2010 was a difficult year for the Australian Labor Party and the American Democrats. Media coverage goes in waves; it was slow to catch up with Labor’s woes and perhaps has overstated Obama’s difficulties. Much was made of the Democrats’ poor performance in the Congressional elections. Little attention was given to the fact that they came off a high base and still polled around 47-48% of the national vote. Obama is still reasonably popular, is well-liked and outperforms all his potential Republican challengers. Many Republicans leaders are anxious about the popularity of Sarah Plain among many Republican supporters and fear that that she would be a major liability as a candidate. Suddenly much is being made of the positive outcomes of the lameduck session of Congress. As usual little attention is given to the negative consequences of the deal on tax rates for higher income earners which will add to the long term deficit but have very little short-term stimulatory effect. However Obama’s prospects in 2012 depend very much on the economy, it is important to note that even if he does win he may face continuing difficulties with Congress. The Senators elected in 2006 will go up for re-election in 2012 and this was a largely Democratic group. Democratic support at the 2010 election correlated very strongly with Obama’s 2008 vote. Obama needs to win by a reasonable margin to have any prospect of returning the Democrats to a Congressional majority. The American economic recovery is painfully slow and during 2010 the Democrats poll rating followed levels of economic confidence down. On the other hand American voters have low expectations about the economy and the Republicans continue to be blamed by many for the current position. The prospects for Obama seem cautiously positive. The Australian position is the opposite. Voters seem inclined to judge Labor much more harshly for its economic performance than American voters are inclined to judge the Democrats. Australian voters are pessimistic about their economic prospects. Labor also has lost its traditional advantage as the party that is best for the economic wellbeing of ordinary families, an indicator on which it has traditionally performed better than ‘economic management’. What is puzzling is exactly what voters mean by the ‘cost of living’ this a negative for Labor despite rising real wages? The linkage between objective economic circumstances and political behaviour is a complex one. The Democrats are facing very difficult circumstances but their brand remains reasonably intact. Labor faces much less difficult circumstances but its brand has been seriously damaged. Labor seems to lack any strategy to address this in 2011. On the other hand will public perceptions shift as they did for John Howard by 2001 after his terrible year in 1998, will the American economic recovery stall or reverse?