There’s almost exactly one year to go until Election Day 2016. But I want to wind the clock back eight years, to Nov. 5, 2007.
What were the headlines that day? According to the news aggregator Memeorandum, the most talked-about national stories were the confirmation of Michael Mukasey as attorney general and the increasing unrest in Pakistan. There was also the typical litany of campaign stories, particularly about the growing rivalry between Barack Obama and Hillary Clinton, who were both serving in the U.S. Senate and running for the Democratic presidential nomination.
But there was very little about the economy, even though it was about to become the focal point of the campaign. The Dow Jones industrial average, for instance, was doing fine, having wobbled a bit from its October highs but still having risen by about 13 percent year over year.
Just one month later, however, the economy would be in recession1 — indeed, in the midst of the worst recession since the Great Depression as part of a global financial crisis whose aftereffects are still being felt today.
Could we find ourselves in equally dire straits by this time next year — in the midst of a severe economic crisis that few people saw coming?
Well, maybe. There were some warning signs by November 2007; the subprime mortgage sector was already in distress, and there were some voices in the wilderness suggesting that it could have dire consequences for the economy. But that wasn’t the consensus view of policymakers or forecasters. Instead, the forecasting survey put out by The Wall Street Journal in November 2007 called for slower-than-usual growth but assigned only a 1 in 3 chance of a recession.2
Indeed, economists have shown very little ability to forecast the direction of the economy more than six months in advance. As I wrote in my book, the historical margin of error associated with GDP forecasts made a year ahead3 is plus-or-minus a whopping 4.6 percentage points. By this time next year, the economy could be back in recession — or in the midst of a “Morning in America” resurgence.
And because the economy is so important to presidential campaigns,4 events in China or Greece or the American oil boom, which few political observers are paying much attention to today, could prove to be the real “game changers” in the election.