Paul Volcker and Mike Murphy Talk Politics and Economy

It’s not the economy, stupid. It’s the public’s perceptions about the economy that will decide the 2012 presidential election.

That was the bipartisan analysis shared by veteran Republican political consultant Mike Murphy and a Democratic expert on the economy – no less than Paul Volcker, former chairman of the Federal Reserve and former adviser to President Obama.

Murphy and Volcker assessed the campaign during a roundtable discussion at the Kennedy School moderated by Belfer Center Director Graham Allison. Several members of the Belfer Center International Council attended the session, which took place on the eve of the annual council meeting.

Volcker, a member of the International Council, said the recovery from the 2008 financial crisis remains painfully slow, but added, “it’s funny how the public mood has changed, even though there’s not much going on… The psychology has moved a lot more than the economy.”

Murphy, who is not advising any presidential candidate in this race, said the race is “all about perception, and it’s all about perception in the last 60 days.”

He said that swing voters are especially prone to changes in mood. “The only truism about the ticket-splitters in the middle is that they change their minds a lot, with a lot of enthusiasm, based on what they perceive is going on in the economy.”

Volcker said he expected that in a second term, President Obama would have a better chance of brokering a grand bargain with both parties on the huge problems of the debt and deficit, Social Security, the tax code, and health care. Murphy, however, worried that Democratic leaders would be looking to the next Congressional mid-term two years away and would shy away from any painful concessions.

The main campaign risk for presumptive GOP nominee Mitt Romney, Murphy said, is simply the nation’s changing demographics, with greater numbers of young and Hispanic voters who trend Democratic. In turn, he said, Democrats are upset that working-class and rural whites are Republican diehards.

“Democrats have a class model for politics,” Murphy said. “They don’t understand that the real fault line is culture. And we tend to win the cultural questions.”