2011 June 05 Sunday
Economy Working Against Obama Reelection

Back in February 2008 I made a prediction: Recession Assures Republican Presidential Defeat In 2008. But Obama's got a really big advantage independent of the economy that Shelby Steele has explained: Obama's Unspoken Re-Election Edge: This presidency flatters America to a degree that no white Republican can hope to match. Still, the economy is a really big enemy of Obama's election chances and another oil price spike could send the economy into a deeper downturn than 2008-2009.

Guy Molyneux, a Democratic pollster, said that while the economy might not be the sole factor in deciding Obama’s political fate, it will set the overall frame of the campaign.

“If things get worse, it would take a great campaign or a terrible failure by his opponent for Obama to win,” Molyneux said. “And if this ends up being just a hiccup and we see strong growth next year, then a Republican victory starts to look pretty unlikely.”

What is funny: Obama's reelection depends on a large increase in oil production. Only a big uptick in exports from Iraq or Saudi Arabia or some other big producer could lower prices enough to allow faster economic growth. Obama needs economic growth fast enough to lower unemployment. But hiring slowed and the economy is slowing down to at best a 2% growth rate.

Economic growth is going to become increasingly difficult. Since the system has many pieces designed with the assumption that growth will occur (e.g. pension funds that are only financially sound if rapid economic growth enables a high return on investment to pay future benefits) the lack of robust growth causes huge financial problems. Since nanotech's potential has been exaggerated, Peak Oil is near, the world economy is becoming limited by other natural resource shortages, and the external costs of population growth are rising we are headed for hard times.

Parenthetically, since the less educated have very high unemployment rates it would be sensible for policy makers to put an end to all low-skilled immigration. Of course, America is not ruled by sensible people. But still, it would be sensible to deport all the illegal aliens and stop letting in anyone who doesn't have at least a college degree, preferably in engineering or another especially well-paying occupation.

The economic problems of the US are part of a larger global pattern. With slow economic growth in both developing and developed countries the whole world shows the effects of high commodity prices, especially high oil prices.

The IMF forecasts 6 per cent gross domestic product growth rate for 2011 for emerging economies – three times higher than in the developed world.

The less developed countries are hardest hit by high grain prices since poorer people spend much larger fractions of their income on food. That article reports on high inflation in a number of developing countries (e.g. India at 8.7%).

Parts of Latin America look headed for harder times. Chronically mismanaged Argentina has 25% inflation. Venezuela's inflation is at 23% and in spite of oil wealth the poorest quarter of Venezuelans spend 45% of their income on food. Given Hugo Chavez' mismanagement that's not surprising.

We are in a zero sum world. Economic mismanagement in some countries can cut demand and prices for resources and therefore allow other countries to grow. Obama could be helped by a downturn in China that would lower commodity prices. But he'd be hurt by political unrest in the Middle East or Nigeria that would raise oil prices. His political fate is very much out of his hands.

Share |      By Randall Parker at 2011 June 05 06:47 PM  Politics American Presidency


Comments
Eggwhite said at June 5, 2011 9:08 PM:

It is beyond comprehension that we are allowing massive immigration (legal and illegal) in the middle of a recession. If people won't demand it now, it is hard to imagine conditions under which they will.

WJ said at June 5, 2011 9:43 PM:

The highest unemployment rates are among young and unskilled workers - precisely the groups that face the most competition from illegal immigrants, who are currently occupying about 7 million jobs that could otherwise be filled entirely by Americans. Payrolls are growing, just not at a pace that can keep up with immigration, let alone total population growth. We're adding nearly a million new people per year just via legal immigration, and our population growth in the last decade averaged 2.7 million new people a year, but we're only adding jobs at a rate of 600-700k or so.

Obama doesn't want this immigration to stop, or for illegals to go away. He wants them to keep coming and thus dispossessing white Americans of their own country. His own ideology is diametrically opposed to the policy that would best improve his re-election chances. His only hope was for the now failed stimulus plan to work, but it isn't. He'll get no more stimulus money from this Congress. If Republicans manage to reduce the federal budget that will hurt job growth even more, though it still needs to be done.

