Bad news of possible US recession may be good news for Democrats

But despite the best efforts of the Federal Reserve and Congress, which have both moved with uncommon swiftness to provide hefty monetary and fiscal stimulus, it now looks more likely than not that the nation is about to go through a recession this year in which economic activity could well be falling into the summer, perhaps longer. It may already be in one.

Nobody welcomes a recession, but for the Democrats that probability might be considered good news. And even if the economy skirts a formal recession and only undergoes a more modest slowdown before rebounding later this year, voters are likely to blame the weak economy mostly on the Republicans, who are all but certain to be led in November by Senator John McCain. It doesn’t make much difference that President Bush will not be on the ballot.

“Under that scenario, a lot of very favourable non-economic things would have to happen for the Republicans to win,” said Ray C Fair, a Yale economist who is the leading expert on how the economy’s performance affects election outcomes. “If we have a recession, even a mild and short one, the unemployment rate will be rising this fall. The Democratic candidate will be hammering on the economy and Republicans will be very much on the defensive.”

But then what? In 2009, a central quandary for the next president, particularly if it is a Democrat with healthy Democratic majorities in both houses of Congress, will be how aggressively to push an agenda that calls for greater government spending and higher taxes.

In advancing those goals, the sense that the economy is doing poorly cuts both ways. It adds to the crisis atmosphere that encourages an activist government. But it also tends to make middle-class voters want to protect themselves and wary of being asked to dip into their pockets to finance programs for those in need.

And the Republicans are likely to take aim at Democrats over rolling back the Bush tax cuts and suggesting wholesale tax increases, like Senator Barack Obama’s plan to make more income subject to Social Security taxes.

“It puts Democrats in a bit of a political bind,” said Stephen Rose, a moderate Democratic economist who has challenged some of the conventional wisdom on the left about the reasons behind the increasing anxiety of the middle class.

With the stimulus package that Congress just passed, it is clear that Democrats, while determined to spread the largesse as broadly as possible, are particularly focused on appealing to middle-class voters.

Benjamin Friedman, an economics professor at Harvard, notes that incomes for the majority of American households, adjusted for inflation, have slipped despite the overall growth of this decade. While a recession is a relatively short-term event, Friedman adds, it is likely “to focus people’s minds on a stagnation that has been under way throughout the decade.”

Democratic politicians and policy activists have made much of the erosion of middle class incomes and hope to use it to their advantage in this year’s election. But they have to be careful to avoid leaving the public with the impression that the economy is in such bad shape that the best that can be done is to hunker down for hard times.

“A lot will depend on how any recession plays out,” said Jason Furman, director at the Brookings Institution in Washington. “If it has blown over by 2009, most of this is irrelevant.”