher risks of such assets now in their portfolio.  It could and should be made clear that the law requires this:  The regulators are required to determine what the capital ratios must be on the basis of the risks being held by the banks in their portfolios.  How much higher the capital ratios will need to be will depend on the riskiness of these new assets compared to what the banks previously invested in, and how significant such new assets will be in their portfolios.  It is quite possible that faced with such higher capital requirements, the banks that had pushed for this new latitude will decide that it would be wiser not to enter into those new markets after all.  They may well come to regret that they pushed so strongly for these amendments to Dodd-Frank.

This is perhaps not the best solution.  The prohibition on direct trading in the proscribed list of certain financial derivative instruments is cleaner and clearer.  Most importantly, while current bank regulators may use their authority to ensure banks hold sufficient capital to reflect the greater risk in their portfolio, there is the danger that regulators appointed by some future president may not exercise that authority as wisely or as carefully.  This was indeed the fundamental underlying problem leading up to the 2008 collapse.  The Bush administration was famously anti-regulation, and Bush appointed officials who were often opposed to the regulations they were in office to enforce.  In at least some cases, the officials appointed who were not even competent to carry out their enforcement obligations.  For example, Bush famously appointed former Congressman Christopher Cox as head of the SEC.  The SEC at the time had the obligation to regulate investment banks such as Lehman Brothers, Goldman Sachs, and Morgan Stanley.  As Lehman Brothers collapsed, with worries that Goldman Sachs, Morgan Stanley, and others would soon be next, Christopher Cox was at a loss on what to do, and was largely by-passed.  Dodd-Frank changed regulatory responsibility (the Fed and other financial regulators are now clearly responsible, where Goldman Sachs and Morgan Stanley had already been “encouraged” to become formal banks and as such subject to Fed oversight), but there is the risk that some future president will choose, like Bush, to put in place figures who either do not believe in, or are not capable of, serious financial supervision and oversight.

In addition, financial crises are always a surprise.  They occur for some unexpected reason.  If they were expected, actions could be taken to address the causes, and they would not happen and hence not be observed.  But surprises happen.  Hence Dodd-Frank, and indeed all financial regulation, includes an overlapping and mutually reinforcing set of measures to try to ensure crises will not occur and that banks will not become insolvent should they occur.  One does not know beforehand which of the regulatory measures might be the critical one for some future and unforeseen set of circumstances leading to a crisis.  it is therefore wise to include what others might call redundancies.  The amendment to Dodd-Frank will remove one of the possibly redundant measures to ensure bank safety.  The remaining measures (e.g. the capital adequacy requirements) may well suffice to address the safety issue, but in cases like this, redundancy is better.

D.  The Politics of It All

While the economics may suggest that the change resulting from the amendment to Dodd-Frank need not be catastrophic if regulators respond wisely, and hence that the amendment is not such a big deal, the politics might be different.

The biggest concern is that many see this as possibly the opening round of a series of amendments to Dodd-Frank and other laws identified with the Obama administration, that a Republican Congress and now Senate will push through on “must-pass” legislation such as budget bills.  Particularly if this had slipped through quietly, with little public attention until after the bill had been passed, the bankers and their Republican representatives could have seen this as a model of how to pass changes to legislation that would not otherwise have gone through.  While the model is certainly not a new one, its affirmation in this instance would have strengthened their case.

The loud objections by Senator Warren and others has served to bring daylight to the changes in financial regulation being proposed.  This will hopefully make it more difficult to push through further, possibly much more damaging, changes to Dodd-Frank at the behest of the banks.

Ensuring attention was paid to the issue also served to make clear who in the House and the Senate are in fact in favor of bank bailouts.  Weakening Dodd-Frank will increase the likelihood (even if only marginally so) that bank bailouts will be necessary in some future crisis to protect FDIC insured deposits and to protect the economy from a full financial collapse.  Republicans, including in particular Tea Party supported Republicans, have asserted they are against bank bailouts.  But their actions here, with the Dodd-Frank amendments inserted into the budget bill at the insistence of the House Republican leadership, belies that.

The actual economic substance of the Dodd-Frank amendments might therefore be limited, especially if there is now the regulatory response that should be required in the environment of certain banks holding more risky assets.  But the politics may be quite different, and could explain why there was such a vociferous response by Senator Warren and others to this ultimately successful effort to weaken a provision in Dodd-Frank.

