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The above prophesy or conjecture has proved to be right as the following article published after six months indicates.

Bush, Republicans Find Strong Economy Doesn't Win Middle Class

By Brendan Murray

Oct. 30, 2006 (Bloomberg) -- Republican Representative Gil Gutknecht is talking up the strong economy in the closing days of a tight re-election campaign. The problem: Middle-class voters in his southern Minnesota district aren't inclined to celebrate upbeat economic statistics.

Gutknecht, a six-term House member, isn't alone. Republicans who planned to use low unemployment, cheaper gasoline and a surging stock market as a shield against discontent over the Iraq war and congressional scandals are discovering that there's little protection to be had.

The reason, some analysts say, is the gap between a statistically strong five-year expansion and strapped family budgets. Middle-class households' finances are getting stretched as workers struggle with higher costs for health care, education, home heating and property taxes.

``The story used to be a rising tide raises all boats, and now it just raises all yachts,'' says Edward Tufte, a political scientist at Yale University in New Haven, Connecticut. ``The benefits of a good economy are much more narrowly focused now on the top 20 percent.''

In the face of growing concerns about income inequality, experts like Tufte say, it should be no surprise that voters aren't swayed when Republicans argue that President George W. Bush's $2 trillion tax cuts have produced a sizzling economy.

Worsened Under Bush

In the most recent Bloomberg/Los Angeles Times poll, conducted Oct. 20-23 among 3,630 voters in five electoral battleground states, 48 percent of respondents earning between $40,000 and $75,000 annually said the economy has worsened under Bush, while 26 percent said it has improved.

Among those voters, 46 percent said Democrats would do a better job handing gasoline prices, compared with 19 percent who said Republicans would be superior. Nationally, the $40,000 to $75,000 group represents 21.6 percent of all income-tax filers, according to data from the Internal Revenue Service.

The skeptical mood among such voters has undermined the strategy outlined by White House political adviser Karl Rove in a May 15 speech previewing his party's electoral battle plan. Rove said then that the continued strength of the economy would override the ``sour'' national mood created by the Iraq war.

The `Middle-Class Squeeze'

Instead, it is the Democrats who are scoring points on the economy by reviving a theme of former President Bill Clinton's 1992 campaign: easing the ``middle-class squeeze.''

Places like New Richland, Minnesota, a farm town of 1,200 in Gutknecht's district, provide a receptive audience. Gutknecht, 55, won re-election in 2004 with 60 percent of the vote. This year, he faces Democrat Tim Walz, a 42-year-old high-school geography teacher who is attempting to harness economic angst to unseat him.

The latest poll by RT Strategies/Constituent Dynamics shows the incumbent tied with Walz, who tells voters that the stock market's ascent isn't benefiting many working families. In New Richland, he doesn't have to look far for folks who agree.

Matt Groskreutz, 22, says over lunch at the Du Drop Inn last week that he works on his family's farm during the day and has a night job at a grain elevator, where he makes $9.50 an hour. The two jobs, he says, are essential for him to ``get by.''

Joyce Hanson, 66, the diner's owner, says that ``it's tough right now on Main Street. Business ain't like it used to be; there's nothing here.''

Lost Jobs

While unemployment in the region has hovered around 3.8 percent this year, below the national average, Walz points to 1,100 factory jobs lost in one county during the past four years. He says they were replaced by 1,300 service-industry jobs that pay about $10,000 a year less.

``My opponent will say this is the best economy we've ever seen, and then I watch the faces across the room,'' Walz said in an interview. ``I don't even have to rebut it, because they know it's not true.''

Gutknecht paints a very different picture of the district, which is home to the Mayo Clinic, an International Business Machines Corp. plant and a thriving ethanol industry. ``The economy in southern Minnesota has never been better,'' he says. ``If people vote on the economy, I think I'm going to win 55 percent to 45 percent. If they vote their fears about Iraq or whatever, then it's going to be much tighter.''

Left Behind

To counter Republican assertions that low taxes are the key to growth, Democrats like Walz are focusing on middle-class voters -- many of them Republican-leaning independents -- who feel left behind by prosperity.

U.S. employers are paying less of their profits in the form of wages and salaries than at any time since the Great Depression, according to Commerce Department data. Wages earned by private-sector workers fell to 51 percent of gross profits in the second quarter of this year, down from 55.5 percent at the start of Bush's presidency.

At the same time, corporate profits reached a record $1.62 trillion in the second quarter, or 13.8 percent of national income at an annual rate. That's up from 9.9 percent in 2000, according to Federal Reserve figures. During the same period, total compensation of workers, which includes wages and benefits, fell to 64.2 percent, compared with 71.7 percent in 2000.

`Not So Spectacular'

While the economic picture ``looks pretty good'' when judged by broad gauges, ``if you look at measures like real income growth, it's not so spectacular,'' says Gary Jacobson, a political scientist at the University of California, San Diego. Even some of those broad gauges aren't looking quite as rosy; the Commerce Department reported Oct. 27 that gross domestic product accelerated at a 1.6 percent annual rate in the third quarter, the weakest pace in more than three years.

Edward Lazear, chairman of the White House Council of Economic Advisers, says that the public's pessimism about the economy ``is a bit of a frustration'' because ``employment is very tight and still growing.'' Higher wages should follow, he said in an interview last week.

Even if he's right, a wage bounce may come too late for embattled Republicans like Chris Chocola, 44, who's fighting for his seat in a northern Indiana rematch with 51-year-old Democrat Joe Donnelly, whom he beat 54 percent to 45 percent two years ago. The Rothenberg Political Report, a nonpartisan newsletter in Washington, rates the contest as leaning Democratic.

In Colorado, Republican Rick O'Donnell, 36, is struggling to hold an open seat even though the unemployment rate there is around 4.3 percent. Retiring Republican Bob Beauprez won 55 percent of the vote in 2004; Rothenberg says the district is leaning toward Democratic contender Ed Perlmutter, 53, this year.

In Indiana and Colorado, as in the Minnesota contest, Democrats seek to use middle-class concerns about job insecurity and stagnant wages to put Republicans on the defensive.

Middle-class voters are ``caught in that perfect storm of rising costs and stagnant wages,'' says Walz, the Minnesota Democrat. ``For the vast majority of us, when the Dow crosses 12,000, it doesn't matter as much as what our paychecks look like.''

To contact the reporters on this story: Brendan Murray in New Richland, Minnesota at brmurray@bloomberg.net

Last Updated: October 29, 2006 19:01 EST