August 13, 2004
Rooting for the Economy
Larry Summers, the former Treasury Secretary under President Clinton who is now President of Harvard, was asked in a recent interview to compare the university environment to the one he left behind in Washington. The most obvious difference, he said, was that everyone at Harvard wanted him to succeed, whereas half the people in Washington were hoping he would fail.
Does disappointing economic news put a spring in your step? For some of us, the answer is clearly yes. Our combative and partisan zeal, cresting now as we hit the home stretch of the national election cycle, inch us closer every campaign to what can only be called total political warfare, where no short term sacrifice is too large to advance political objectives.
It’s a discomforting trend. The first “total war,” after all, was World War I, which was the first armed conflict to bring the carnage and deprivation of wars between armies to the civilian populations of the combatants on a large scale. That’s certainly not a pleasant image to conjure up. But the lackluster performance of the economy during some recent political seasons isn’t very pretty, either.
The buildup to national elections can be bad for the economy for entirely innocent reasons, of course. Markets, in general, crave certainty, and closely contested elections delivery anything but that.
A changeover in the party in power brings the possibility for reverses or reforms, depending on your point of view, that can have direct impacts for long-term investments. And if too many companies and investors sit on their hands to see which way things are going, the economy can lose momentum. That’s undoubtedly why stock market recoveries so frequently follow election results.
But politics in the modern era have not been entirely innocent. All parties know that the power of incumbency is greatly enhanced by a strong economy, so challengers take every opportunity to downplay the good news and play up the bad. And aside from the rare instances of either meteoric growth or total collapse, the economy can be counted on to serve up plenty of both.
With the forces of the media often amplifying the spin, the frequent result is a highly distorted and misleading picture of our economic health. Indeed, in two out of the last three national elections, the economy turned out to be in quite different shape than the rhetoric suggested. Cries of “it’s the economy, stupid” echoed in President Clinton’s successful challenge to incumbent George H. W. Bush in 1992, yet data showed that strong growth was underway three months before election time. And, the aura of Alan Greenspan notwithstanding, the longest running expansion in modern U.S. history came to an end six months before George W. Bush took office.
When leaders are judged on economic data, the temptation to delay, amplify, or manipulate the data is high. To their credit, our government statistical agencies have maintained a high level of integrity and independence that has served us well. But that hasn’t stopped those who use and interpret the information from doing so
It’s easy to admit that campaigns affect perceptions – that’s what they’re all about, after all. But does the posing and posturing of campaigns affect the economy itself? It’s a question that’s almost impossible to answer. But since the economy runs on confidence, as much as it runs on dollars, it is not hard to imagine.
About the Author
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