The Economic Situation (Edexcel A-Level History): Revision Notes
The Economic Situation
Overview of the economic crisis
The state of the US economy became the most important issue in the 2008 presidential election. A remarkable 60 percent of voters identified the economy as their primary concern when casting their ballots. This prioritisation of economic issues would fundamentally shape the campaign and ultimately benefit Barack Obama's message of change.
After experiencing moderate economic growth in the early 21st century, the United States had entered a recession by 2008. The severity of this downturn cannot be overstated. Alan Greenspan, chairman of the Federal Reserve Board (the American equivalent of the governor of the Bank of England), declared it was the worst economic crisis the USA had faced since the end of the Second World War.
Greenspan's declaration carried enormous weight - as Federal Reserve Board chairman, he was one of the most influential voices on the American economy. His statement that this was the worst crisis since World War II signalled to voters that the situation was truly unprecedented and required dramatic change.
The financial collapse of September 2008
During the peak of the presidential campaign, the American economy appeared to be in complete freefall. September 2008 witnessed a series of catastrophic financial events that shocked the nation:
Lehman Brothers bankruptcy
- One week in September saw Lehman Brothers Bank, one of America's most prestigious financial institutions, file for bankruptcy
- This represented the largest bankruptcy filing in US history and sent shockwaves through the global financial system
The AIG bailout
- The insurance corporation AIG (which at that time sponsored Manchester United) required emergency intervention
- The federal government provided an $85 billion loan as emergency funds to prevent the company's complete financial collapse
- This demonstrated how the crisis threatened even the largest American corporations
The fact that AIG sponsored Manchester United helped Americans understand the global scale of these corporations. When such a massive international company needed emergency government intervention, it highlighted how severe the crisis had become.
Economic indicators
The recession's impact on the American economy was reflected in stark statistical measures:
Gross Domestic Product (GDP)
- The GDP shrank as low as -3.8 percent, indicating the economy was contracting rather than growing
- This negative growth represented a serious economic contraction
Unemployment
- Unemployment rose sharply to 10 percent of the workforce
- Millions of Americans lost their jobs, creating widespread economic insecurity
Understanding the significance of these numbers:
- A negative GDP means the economy is shrinking - the country is producing less wealth than before
- 10% unemployment means one in every ten workers had lost their job
- These statistics represented real hardship for millions of American families
Government response to the crisis
Bush's bailout plan
- President George Bush recognised the gravity of the situation and asked Congress for new powers
- These powers would enable a bailout plan for the US banking sector
- The rescue package would cost American taxpayers billions of dollars
- This intervention marked an unprecedented government involvement in the financial sector
McCain's response
- Senator John McCain suspended his campaign in September 2008
- He returned to Washington DC specifically to vote on Bush's rescue package
- This dramatic decision highlighted how seriously the crisis was affecting the political landscape
McCain's campaign suspension was an extraordinary move. Presidential candidates rarely interrupt their campaigns during the crucial final weeks before an election. This decision demonstrated the severity of the crisis but also risked making McCain appear reactive rather than in control.
Global context
- Similar economic problems affected other Western economies, particularly the United Kingdom
- The world economic system seemed on the verge of complete collapse
- This global dimension emphasised that the crisis extended beyond American borders
Impact on Obama's campaign
The economic crisis proved advantageous for Obama's presidential bid in several key ways:
The message of change
- Obama had consistently advocated that 2008 was a time for fundamental change in the federal government
- The economic collapse validated his argument that new leadership and new approaches were desperately needed
Change We Can Believe In
- In 2008, Obama published a book entitled Change We Can Believe In, which outlined his plans for America's future under his presidency
- The book received influential endorsements:
- Warren Buffett, a multi-billionaire investor, stated he believed Obama had the right vision for where America needed to go
- Elizabeth Warren, co-author of The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke, believed Obama boldly addressed the critical issues of family economic security
Why these endorsements mattered: Warren Buffett was widely regarded as one of the world's most successful investors - his support suggested Obama understood economic policy. Elizabeth Warren was already a respected voice on middle-class economic issues, and her endorsement reinforced Obama's credibility on family financial security.
Polling and electoral advantage
Initial parity
- At the beginning of the campaign in early September, Obama and McCain had similar ratings in the polls at 46 percent each
- The race appeared highly competitive with no clear frontrunner
Obama's rising support
- As the economic crisis deepened and developed, Obama's lead increased significantly
- By October, voters increasingly saw Obama as the person who could deliver genuine change
- His message resonated with Americans desperate for solutions to the economic catastrophe
McCain's disadvantage
- As a Republican, McCain was politically damaged by his association with the Bush administration
- President Bush's handling of the economy had become deeply unpopular
- Voters tended to blame the Republican Party for the financial crisis
- This association proved difficult for McCain to overcome, despite his efforts to distance himself from Bush's policies
Worked Example: Linking Economic Events to Electoral Impact
Question: How did the September 2008 financial crisis affect Obama's campaign?
Step 1: Identify the specific economic event
- Lehman Brothers bankruptcy (largest in US history)
- AIG required $85 billion government bailout
Step 2: Explain Obama's response
- Obama's campaign message emphasized "change"
- Published Change We Can Believe In outlining his vision
- Received key endorsements from Warren Buffett and Elizabeth Warren
Step 3: Show the electoral impact
- Polls in early September: Obama and McCain tied at 46% each
- As crisis deepened: Obama's lead increased significantly by October
- Obama's "change" message resonated with voters seeking solutions
Step 4: Connect to McCain's disadvantage
- McCain was a Republican, associated with Bush administration
- Bush's economic handling was unpopular
- Voters blamed Republicans for the crisis
- This damaged McCain despite his campaign suspension attempt
Conclusion: The economic crisis validated Obama's change message while undermining McCain's Republican association, directly contributing to Obama's rising poll numbers.
Exam tips
Exam Success Strategies:
When answering questions about the 2008 economic situation and election:
- Link cause and effect: Clearly explain how specific economic events (like the Lehman Brothers collapse) directly influenced voter behaviour and poll numbers
- Use specific evidence: Include precise statistics (60% of voters, -3.8% GDP, 10% unemployment) to support your arguments
- Show both sides: Explain how the crisis helped Obama (change message) but hurt McCain (Republican association)
- Consider significance: Explain why Greenspan's "worst crisis since WWII" comment mattered politically
- Connect to wider context: Reference the global economic crisis to show understanding of broader implications
Remember!
Key Points to Remember:
- 60 percent of voters prioritised the economy above all other issues in 2008
- The September 2008 financial crisis saw Lehman Brothers collapse and AIG require an $85 billion bailout
- Economic indicators were dire: GDP fell to -3.8 percent and unemployment reached 10 percent
- Obama's message of change resonated powerfully as the economic situation worsened, helping him pull ahead in the polls
- McCain's association with the Bush administration damaged his campaign, as Republicans were blamed for the economic crisis