Democrats count the cost of stimulus package the public never noticed

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The Independent US

The US goes to the polls tomorrow against the backdrop of the worst employment situations in many years, and, with the scars from the credit crisis and recession still deep, the incumbent party of President Barack Obama is prepared to be punished for its failure to restore any feel-good factor to the economy.

Behind the ballyhoo of individual races, and the upsurge in support for the anti-government Tea Party movement which has energised Republican supporters, lies the failure of Wall Street bailouts and economic stimulus spending programmes quickly to generate the improvements claimed for them, alongside a gnawing feeling that the US may be losing its economic leadership in the world.

And, at the same time, polls show a profound misunderstanding of the economic measures that the Obama administration and the Democrat-led Congress has taken since the last elections two years ago – a misunderstanding about which Mr Obama himself has repeatedly expressed frustration.

Democratic Party leaders have already privately written off their chances of keeping hold of the lower House of Representatives, and are concentrating on a string of tight races for the Senate, which could also fall to the Republicans.

The US economy grew by an anaemic 2 per cent in the three months ending in September, not much faster than the previous quarter and certainly not enough to make an early dent in the unemployment rate, which is expected to remain close to 10 per cent when figures for October are released this Friday.

Adding in the millions of Americans working fewer hours than they want or who have left the workforce disillusioned, the rate of so-called underemployment is more than 17 per cent.

The "Great Recession" officially ended in the US in June 2009, after 18 months, but its effects are still being felt in the present tense. It is not just that it takes a while for economic growth to translate into a feel-good factor; for millions of people things are still getting worse.

"Job insecurity and income insecurity have been with us for more than two years," says John Lonski, the chief US economist at Moody's. "There are diminished employment opportunities, a higher perceived risk of losing your job, and the laid-off people I know of who are getting job offers are finding that they are coming at a lower salary than their previous job."

The bottom line is that there are too many skilled people out of work and chasing too few job opportunities. "What we are finding out is that, even as things continue to improve, it may require more downward adjustments in wages and salaries if we are to increase employment," Mr Lonski continues. "This is going to be one of the harshest wage adjustments that has been faced by the US economy since the 1930s."

The failure to reignite job growth has left the Democrats and the Obama administration with the accurate but unsatisfying argument that matters would have been much worse without the efforts they have taken.

"If you told me two years ago that we're going to be able to stabilise the system, stabilise the stock market, stabilise the economy and, by the way, at the end of this thing it will cost less than 1 per cent of GDP, I'd say, 'We'll take that'," Mr Obama said in an interview last week.

At campaign rallies, the President has taken to using a metaphor of a car driven into the ditch by Republicans, who have stood on the sidelines criticising the work done to pull it out instead of pitching in to help.

For Democrats looking back on the past two years, they might identify Friday 13 February 2009 as the day that the seeds for their potential defeat were sown. That was the day that Congress passed a $787bn (£491bn) package of tax cuts, benefits and spending projects designed to stimulate the collapsing US economy. All but three Republicans voted against what the President had initially hoped would be a bipartisan bill, with half the money given over to tax cuts in the hope of winning right-wingers' support.

The Republican leadership made an astute calculation: there would be no mileage in helping the Democrats to "save" the economy, but there might be mileage in having opposed it, should its effects not turn out to be as positive as advertised. On Capitol Hill at the time, pundits declared that the Democrats now "owned" the economy.

Although left-wing economists argued immediately that the size of the stimulus was too small, Republicans pointed to the growing national debt – today approaching $14trn – as a reason to hold down the size of the package. The administration has had to back away from claims that it would create or save 3.5 million jobs. Even supporters have been unable to argue that the figure reaches 3 million, and the measurement is wide open to argument.

Amid the confusion, a Bloomberg national poll conducted a week ago found that, by a two-to-one margin, voters think taxes have gone up, the economy has shrunk, and that the billions of dollars lent to banks as part of the Wall Street bailout won't be recovered. In reality, the Obama administration cut taxes for middle-class Americans, is close to break-even on the bailout and has overseen an economy that has grown for the past five quarters. It just doesn't feel that way.

"The President's party always loses seats in the midterm elections, and the size of the loss is often a function of the economy," says Justin Phillips, assistant professor of political science at Columbia University.

"Polls show that many voters still hold former President George Bush to blame for much of the bad economy, but they have been leaning Republican for a year and a half now. When voters are unhappy with government and unhappy with the state of the economy, they tend to vote out the incumbent, regardless of their culpability."

In the meantime, campaign ads preying on economic insecurity are airing in races across the US, both from opposition candidates and from campaign groups promoting the Republican agenda of low taxes and deficit reduction.

In one of the slickest, Citizens Against Government Waste show a Chinese economics professor lecturing in 2030. Subtitled into English, he is chronicling the decline of the US, and concludes saying "Now they work for us." Cut to the student audience, a sea of Chinese faces, all laughing.

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