How's the economy doing? Depends on which party you belong to.

Commentary about business and finance.
Nov. 9 2010 4:34 PM

Playing Politics With the Economy

How's the economy doing? Depends on which party you belong to.

Dollars. Click image to expand.
Voters' views on the economy are linked to their party affiliations.

Between 2008 and 2010, a seemingly remarkable transformation took place among voters who say their financial situation has gotten worse in the last two years: They became Republicans. Specifically, this group of voters, which made up 41 percent of the electorate last week and 42 percent in 2008, went from voting 71 percent for Obama in 2008 to breaking 65 percent for Republicans this year.

At first glance, this shift is puzzling. Granted, some people who are hurting financially may simply keep voting to "throw the bums out" until things change. But the shift is too dramatic—almost half of the electorate wildly oscillating between the two parties—for this theory to suffice. Partisan voting patterns are supposed to be, and mostly are, stable. The explanation, it turns out, is that people's perceptions of the economy—and even of their own financial situation—have a lot more to do with their political leanings than with objective economic facts.

"Financially worse off today" is a surprisingly fluid category. What in 2008 was mostly a Democratic slice of the electorate is now mostly a Republican slice. And no, it's not because Obama's policies somehow selectively benefited Democrats at the expense of Republicans. It's mostly a matter of partisan perception: 2008's economic Cassandras were primarily Democrats sure that Bush's empire-building profligacy was ruining the economy, and 2010's Chicken Littles are chiefly Republicans convinced that Obama's creeping socialism is hastening America's decline.

To understand the strength of partisan distortion of objective economic facts, consider the following: Between 1980 and 1988, inflation fell from about 14 percent to about 4 percent. But when asked what had happened to inflation over Reagan's two terms, more than half of "strong" Democrats insisted that inflation had gotten somewhat or much worse over that period, whereas only 8 percent said it had gotten better, according to an analysis by Larry Bartels, a professor of politics at Princeton. For "strong" Republicans, it was pretty much the exact opposite.

"Partisan predispositions exerted a powerful impact on perceptions of 'objective' economic events," wrote Bartels, "not only in the extreme categories of 'strong' Democrats and Republicans but over the whole range of the party identification scale."

Or consider what happened 2006, when Democrats took back control of Congress. Alan Gerber and Gregory A. Huber, political scientists at Yale, found that shortly after the election, Democratic voters reported significantly higher optimism about their economic future and accordingly said they planned more consumption, as compared with just before the election. Republican voters, meanwhile, turned pessimistic and said they planned to tighten their budgets.

These aren't idle bluffs. Gerber and Huber have also shown that retail spending is strongly correlated with whether there is alignment between partisanship and who holds the presidency. Democratic-leaning counties spend more after a Democrat is elected president and less after a Republican is (and vice versa for Republicans). Nor is partisan-tinged economic evaluation unique to Americans. Researchers studying British politics in the '90s found the same phenomenon.

Gerber and Huber theorize that the bias arises because partisans have significantly more confidence in their own party to manage the economy. Another explanation is that partisans so badly want their side to be the better economic steward that they pick and choose the data that confirms their biases. Regardless, the finding has remained robust across many studies: Your assessment of the economy is influenced far more than it logically should be on whether you are a Democrat or a Republican.

These findings upend the conventional wisdom about politics and the economy in at least one respect. It is conventional wisdom—and also true!—that last week's Democratic "shellacking" owes a lot to the poor economy. What's more questionable is the conventional wisdom that Obama's 2012 fortunes rest on the fate of the economy: If growth picks up and unemployment goes down, he'll win back enough of the performance-oriented independent voters to tip the scales.

The lesson here is that even if the numbers start looking up, Republican voters are still not going to believe them—and Republican leaders and pundits are surely going to echo that disbelief, loudly and often. On the other hand, even if the numbers don't improve, this research suggests that Democratic voters will believe they did.

This won't be a problem if the economic recovery is blindingly obvious to more than half of the electorate. But even the most optimistic scenarios do not forecast a blindingly obvious recovery by 2012. In the 2012 presidential campaign, what may matter most is not the actual economic data, but which party can better sell swing voters on its interpretation of the data.

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