McCain, Bush and the Dollar
When John McCain speaks to the Republican convention tonight, one of his priorities will be explaining his economic plans to a restive American middle class. He'll help his campaign, and the country, if his program includes separating himself from the Bush Administration's malign neglect of the dollar.</br></br>In debates over the Bush economic record, the dollar's decline and its companion rise in prices are the great missing links. Democrats don't mention it because they'd rather indict the Bush tax cuts as a way to justify a huge new tax increase. Wall Street and big business don't talk about it because they've been complicit in urging devaluation. And the media mostly ignore it because so few of them even think about monetary policy. The mystery is why more Republicans don't regret it because the political consequences have cost them dearly.</br></br>Consider the nearby chart, which chronicles the rise and fall of what the late economist Arthur Okun called the "misery index" in the late 1970s. By adding the national unemployment rate to the annual rate of inflation, the misery index offers a simple but revealing look at American economic well-being. As you can see from the chart, it's also a useful political indicator. Jimmy Carter was run out of office as the index soared above 20 in 1980, while Republicans benefited as it fell throughout the following decade. George H.W. Bush suffered as it spiked in the early 1990s, while Bill Clinton prospered through the 1990s as it fell again (See accompanying table -- WSJ September 4, 2008).</br></br>As for the political challenge that Mr. McCain faces, look no further than the "misery" spike of 2008. At 5.7% in July, the U.S. jobless rate isn't much worse than it was (5.4%) when Mr. Clinton ran for re-election in 1996. The difference is the rolling 12-month inflation rate, which at 5.6% puts the misery mark at 11.3 -- back to heights not seen since the early 1990s.</br></br>The opinion polls support what the misery index and common sense tell us. According to a Pew Research poll in July, no less than 45% of the public cited rising prices as the top economic problem. That was nearly double the 24% who cited prices in February. "Nearly two-thirds (64%) now say their incomes are not keeping up with the rising cost of living," according to Pew. By marked contrast, only 5% mentioned unemployment as the main issue.