Some Thoughts on the Midterm Elections in the US

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The Democrats clearly did terribly in the midterm elections on November 4.  Here are some thoughts on some (not all) of the factors behind this:

1)  Turnout is the “name of the game” in US elections, and the Democrats did badly at getting their normal supporters to go to the polls and vote.  Only an estimated 36% of those eligible to vote in the US actually voted this time, 11% below the 41% rate estimated for the 2010 midterms.  One traditionally thinks of elections as if voters go to the polls regardless, with the issue then being whether their choice will be candidate A or candidate B.  Under such circumstances, a successful campaign strategy is to focus on how best to convince those voters to vote for you rather than your opponent.  An appeal to the voters who are politically in the middle would then be, under such conditions, a good strategy.

But most Americans do not vote.  The winner is then the candidate most successful at convincing those who would vote for him or her, to actually take the trouble to vote.  The need is to get those who would vote for you to overcome the hurdles they must go through to cast their ballot.  They are more likely do this the more committed they are to the candidate and what he or she represents.

2)  Obama, and Democrats generally, did a poor job at making such an appeal.  Possibly the clearest example of this was Obama’s decision (under pressure from several Democratic candidates for the Senate, most of whom then lost) to postpone any announcement of executive actions he would take on immigration reform – actions which would not require new legislation.  Obama publicly promised to make such an announcement this past summer, but then decided to postpone any such announcement until after the election.  This then led to strong criticism by many Hispanics, including heckling at some of his speeches, and a reduction in support from Hispanics.  This was manifested in part by a reduced share of the Hispanic vote going to Democrats, but even more in a reduction in Hispanics going to the polls at all.  The result will now be a Senate more averse to immigration reform than before.  But the reaction by Hispanics is understandable.

The strategy did not pick up many, if any, moderate votes.  But it did lead to a key constituency to be less interested in overcoming the hurdles that exist in the US (and increasingly exist:  see below) to go out and vote.

One can point to issues that have disappointed other key constituencies as well. Significant groups of Obama supporters were disappointed by his (so far) non-decision on the Keystone pipeline (he has not approved it, but nor has he decided against it); his extension of the Bush tax cuts for all but the extremely rich (which has weakened the fiscal accounts, with this then strengthening those opposed to the government spending that would have accelerated the recovery and reduced unemployment); his failure to prosecute aggressively those on Wall Street who through fraud sold mortgage-backed securities that misrepresented the financial capacity of many of those receiving such mortgages, which led directly to the 2008 financial crisis; the support provided to those Wall Street banks and other financial institutions then to rescue them from this crisis, while home-owners who were sold such mortgages received only limited, and in the end ineffectual, help; and more.

I would not argue that these positions did not reflect Obama’s genuine beliefs.  While conservative pundits have labeled him a far-left socialist, or worse, Obama has in fact governed from the middle.  But such positions then had the effect of leading many with more liberal views not to see a reason to go to the polls.

Obamacare provides a further example.  It has successfully reduced the number of uninsured in America by over ten million so far, and has been the most important health care reform in the US since Medicare was passed in 1965.  But it has been criticized by those on the left as an overly complex program.  As they note, it was a plan first conceived by the conservative Heritage Foundation in 1989.  Republicans in Congress in 1993 then championed this plan, with its individual mandate, as their counter-proposal to the health reform plan of the White House task force led by Hillary Clinton.  Many Obama supporters would have preferred the simpler approach of a health care plan built on extending Medicare to the full population (a single-payer system).  The problems with the launch of the Obamacare exchanges in October 2013 affirmed for many that such a simpler plan would have been better.

The Obamacare system that works through private insurance companies may have been necessary politically, to get any health care reform passed through congress.  It was politically in the middle, derived from a plan first pushed by Republicans.  But it disappointed many liberals as overly complex and more costly than an extension of Medicare to all would have been, while picking up few votes from voters in the middle.

3)  Voter suppression works, and can be decisive in close elections.  A wave of more restrictive voting measures were enacted following the 2010 elections, in those states where Republicans took (or kept) control of both the governorship and both houses of their legislatures.  Courts have ruled against some of the new voting restrictions, while others were merely postponed.  Such new measures, which vary by state, were in place in 21 states for the first time in a midterm election in 2014.

