Voter's Survival Kit: Seven Things You Need to Know About the Economy

By Scott Bittle and Jean Johnson

It's official: the economy shrank in the third quarter, the clearest sign that the global financial crisis isn't confined to Wall Street. When the economy actually gets smaller, we're moved beyond the realm of financial gyrations and started affecting Main Street as well.

Surveys show the economy is by far the most important issue to the voters this year, and given the events of the past six weeks, it'd be amazing if it were otherwise. And the economy is an issue most people can judge by what's going on around them. People know if their own job is safe, what they're paying for gas, what’s happening to their 401K, and whether there are foreclosures in their neighborhood.. The big picture, however, can be hard to follow -- and most candidates talk about the big picture.

The Voter's Survival Kit from Public Agenda is all about getting the basic facts and alternatives sorted out so you can make a better judgment on what politicians are telling you. The politicians, and to some extent the media, tend to focus on the candidates' specific plans and who said what in the last 24 hours. But most voters would also like to get a little perspective on the debate—to be able to weigh what the candidates are saying against what’s really happening to our economy. That’s where the Voter’s Survival Kit can really help out.

So with that in mind, here are 10 key points about the economy to keep in mind as you listen to the candidates. This issue is moving as fast as any problem out there, but these will help keep you keep the big picture in mind. These are adapted and updated from the Voter's Survival Kit :

The United States has the largest, most powerful economy of any single country in the world. Our gross domestic product – the value of all goods and services in the whole country – is more than double that of the next biggest economy, China. And the influence that the United States has on the world economy is huge. As economists like to say, when the U.S. sneezes, the world catches a cold.

Despite its size and power, the U.S. economy faces two separate issues, and political candidates sometimes mix them together. One is how to respond to some specific problems the country is facing right now as part of the global financial crisis – in other words, how to head off a recession or at least make it less painful. The second issue is whether the U.S. economy, over the long term, is doing what most Americans want and expect from it.

Experts worldwide consider the global financial crisis deeply serious, and the consensus is that both the United States and the world in general are headed for a recession. The U.S. economy actually grew in the first six months of 2008, despite high energy prices and the mortgage crisis. That's partly because of the rebate checks the government sent out to goose the economy earlier in the year. But in the third quarter the economy did decline, and economists expect the fourth quarter to be bad as well. As the International Monetary Fund put it, "recovery is not in sight and likely to be gradual when it comes."

It’s important (but uncomfortable) to remember that recessions every once in a while are pretty much an economic fact of life. Since 1970, the U.S. has had five recessions lasting anywhere from six to 16 months. The government can ease the pain of a recession somewhat – maybe by cutting taxes, extending unemployment benefits, or creating new programs to pump cash into the economy – but the government can’t prevent it entirely.

Banks and financial institutions aren’t the only ones who’ve been on a wild and crazy spending spree. Average Americans are borrowing more and saving less, and maybe that trend has finally started to bite us. The level of consumer debt has climbed dramatically over the last three decades, and the rate of individual savings has dropped. The federal government is as addicted to borrowing as everyone else, with the national debt at more than $10 trillion.

And then there’s the cost of oil and gas. Earlier this year, skyrocketing oil prices helped push the economy into this mess, but ironically the global economic downturn is now causing prices to drop. This is basic supply and demand. When the economy slows down, industries make and ship fewer products, and people drive and travel less, so demand for energy falls and prices falls too. In the long run, however, we can't count on prices staying low, because when the economy starts picking up demand will start going up again, and prices will likely follow. And remember, there’s a lot competition for oil than there used to be. China and India are still expanding and will need a lot more energy. In fact, experts are predicting that worldwide demand for energy will increase by 50 percent in the next 20 years. That’s just a recipe for mushrooming energy costs.

Another huge concern for many Americans are some of the long-term trends. Take income, for example. Income for the typical American family has increased slightly in the last three decades, but mainly because there are more families with both husband and wife working. Using figures adjusted for inflation, the median household income in 1979 was a little over $42,000. In 2006, it was about $48,000. But the average hourly wages for workers has actually fallen. In 1970, it was $8.45; in 2006, it was $8.32. Also, the gap between the income of the wealthiest Americans and the poorest Americans has increased since the early 1980s. Since 1975, most increases in household income have gone to Americans in the top 20 percent of households.

On top of this, the world economy is changing very quickly. The economies of China and India are growing very rapidly. The European Union is a friend, but an economic competitor as well. Many jobs can now basically be done anywhere on the globe. On the other hand, growing prosperity in developing countries means more consumers for the kinds of products and services the U.S. provides. The question of the hour is how to respond to the global economic challenge and at the same time build an economy that works well for the vast majority of Americans.

About 12 percent of Americans live below the poverty line, roughly 36 million Americans. That’s five million more than in 2000, but a smaller percentage than 15 years ago – and in the long run, far fewer than in the 1950s.

How do we know all this? Here are our sources:

Sources: Income, Poverty and Health Insurance Coverage in the United States, U.S. Census Bureau; Overview of the U.S. Economy, Bureau of Economic Analysis; Monetary Policy and the Economic Outlook, July 2008, Federal Reserve Board; Bureau of Labor Statistics ; World Energy Outlook 2007,, International Energy Agency; World Economic Outlook, October 2008, International Monetary Fund; NABE Outlook, October 2008, National Association of Business Economists; Business Cycle Expansions and Contractions, National Bureau of Economic Research