This is no typical autumn morning. It is Election Day. And for even the most casual observer, it is apparent that today is atypical for an election as well. More so than in the past, this election brings a heated midterm campaign and a deeply divided electorate back to the fore.
If the emerging voices of the Tea Party establish themselves in the projected numbers, tipping the Congressional balance of power toward the Republicans, the election may also signal a further radicalization of our nation’s public dialogue. More extreme opinions will wield greater power in each of the parties if the outcome at the ballot box is seen as a rebuke to previous notions of moderation.
Will more entrenched positions in Congress undermine the effectiveness of government? Perhaps not. Perhaps we will get more done for more people and with more balance in a house divided. In that case, and at least for a time, politicking and governance from the center will remain out of favor.
For all of the ideological and social issues that divide us, our economic circumstances are the crucible in which public anger–sometimes well directed, and often misdirected–has coalesced. In this respect, we are not so different from other places, or from one another: The desire for change and a radical departure from a seemingly broken system blossoms when prosperity is endangered and our material aspirations, whether they be framed in terms of greater returns or simply in terms of economic security, go unfulfilled.
The degeneration of public discourse stems from the fact that, beyond our wanting change, our popular notions of our next steps take us on different paths. It is symptomatic of the lack of consensus about how to move forward that comedians hold one of the largest rallies in the National Mall’s recent history. Political satire is the most refined of our artistic forms. In a work of fiction, this would recall the proving ground of dystopia.
It is unclear whether we will remain fractious for so long that it will impede industry, or whether a new generation of leaders will prove ineffective almost immediately, inviting moderation in tone and tenor from all sides. The realities of Washington have the potential to corrupt its new arrivals. On the other hand, the practicalities of the legislative effort might also afford a more sober assessment of the issues that matter at the creative intersection of Main Street and Wall Street.
FOR NOW, TEMPERATURES in the crucible are high. The latest economic data, ill-timed for incumbents, has served to fuel the desire among an electorate that wants change but is fragmented in the extent of its disillusionment and its estimation of what shape that change should take. According to advance estimates released last week by the Bureau of Economic Analysis, the economy of the United States expanded at an annualized rate of 2 percent in the third quarter. An improvement from the second quarter’s 1.7 percent growth rate, the current result is disappointing nonetheless, signaling that the recovery remains unusually anemic.
Significant policy challenges, including deficit management, are also made more difficult as growth in public debt encumbrance far outpaces economic growth. This has near-term and long-term consequences.
With a smaller share of the population actively employed than even a year ago, the weight of the public debt burden falls on fewer taxpayers, limiting our capacity to contain future increases in tax rates, and creating pressures to distort economic activity. As it stands, on- and off-budget net interest on debt is projected by the White House to rise by 34 percent between fiscal years 2010 and 2011. Net interest payments will rise from 5 percent of federal outlays to 13 percent by 2015. Shortly after that, it has the potential to overtake defense spending.
These are shocking trends. And yet no party has a credible plan for tackling the deficit and its destructive long-term impact on American competitiveness. So we reach in all directions for change.
With structural challenges difficult to sort out from cyclical features of the bumpy recovery, the Federal Reserve is expected to announce a new round of quantitative easing on Wednesday, even though few economists believe that monetary policy intervention on its own will motivate growth.
As for sources of growth in the real economy, consumers were a contributor to the headline number for the third quarter, but can only sustain that contribution if employment and wage outcomes improve or if they begin to draw on available credit ahead of wage gains. After expanding in the second quarter, falling residential housing activity returned to exerting a drag on the economy. Investment in nonresidential property, however, picked up slightly as multifamily construction starts accelerated.
In all, economic activity has yet to show the kind of momentum that will foster a measurable improvement in confidence and hiring. In many respects, commercial real estate investment trends are leading the broader metrics of the economy’s health.
For the commercial real estate investor and lender who is also a voter, an economic and business environment that moves the economy forward and that narrows the gap between investment trends and fundamentals is a critical dimension of the ballot calculus.
In making that ballot decision, and irrespective of our individual voting intentions, we should believe that our favored candidates will bridge ideological waters where compromise can lead to beneficial progress. Of course, conventional wisdom dictates that business thrives when there is some element of gridlock in Washington. Turn that conventional wisdom on its head: Gridlock when we also agree that the status quo must give way is bad for our industry and for the nation.
schandan@rcanalytics.com
Sam Chandan, Ph.D., is global chief economist and executive vice president of Real Capital Analytics and an adjunct professor of real estate at Wharton.
