I am a diligent student of economics, but not an expert. Currently, I am reading a growing number of predictions for a rising American stock market in 2012; however, I am in no position to pass judgement as to their likelihood.
These predictions are based largely on two premises: 1) The collapse of the euro will result in a flight to the dollar and growing investment in American stocks, rather than Treasury bills, which may face another downgrade; 2) Corporate profits will continue to increase, enabling blue chip stocks to sustain higher prices levels. While these analysts opine that unemployment is unlikely to decline below eight percent, they also predict a gross domestic product growth of 2-2.5%, avoiding a recession.
If one assumes these predictions to have a good possibility of accuracy, the political consequences are more foreseeable. Such a rising stock market will 1) vastly enhance President Barack Obama’s reelection chances in 2012; and 2) virtually assure Chris Christie’s reelection as governor of New Jersey in 2013.
In analyzing the effect of a rising stock market on Obama’s reelection chances, one must 1) distinguish the issue of economic security from the economy per se; and 2) understand the concept of the investor class of voters, conceived by conservative ideologue Grover Norquist.
Political pundits often say that elections are all about the condition of the economy. Actually, the voters are more focussed on the issue of economic security, namely how they perceive their economic futures with respect to each candidate. This is where investor class voters become a major factor in the 2012 presidential election.
In spite of the recession, the number of investor class voters among middle class Americans remains high. These voters have largely staked their futures on their 401ks, a significant portion of which are largely invested in stocks.
The independent voters who will decide the 2012 presidential election are mostly employed and members of the investor class. Their assessment of their own economic security is based more on the condition of their 401ks rather than the unemployment rate.
If there is a rising stock market in 2012, these voters may well have an enhanced feeling of economic security with Obama, however unwarranted this perception may be. It is interesting to assess how this plays out in a Barack Obama-Mitt Romney race with respect to the Electoral College.
In a race against Romney, regardless of the state of the stock market, Obama is likely to lose five states he carried in 2008 with a total of 75 electoral votes, to wit, New Hampshire (4), Ohio (18), Florida (29), Virginia (13), Indiana (11), plus the one electoral vote he received in Nebraska. This would lower Obama’s Electoral College total to 283. He needs 270 electoral votes to be reelected.
Obama would still defeat Romney, however, if he won again in North Carolina (15) and avoided losing Romney’s native state of Michigan (16). I will comment more on Michigan in a future column.
In North Carolina, high tech employees living in the Research Triangle are the key for the incumbent president. These are the archetypal investor class voters who are likely to vote for Obama if their 401ks and other investments are healthy, due to a rising stock market. They are the key to Obama duplicating his 2008 North Carolina victory and thus winning reelection.
Chris Christie is already in a strong reelection position. A rising stock market in 2012, generating windfalls of revenues for the state of New Jersey, would virtually guarantee his 2013 gubernatorial reelection. The governor could use the additional revenues for either additional property tax relief or an income tax cut. Either option would make him unbeatable.
Barack Obama and Chris Christie are two public officials with vastly different philosophies and agendas. Ironically, their political futures will both be benefited if the Dow is on an upswing in 2012.
Alan J. Steinberg served as Regional Administrator of Region 2 EPA during the administration of former President George W. Bush. Region 2 EPA consists of the states of New York and New Jersey, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and eight federally recognized Indian nations. Under former New Jersey Governor Christie Whitman, he served as Executive Director of the New Jersey Meadowlands Commission. He currently serves on the political science faculty of Monmouth University.