Presidential elections in America are strange: the one element that the president has the least control over, and yet looms largest in the minds of the electorate, is the economy. A staggering economy in 2008 helped then-candidate Obama win the White House; President Bush was blamed for the financial crisis, and McCain’s clear lack of economic know-how undercut his campaign. Obama likely would’ve won anyway, but these factors certainly made his task easier and increased his margin of victory.
But today, after three years in office, continued high unemployment and the still-sputtering economy are the biggest threats to Obama’s re-election. The European debt crisis—which could be the biggest single influence on the U.S. economic recovery—is completely out of Obama’s hands. A collapse of the Eurozone, coupled with defaults in one or more EU countries, could spiral out of control, create another global crisis, and throw the U.S. into yet another recession. The chances of this happening have diminished in the last couple of months (largely due to aggressive monetary policy by the European Central Bank), but they are still significant.
This is why every week that goes by with the Eurozone intact is a big victory for the President. The closer we get to November, the less likely that events in Europe could negatively impact the U.S. economy enough to influence the election this fall. Nine months is still lots of time, and European leaders have demonstrated a high capacity for poor policymaking, but at least the situation seems stable for now.
Another event that could derail both the U.S. and the global economic recovery would be a major increase in the price of oil. With global demand easing the price actually fell over the past week, but Iran has become the “elephant in the room”. The Iranians have threatened to close the Strait of Hormuz if the U.S. takes additional steps to restrict Iranian oil exports (steps America began to take in response to Iran’s efforts to develop a nuclear bomb). Closing the Strait would approach an act of war and would certainly draw a massive U.S. response. The price of oil could skyrocket to $200 a barrel, a shock that could rattle investors around the world and set off a global economic contraction.
Given that closing the Strait would be a form of economic suicide for the Iranians—they export most of their products through Hormuz—the chances of their following through are low. Even so, the threat itself could be enough to send prices higher. Along with the EU’s woes, this is one more issue that could significantly impact the U.S. economy and imperil a second term for Obama. Every week that goes by with calm in the oil markets is a boost to the President and his team.
As the clock runs down towards November, the election should be about the issues and the candidates’ positions. Obama has a record to run on and his Republican challengers have policies that can be evaluated. As Andrew Sullivan pointed out this week in Newsweek, Obama’s record looks remarkably impressive, especially when matched against his campaign promises. In addition, as Ezra Klein pointed out, politicians hold to their campaign promises to a surprising degree (despite the conventional wisdom that says they don’t).
If voters were more rational and reasonable, candidates would be judged more on the things they can control—their policy agendas—and less on things beyond their control, like the economy. Sadly this isn’t the case.
Given this reality, every week that goes by without an economic calamity outside the U.S. gives America’s economy another week to chug along and gain momentum. Nothing could be better for Obama’s re-election prospects.