Reducing the numbers of unskilled immigrants and expelling illegal immigrants is an essential part of any solution to our economic and budget crises. Their absence will affect both sides of the ledger positively: more Americans will be put to work, and fewer people will be on the welfare rolls or needing other, expensive government services. Look to California for the future. The Alvord Unified School District based in Riverside, California is a good example of the problems we face. Riverside, California is 49% Hispanic and only 30% non-Hispanic white. It just lavished $105 million on a new, state-of-the-art high school, Hillcrest, to alleviate overcrowding, that it can now not afford to open for want of $3 million a year. People with Third World skill sets are trying to live a hyper-First World lifestyle. It can't be done.

I do disagree with your final sentence, though. Obama's political fate was always in his own hands. The economy wasn't going to grow strongly no matter who was in charge, because we're broke, and because of the other reasons you cite. However, he always had the power to pursue policies that would've made things better. It's just that neither he nor his party wanted to - they wanted policies that redistributed wealth to their favored constituencies, that discouraged work, that increased the dependent population, and that reduced human capital in the US economy.

But Republicans don't want to solve the immigration problem, either. Boehner is a Chamber of Commerce Republican, and Mitch McConnell actually voted for the 2006 amnesty bill. So to put it bluntly, our fate is sealed.

Black Death said at June 6, 2011 5:16 AM:

Here are the current immigration grades for presidential candidates (from Numbers USA):

Barack Obama F-
Ron Paul F
Gary Johson F
Rick Santorum F
Chris Christie F
Newt Gingrich D-
Sarah Palin D-
Mitt Romney D
Herman Cain D+
Tim Pawlenty C+
Michele Bachmann B-

The Republicans (except Bachmann and maybe Pawlenty) are just as bad as the Democrats.

bbartlog said at June 6, 2011 5:45 AM:

Looks to me like they grade pretty hard. What do you need for an 'A' - a proposal to deport all illegals overnight? Anyway, I am skeptical of their grades: there is no way that Romney should have a better score than Ron Paul (who once held the libertarian position on immigration but is now more or less a paleocon on the issue). In any case, I would assume that most of these candidates (except Johnson who I *think* is pro-immigrant) will *talk* a good game on stopping illegal immigration. The important thing then is not trying to draw fine distinctions between their proposed policies, but deciding which of them are likely to follow through and which are just lying/pandering. On that front, Romney (corporate tool and flip-flopper) and Gingrich (foreign policy and budgetary wonk who doesn't actually give a shit about social policy) would be really poor bets.

Randall Parker said at June 6, 2011 7:36 PM:

WJ,

No kidding, Riverside California can not afford to open its $105 million Hillcrest High School because they can't afford $3 million per year additional to operate it. Wow. Thanks for mentioning it.

Wolf-Dog said at June 6, 2011 7:52 PM:

For the moment, without taking into account the oil component of the trade deficit, if the commercial trade deficit against Germany, Japan and China is $400 billion per year, and if there are 15 million unemployed people in the US, then by dividing we get $400,000,000,000 / 15,000,000 = $26,666 per person per year. Thus because of the non-oil component of foreign trade deficit, $25,000 per year of annual income is missing from the lives of unemployed people in the US. Conversely if the non-oil $400 billion of additional goods and services were produced in the US to stop the foreign trade deficit, then unemployment and poverty would decline dramatically.

Mercer said at June 6, 2011 8:16 PM:

Who believes the GOP would do better when they still say tax cuts are the economic cure all? They say nothing about legal immigration and little about illegal immigration. They still promote trade deals that ease outsourcing.

As long as the GOP promotes policies that failed Obama has a good chance to win. If they had any brains they would think about what a former Reagan aide wrote below which is similar to what Wolf-Dog posted:

"The obvious option that is hiding in plain sight is reduction of the trade deficit. Every $1 billion of trade deficit costs America from 10-20,000 jobs -- let's say 15,000 for the sake of this argument. Thus, at $500 billion and rising, the trade deficit costs America about 7.5 million jobs. Okay, a lot of the trade deficit is the result of oil imports that don't really reduce U.S. jobs. So let's cut the number in half and say the trade induced job loss is 3.75 million jobs. That's still a lot of jobs."

http://prestowitz.foreignpolicy.com/posts/2011/05/31/it_should_be_the_trade_deficit_stupid

Check It Out said at June 7, 2011 2:34 PM:

"Parts of Latin America look headed for harder times. Chronically mismanaged Argentina has 25% inflation. Venezuela's inflation is at 23% and in spite of oil wealth the poorest quarter of Venezuelans spend 45% of their income on food. Given Hugo Chavez' mismanagement that's not surprising."