The measures all act to increase the hurdles to voting.  They can have a particularly discriminatory impact on the poor and many minorities.  Voter ID requirements may not matter much to someone with a car and driver’s license, but if you are poor and do not own a car, and hence have had no need for a driver’s license, the burden can be significant.  And the intent of such laws was made especially clear in Texas, where a license to carry a handgun is counted as a valid ID for voting, while a state-issued photo ID at the University of Texas for an in-state student is not.

It is difficult to impossible to estimate the impact that raising the hurdles to voting has had on voter participation.  A recent study by the GAO estimated that in two states examined (Kansas and Tennessee), the result may have been a reduction in voter participation of about 2 to 3%.  If all this impact is focussed on one side of potential voters (e.g. poor who would vote for Democrats) in an otherwise evenly divided state, the impact would be to reduce the votes on one side by 4 to 6%.  This is huge, and could be decisive in many contests.

Two prominent states that introduced significant new voting hurdles since 2010 were North Carolina and Florida.  Republican Thom Tillis, who as speaker of the state House of Representatives pushed through the new voting measures, beat Senate incumbent Kay Hagan by a narrow 49.0% to 47.3%.  He may well owe his win to the new hurdles.  And Republican Governor Rick Scott of Florida signed into law new voting restrictions as well as implemented executive actions that made voting more difficult.  He won over his challenger (former governor Charlie Crist) by a margin of just 48.2% to 47.1%.

While it is impossible to say with certainty that the new hurdles were the deciding factors in these races, they figures are so close that they very well could have been.

4)  Obamacare has succeeded in its primary objective of making it possible for more Americans to obtain health insurance.   But the politics of whether such progress will translate into net votes in favor of politicians who supported it are not straightforward.

In the US, before Obamacare, roughly 85% of the population (using round numbers, but sufficient for the illustrative purposes here) had health insurance, whether through government programs such as Medicare and Medicaid, or through private insurance normally obtained via your employer.  About 15% of the population had no such health insurance cover, and the primary aim of Obamacare was to make it possible for this 15% to obtain health insurance coverage.

While making it possible for this 15% to obtain health insurance is an indisputable gain to the 15%, they of course only make up 15% of the total.  The other 85% already have health insurance, and health insurance coverage is of course important to all of us.  But with the complexities of the Obamacare reforms, the 85% who already with health insurance cover can understandably be worried whether Obamacare might have an adverse impact on them.  It won’t, and there will indeed be gains for most of them (health insurance policies must now meet certain minimum standards, including the provision of coverage for routine annual check-ups without a deductible, coverage for adult children up to the age of 26, an end to denial of coverage for pre-existing conditions, and other measures).  Only a relative few of the very rich will now pay more in taxes to cover in part the cost of subsidies that will make it possible for those of lower income to afford coverage.

But with the complexities of the Obamacare reforms, plus the anti-Obamacare campaigns by certain political groups (such as a number supported by the Koch brothers), as well as by Fox television and a number of radio talk programs (such as Rush Limbaugh), it is not surprising that people within the 85% may worry.  Access to health care is important to all of us, and if Obamacare would, in some unclear fashion but based on what critics are asserting, lead to loss of coverage within the 85%, one can understand the concerns.  And with the 85% far outnumbering the 15%, it would not take a very high share of the 85% to oppose Obamacare, under the mistaken belief they will be harmed in some unknown way, to offset the positive reactions among the 15% now able to obtain affordable health care.

There can be a similar political arithmetic in other areas as well.  Falling unemployment will matter a good deal to those now able to get jobs, but they constitute a relatively small share of the labor force.  After all, an unemployment rate below 6% (as it is now) means that more than 94% have jobs.  And if those with jobs are told that the measures being taken to spur growth will have an adverse effect on them (such as the assertions, completed unsupported by any facts on what has happened to inflation thus far, that the Fed’s monetary policy will lead to hyperinflation), the political gains from bringing down the unemployment rate may be more than offset by the worries of the 94%.

 

There were many reasons for the poor showing of the Democrats in the November 4 midterms.  The factors discussed above are only a few, and perhaps not even the most important ones.  But they did contribute.