◼ POLITICS Bloomberg Businessweek March 23, 202032
Disneyland have shuttered. The major U.S. airlines
haveannouncedthey’llaggressivelycutflights,and
hotelreservationsarebeingcancelednationwide.
Collectively,thissegmentoftheeconomy—what
mightbecalled“virus-vulnerable leisure”—accounts
for up to 10% of U.S. GDP, or about $2 trillion,
according to Feroli. And that doesn’t count changes
in behavior that hit other parts of the economy—
from canceled doctor’s appointments and elective
surgery, to delayed home repairs, to putting off sim-
ple things like getting a haircut.
A blow to personal income appears unavoidable
and could be especially damaging to Trump’s pros-
pects. Larry Bartels, a Vanderbilt University polit-
ical scientist, says changes in personal income,
even more than GDP, shape voters’ impression of
an incumbent. He and Princeton University pro-
fessor Christopher Achen “found a strong relation-
ship between changes in real disposable income
per capita in the second and third quarters of pres-
idential election years and the incumbent party’s
electoral fortunes,” says Bartels. While it’s impos-
sible to draw precise conclusions from the limited
number of modern presidential elections, “short-
term changes definitely seem to be more important
than long-term changes, and real incomes seem
to be more relevant than GDP,” he says. “Insofar
as the coronavirus produces an economic slump
overthenextsixmonths,I wouldcertainlyexpect
thatslumptoadverselyaffectPresidentTrump’s
reelection chances.”
One irony of Trump’s electoral predicament is
that U.S. economic fundamentals appeared strong
on the eve of the crisis. That’s one reason many
economists still anticipate a healthy rebound once
the contagion has safely passed. But that turnaround
may arrive too late to help Trump. And studies sug-
gest voters are unlikely to credit him for the three
years of steady growth and low unemployment that
preceded the virus outbreak. The reelection cam-
paigns of Jimmy Carter and Bill Clinton offer an illus-
tration of why Trump has cause to be nervous.
In a 2013 paper, “Substituting the End for the
Whole: Why Voters Respond Primarily to the
Election-Year Economy,” Andrew Healy of Loyola
Marymount University and Gabriel S. Lenz of the
University of California at Berkeley examined
annual personal income growth across presiden-
tial terms. Across Clinton’s first term, personal
income growth was moderate overall, but it was
strongest in the critical fourth year. Carter had the
opposite experience, with the worst year arriving at
the end: Personal income growth actually declined
in his final year in office. Even though Carter over-
saw higher cumulative income growth during his8%40-4-8
Nixon Carter Reagan G.H.W.Bush Clinton G.W.Bush Obama Trump*◼FromQ1toQ2in thelastyearofa president’sfirstterm
From term’s start to Q2 of the last yearREAL GDP, SEASONALLY ADJUSTED AT ANNUAL RATES. DATA: BUREAU OF ECONOMIC ANALYSIS*GOLDMAN SACHS ESTIMATESChange in real GDP prior to presidential elections“I would
certainly
expect that
slump to
adversely
affect
President
Trump’s
reelection
chances”full term (6.9%, vs. 6.2 % for Clinton), he lost his bid
for a second term, while Clinton won easily.
That outcome is consistent with how voters
have judged incumbent presidents in other elec-
tions. “Voters are myopic,” Bartels and Achen
write in their book, Democracy for Realists. “The
performance of the economy over the course of
a president’s entire term—which provides a bet-
ter measure of changes in voters’ welfare, and pre-
sumably provides a more reliable benchmark of the
incumbent’s competence as well—is almost entirely
discounted by voters when they go to the polls.”
The question now is how bad the economic
fallout will be and what Trump and other officials
can do to curb its effects. The Federal Reserve has
made two rounds of emergency rate cuts in March,
slashing interest rates to near zero and announc-
ing a $700 billion bond-buying program. That did
more to spook investors than reassure them, as U.S.
stocks plunged 12% the next day. “The aggressive
actions align with the worst expectations about the
spiraling impact of the Coronavirus,” Bloomberg
Economics wrote in an analysis. Going forward,
monetary policy will be of limited use, with inter-
est rates having reached the zero lower bound and
consumer and business spending frozen by fear of
the virus and its related disruptions.
That leaves fiscal policy as the last hope. In
early March, Congress passed an $8.3 billion bill
for vaccine research and prevention. On March 16
the Democrat-led House passed a second, $100 bil-
lion bill to increase testing and provide paid sick
leave. Both parties believe an additional major
stimulusis necessary,thoughtheydon’tyetagree
onitsfocus.Trumpinitiallyadvocateda payroll
taxholiday but got pushback from both parties,