Yes, and check out Calderon's Mexico, with 60% of its population in poverty. It's probably even worse than Venezuela.

no i don't said at June 8, 2011 11:39 AM:

We still have sunny days in Mexico... So, as Clapton would say "Before you accuse me, take a look at yourself"

Not many in the U.S. are thrilled with their own government, are they?

Trent Telenko said at June 16, 2011 7:57 PM:

Parapundit,

Peak oil IS NOT coming.


See the two links and extracted text below:

See:

Lawrence Solomon: Israel’s new energy
Jun 10, 2011 – 6:01 PM ET

[An annoyed ParaPundit wonders why a long time blogger such as yourself can't be troubled to put your link in an a href so that I wouldn't have to. Do you really think people are going to copy the URL into a different browser tab? Really?]
and:

Israel May Hold the World’s Third Largest Reserve of Shale Oil

...

"We estimate there is the equivalent of 250 billion barrels of oil here. To put that in context, there are proven reserves of 260 billion barrels of oil in Saudi Arabia."

...

IEI estimates the marginal cost of production will be between $US35 - 40 per barrel.

This, Vinegar points out, is cheaper than the $US60 or so per barrel that it costs to extract crude from inhospitable locations such as the Arctic - wow, if BP CEO Dudley isn't gnashing his teeth when he reads this ;-) - and compares with $US30 - 40 per barrel in some of the deepwater oilfields off the coast of Brazil.

"These Israeli deposits have been known about, but have never been listed before. It was previously assumed there was not the technology to deal with it."

IEI hopes to begin production on a commercial basis by the end of the decade, with a view to producing 50,000 barrels per day at the outset.

[ParaPundit had to delete a lot of excessively quoted and probably copyrighted material.]

We are seeing a energy supply paradigm shift here.

[An annoyed ParaPundit (annoyed since he had to delete excessively quoted copyrighted material) really doubts that. An annoyed ParaPundit suggests you read up on petroleum geology and the history of oil reserves, what URR means, and other basics before jumping to conclusions from one puff piece.]

Once Israel breaks the risk premium (capital risk of the technology and the political risk premium from Arab oil retaliation and Green Regulatory NIMBY-ism) of the deep oil shale extraction and waterless deep gas fracking. We will see a huge amount of energy sources emerging in politically stable areas of the world at $35-$45 a barrel.

Israel is providing an example of how oil consuming nations can become oil producing ones.

Forget Europe and America for a moment. Think China.

The oil shale extraction technology is being funded strictly with Jewish money, due to the financial threats being made from the Saudis among others.

And once Israel goes there for oil shale, the barriers to coal gasification and natural gas to liquid hydrocarbon fall and will follow deep oil shale extraction into the stable world energy mix.

A future Israel that is rich, free and prosperous by the sweat of its own effort, and has merchants of the world beating down its doors to get more, is a fulfilment of Golda Meir's dreams.

Think.

A world where Israel has the income stream of Saudi Arabia...

...And no need for American foreign military sales. Nor limits to whom they can sell their arms technology too.

Israel that can afford to fund academic seats and grants to universities across the Western world as the Saudis have done.

Israel that can threaten Europe with the "Oil Weapon" as hard as the Arabs.

Israel that can buy and sell Leftist NGO's world wide with that self same cash.

Or create competing NGO's to further the interests of the Israel state.

This is a set of technologies that will power the world economy for the next 50 years...without the Arab oil ticks.


Randall Parker said at June 19, 2011 11:42 AM:

Trent,

9 years to get to 50k barrels per day. The world is currently pumping about 80 million barrels per day.

260 billion barrels proven reserves? What is the URR? I figure they haven't proved any of this oil is extractable for an affordable price. I wonder if they really mean Oil In Place and not URR.

If it was 260 billion barrels URR (and count me extremely skeptical) the that would run the world for about 8 years. But since Peak Oil is about flow rates and since this oil (optimistically by its boosters) won't start flowing even at 50k/day until 2020 this oil will not delay the date of Peak Flow which is what Peak Oil is all about.


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