01/15/2012 07:25 pm ET Updated Mar 16, 2012

Wild Cards, Economic and Political

President Obama is exceptionally lucky when it comes to the weaknesses of the Republican field and its stunning penchant for mutually assured destruction. Who would have expected, for instance, that Newt Gingrich's billionaire-backed super-PAC, aiming to destroy front-runner Mitt Romney, would produce a documentary advertisement on private equity slightly to the left of what we might have expected of Michael Moore? Or that Gingrich, reprimanded by leading free-market ideologues, would then request that the ad be pulled? In this hilariously bungled caper, Marx meets the Marx Brothers.

But it remains to be seen whether Obama will be as lucky when it comes to the shape of the economy as the election year unfolds. Some of what will occur this year is partly within the president's control; much is not.

Consider the several vulnerabilities of the still fragile recovery:

The Jobs Mirage. Democrats were cheered and Republicans caught off guard when the Labor Department's December jobs numbers showed a net increase of 200,000 jobs -- a nice improvement over previous months. However, a closer look showed that some 42,000 of these were seasonal courier jobs -- all the people hired to deliver holiday gifts purchased via Amazon and other online vendors.

Jared Bernstein, the former senior Administration economic advisor now at the Center on Budget and Policy Priorities, calculates that the 200,000 jobs number should be deflated by about 30,000. This brings it closer in line with other recent months, and suggests that the economy is still a ways from a strong recovery.

The biggest problem retarding a strong recovery is that wages are lagging far behind the economy's productivity growth. Recent Federal Reserve statistics show that consumers increased their borrowing to finance their holiday spending, but that can't last unless wages begin following.

Stronger economic stimulus is beyond the control of the administration, given the Republican strategy of wall-to-wall legislative roadblocks. The one thing that Obama could do that he isn't doing is a more aggressive stance on relief for underwater homeowners. With housing prices still falling in nearly every metropolitan area, the housing sector is still depressing the overall economy.

Euro-Drag. From the perspective of Obama's re-election, probably the best case for the Euro this year is that the leaders of the EU keep kicking the can down the road and keep the currency from collapsing. But that may not be good enough. (As the Financial Times' Martin Wolf puts it, the can is filled with gasoline.)

Even if the Euro holds together, the price Europe's financial elites have extracted for keeping weaker European economies afloat is prolonged austerity. That not only depresses Europe's prosperity but weakens U.S. export markets.

Treasury Secretary Tim Geithner's European diplomacy has been directed at one goal: The European Central Bank should behave more like the U.S. Federal Reserve and flood European credit markets with cheap money. But the ECB, responsible to austerity-minded political leaders, is only going part of the way. The S&P's downgrading of the sovereign debt of nine nations that use the Euro only pours oil on the flames.

For the most part, Europe's self-inflicted financial folly is beyond the reach of the Obama Administration. But it could sink the U.S. recovery and Obama's prospects.

The Oil Slick. Iran's continued nuclear program is among the most vexing of foreign policy challenges. The West has had some success in keeping Iranian oil off world markets. The Iranians, in turn, have threatened to block the shipping lanes of the crucial Straits of Hormuz, a 19-mile-wide shipping lane through which about one-fifth of the world's oil supply passes. Reportedly, the Obama administration has told the Iranians that this could be considered crossing a red line, close to an act of war, and that closure of the strait would be met by military force.

But this game of geo-political chicken also has grave consequences for the price of oil. Even if shipping lanes stay open, oil supply could come under pressure. The price of oil has stayed well-behaved, ironically enough, because the weak recovery has depressed demand. But a spike in the price of oil could be a spike in the heart of economic growth.

According to standard political-science analysis of presidential re-election chances, the most important single factor is the state of the economy in the presidential year. This means not just the absolute unemployment and economic growth numbers, but whether voters feel things are improving.

Yale's Ray Fair, whose economic model has been uncannily accurate in predicting presidential winners, surprised many observers last November, when he projected a narrow Obama win based largely on improved economic growth in 2012. But Fair's economic projections now look quite optimistic.

Bottom line: It is hard to recall a presidential year when there were so many economic wild cards, any one of which could tip the election's outcome. On the other hand, it is hard to recall a weaker or more bizarre Republican presidential field. Which will prove decisive?

Despite what is likely to be a mediocre economic picture at best, and the demonizing of Obama by his opponents, and the disappointment in this president on the part of many of his most fervent 2008 supporters, by next November Obama may yet strike a plurality of voters as the safer and saner of the candidates. But any number of imponderables could upset that calculus.

Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos. His latest book is A Presidency in Peril.