The U.S. economy is growing, unemployment is tumbling and stocks are at record highs. So why aren't President Barack Obama and the Democrats getting enough credit for that to avoid a big loss in Tuesday's midterm elections?
Maybe because, for way too many Americans, the economy might as well still be in recession.
Most of the benefits of the economic recovery that began in 2009 have accrued only to the wealthiest Americans. Middle-class Americans, meanwhile, have been left behind. Their wages and wealth have stagnated -- a key reason why polls show that most Americans think the economy is still in a recession, even though it technically started recovering five years ago.
Here's a chart, courtesy of Credit Suisse, that sums it up. It shows the ratio of wealth to household income, which has spiked during this recovery to levels not seen since just before the Great Depression:
This means the rich are getting richer at a much, much faster rate than the rest of us, who are not getting rich at all. The rich have benefited from a stock market that has more than doubled in value since 2009, while the average worker's wages have barely kept up with inflation:
Unfortunately for Obama and the Democrats, wealthier Americans tend to vote Republican, and merely getting richer in the past few years has not been enough to make them switch teams. Wealthy Americans also donate money to Republican candidates, including the ones who are widely expected to take over the Senate and extend their control over the House of Representatives in Tuesday's elections.
Not all elections hinge on the economy, but it's not hard to draw a pretty straight line from the current economy to the gloomy outlook for Democrats in this election. Most Americans say the economy is their top issue, according to several recent polls, and only 38 percent of Americans think the economy is in OK shape, according to a recent CNN/ORC International poll. Just 35 percent of Americans approve of Obama's handling of the economy, according to Gallup.
Of course, midterm elections almost always go badly for the party that holds the White House. Going into the midterm election of 1986, President Ronald Reagan had a 60 percent approval rating and a decent economy on his side, and his party still lost control of the Senate and gave up a handful of seats in the House.
Aside from a one-off swoon in GDP in the first quarter, the economy has arguably been kinder to Obama in 2014 than it was to Reagan in 1986. GDP has bounced back sharply in the past two quarters. The unemployment rate has tumbled nearly a full percentage point this year, recently falling below 6 percent (compared with 7 percent for Reagan). The Dow and S&P 500 are constantly breaking records, and the Nasdaq is at levels not seen since the peak of the dot-com bubble in 2000.
But unemployment has fallen at least partly because workers are leaving the labor force, not because of a massive boom in hiring. Workers are giving up looking for work, either because of early retirement or because they've just lost hope, meaning they no longer count as "unemployed" in the eyes of the government.
Stock prices are at record highs, but most Americans don't own stocks. Middle-class workers who have managed to save a bit in 401(k) accounts don't have enough wealth to retire on for more than a year. Most stock gains have in fact gone to top earners, including CEOs, whose pay has skyrocketed to the point where they're making nearly 300 times as much as workers, as you can see in this chart from the Economic Policy Institute:
In thinking about 2014, a more telling comparison than 1986 is 1998, when President Bill Clinton enjoyed a great midterm election. The Republicans picked up no seats that year, the first such failure for a party out of the White House since 1934.
Clinton was lucky enough to be in office in the middle of the dot-com boom. That, of course, benefited the rich, just as the recent stock market rally has done. But in 1998, the middle class was getting a taste, too. Unemployment stayed below 5 percent all year -- close to what most economists would consider full employment. GDP was in the middle of a four-year growth boom of more than 4 percent annually, the strongest stretch since the 1960s.
Most importantly, hourly wage growth was more than twice the level of inflation that year, the biggest such gap since the early 1970s. In 1998, the middle class really felt like it was getting richer. That probably made it a lot easier to reward the party in power.