Economic Anxiety and Political Instability

The Rockefeller Institute recently published a study showing that the economic anxiety index is at an all time high.

The full report can be found at:

http://nw-assets.s3.amazonaws.com/pdf/ESI_report_embargoed_until_7-22_low-res.pdf

According to the report, the American people are significantly more anxious about their economic situation today than at any time since the study began in the early 1980’s. But according to the trends shown in the report, it is not just a spike caused by the current economic recession. The trend line has been up since the mid 1980’s (when the survey first began.)

There are many reasons for this increased anxiety but a major factor is the increase in job instability. Fewer people are working at large corporations and no longer have the expectation of career-long employment, which was common up through the 1970’s. Large companies are increasingly being replaced by small business and sole entrepreneurs. Being your own boss is great, you are free to succeed and fail based on your own efforts. But there is no safety net for poor performance. The same holds true if you are an employee at a small business. One bad month can mean the difference between employment and unemployment.

The demise of large, hidebound companies and the rise of more flexible small businesses means a more flexible economy, but this creates a need for more flexible employees. The cost of this flexibility is less security. Good for business, bad for employees sense of stability. And guess what? Employees are citizens. So economic flexibility can lead to a sense of employment insecurity, and a general sense of unease among the public.

This corresponds to the bigger problem: economic uncertainty leads to political instability. Politics have become more unsettled in the last twenty or thirty years as the economy has become more unstable. The public is increasingly worried about the economy, and not just about the problems caused by the current recession. They want stability, they want security, and most of all they want politicians that can bring this about. And increasingly the public is willing to try anything, to grasp for any solution, simple or silly.

Obama was elected, in large part because of the public’s dismay at the way the Bush Administration and the majority Congressional Republicans seemed to screw up the economy. And now that things are not getting better, the public is ready to throw out Obama and the Democrats. That is certainly understandable. The so called experts and supposed smart people who ran the economy (and the government) for the last ten or fifteen years sure haven’t done a great job, so why not try someone unproven? Why not Sarah Palin or some other new and untested leader? Given recent events, and the lousy job done by the old hands, how could inexperience be any worse?

But what if neither the Democrats nor the Republicans have a solution to the current problems? What if the national and world economy has changed so fundamentally that the old solutions are obsolete?

The Bush era tax cuts and de facto deregulation (which follow standard conservative theory) only made matters worse. And the Keynesian policies of the Obama administration haven’t improved things.

I suspect that this political instability will not go away until this high level of economic instability also goes away, or at least is significantly reduced. And neither party seems to know how to do that, so I think for the time being we are in for some interesting politics.