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It's the Local Economy, Stupid

The Dow has soared, joblessness is low. But workers in key states aren't benefiting—and their vote might just lead to a change in Congress

If the mantra, "It's the economy, stupid," still holds true, it should be a great election year for Republican incumbents. There's been plenty of good economic news of late: the Dow has broken the 12,000 barrier, gas prices are down, and with an unemployment rate of 4.6%, there appears to be no shortage of jobs. But support for incumbents in this Republican-controlled Congress is at a historic low, according to the most recent Gallup poll. And as the midterm elections approach, the Democrats look likely to take control of the House, and could also win back the Senate for the first time in over a decade. The picture seems puzzling: If the economy is in such good shape, what's behind the growing urge to change the Congressional guard?

For one thing, the economy isn't the only issue on voters' minds. National surveys reveal that the war in Iraq is the No. 1 voter concern, as casualties mount and an exit strategy remains unclear. Still, the economy is running a close second to the war in terms of voter worries. The problem for Republicans is that during Bush's Presidency, and with Republican control of Congress, many American workers have suffered from rising health-care costs and stagnating wages, without benefiting much from the rising stock market. That's why some voters in key states like Ohio and Pennsylvania are looking to unseat incumbent Republican senators, hoping perhaps that the Democrats will help address the economic challenges that have mounted in recent years.

Struggling to Survive

Ramona Barnhill, a 36-year-old single mother of two teenagers in the rural town of Ripley, Ohio, is among the discontented. A two-time George Bush voter, Barnhill was in a comfortable position when he first ran for office, earning $16 an hour at a lumber yard. Now a cook at McDonald's (MCD), she says she's struggling so much financially that she's looking to the midterm election as her chance to cast a vote for a change.

"It's just expensive out there. It's so bad now I can't afford health insurance for my child unless I go through public assistance, and I can't stand doing that," says Barnhill, who takes home about $900 a month working about 40 hours a week. "Normally I vote for who I think the best [individual candidate] is, but this time it's [straight-ticket] Democrat all the way."

Voters in Ohio and five other states will also be voting on minimum-wage amendments that would boost wages above the federal rate which, at $5.15 per hour, is at its lowest level in 50 years, adjusted for inflation. States passing the amendment would raise the rate as much as $1.70 per hour, joining 22 other states that have approved such hikes.

Midwest Job Losses

In this election, the economy is more of a concern where the loss of manufacturing jobs has been felt most acutely. In this context, the James Carville slogan might be rephrased, "It's the local economy, stupid." Because the Midwest has borne the brunt of job losses in the country—with unemployment rates in Ohio and Michigan at 5.3% and 7.1%, respectively—pocketbook issues are at the forefront of voters' minds in these areas. The Pew Research Center's poll of likely voters showed that Western and Midwestern voters expressed the most concern about the economy, and health care is a bigger issue in the Midwest than elsewhere. And nearly three-quarters of Midwesterners (74%) rate economic conditions in the country "only fair or poor," the highest percentage of any region.

Some of those who have found work after a job loss say they're having trouble, since many new jobs being created in the service sector don't pay enough to keep up with rising costs of health insurance and college tuition. "There's no middle class anymore," says Barnhill. "You're either high income or you're just surviving—that's how it is around here. I live pretty simply, and I just want to be able to pay for my kids to go to the hospital if they're sick, or bring a cake over to my friend without worrying about the gas. I don't want to blame my situation on other people, but I'm having a hard time taking care of myself."

Such discontent doesn't make sense to everyone, especially given the rosy macroeconomic picture. "The economy is getting a lot of bad press, and voters seem to be taking for granted how well it's doing," says Edward Yardeni, chief investment strategist for Oak Associates, an investment firm and publisher of daily commentary on economic news. "From a macro standpoint—and maybe I am missing the details of the suffering out there—the economy never looked better. Unemployment is low and inflation has come down nicely. Gas usage is soaring. Where are all these disgruntled people driving to, exactly?"

Uneven Gains from Economy

It is true that earnings of many in the top sliver of the income spectrum have been outpacing inflation—and those the gains have helped prop up average income and consumer spending figures. But the real median hourly wage for American workers has declined by more than 1% since 2003, despite a steady rise in productivity. And for the past five years, the number of Americans lacking health care has been growing. Nearly 46.6 million Americans were uninsured in 2005—up almost 7 million since 2000, according to U.S. Census data.

The twin problems of flat wages and costly benefits have helped foster the sour mood toward incumbents, says Henry Brady, professor of political science and director of the University of California Berkeley's Survey Research Center. "The vast bulk of the population isn't feeling as excited by the economy because they're not getting that much of the good stuff," he says. "They are thinking, 'the Dow at 12,000 is great for a guy who owns an enormous amount of stock, but what's it doing for me?"

"The tax cuts and other policies have helped a small fraction of the population, but you can't win an election with the top 1% of the vote," he adds.

Getting Out the Vote

The AFL-CIO and the breakaway union group, Change to Win, are stressing pocketbook issues as they try to turn out over 13 million union voters next Tuesday to increase support for Democratic candidates. "They say unemployment is low, but what we really have is underemployment," said Anna Burger, chair of Change to Win, which represents six million workers. "People are working more jobs for less money."

Burger cites a poll her group commissioned for Labor Day, which revealed that 81% of nonsupervisory workers agreed with the statement, "No matter what you hear about the economy, working families are falling behind." In the same poll, over half think the next generation will be worse off.

Richard Tarmin, a 63-year-old employee of Handy & Harman Tube Co. (WHX) in East Norton, Pa., is less worried for his grown children than he is for himself and his wife. In mid-November he'll lose his union job when the medical tubing plant closes to move operations south and overseas. Having worked at the company for 43 years, he now makes $18 an hour, plus benefits, and isn't optimistic about his prospects of finding a new job with benefits. "Unfortunately all that's out there are the K-Mart (SHLD), Wal-Mart (WMT), Burger King (BKC), and McDonald's type of jobs. I know I'm never going to get what I am making now, but I need to go somewhere I'll get benefits."

Straight Democrat

Those concerns play directly into how he's thinking about this election. "It's a shame the elderly can't get medical coverage today, and someone's got to solve it," says Tarmin. "I've split my ticket at times in the past, but this time it's straight Democrat."

Given a few extra months on the campaign trail, Republicans might have gained some ground with undecided voters. Economists say burdens may now be easing for many workers, with energy prices abating, real wages growing slightly, and benefit costs expected to decelerate next year. But these boosts may be too little, too late for Republican incumbents.

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