Just why is hard to say. Worries about economic insecurity, and the failure of the median household income (adjusted for inflation) to rise during the Bush years, undoubtedly played a part. Bush's personal unpopularity and the public's displaced anger over the Iraq war may also figure.OK, but take a look at the chart below. What it shows is that as recently as 2004 Republicans were only slightly behind Democrats. On a historical basis they were slumping a little bit, but not by enough to get anyone excited.
Then, in 2006 and 2007 bam! Democrats opened up a huge lead and now poll 20 points better than Republicans. So the question is, what happened in 2006?
That turns out to be a pretty tricky question. Nothing comes immediately to mind. Income inequality and income insecurity have been growing for decades; they didn't suddenly take off in 2006. Recessions have caused most of the spikes in the graph, but there was no recession in 2005 or 2006. It could be, as Rauch suggests, George Bush's personal unpopularity and general anger over Iraq that's at fault, but if that's the case it makes the question nothing more than a proxy for the "right direction/wrong direction" question.
So what is it? General disgust with the Republican Party might be part of it, but if I had to toss out a wild guess I'd say a bigger reason is the bursting of the housing bubble, which started in 2006 and continued through 2007. It's also possible though I wouldn't want to put money on this that Bush's Social Security fiasco hurt him. It's not just that people didn't want Republicans taking risks with their Social Security checks, but that Republicans were doing it at the same time that they weren't doing anything about the housing meltdown.
Anyway, just a guess. Obviously lots of things happened in 2005 and 2006, but it's not clear which of them would suddenly cause a huge change in perceptions about which party can manage the economy better. Am I missing anything obvious?