Who Will the Economy Hurt or Help Come November?

Commentary by Pete du Pont

The conventional wisdom is that a good economy helps Al Gore and a bad economy hurts him. Certainly Mr. Gore thinks so. Lately, he has been doing all he can to make it seem as if he had something to do with the strong growth, low inflation and unemployment we are experiencing.

History, however, gives little reason the believe that sitting vice presidents, as opposed to presidents, are much impacted by this one way or another in their presidential quests. In the postwar era, three sitting vice presidents have sought the presidency. This is the record:

Richard Nixon in 1960 may have suffered from a sluggish economy. Although real gross domestic product growth was strong in the first quarter of 1960 at 9.2 percent, it was negative in the second at minus 2 percent and flat in the third at plus 0.7 percent. Nixon himself certainly believed that this sharp falloff in growth is what killed him in the general election.

Unfortunately, his strenuous efforts to make sure growth was strong in 1972 after he finally achieved the White House let loose the inflation demon that took a decade to kill.

In 1968, Hubert Humphrey had excellent economic conditions, far better than Mr. Gore can hope for. Growth was very strong in the first and second quarters at 8.4 percent and 7.1 percent respectively, and a still healthy 2.8 percent in the third quarter. Nevertheless, Mr. Humphrey seems not to have benefited at all, losing to Mr. Nixon that year.

In 1988, George Bush had decent, but far from outstanding, economic conditions to run on. Growth was a modest 2.7 percent in the first quarter, rising to 4.8 percent in the second, falling back to 2.1 percent in the third. Yet despite these modestly positive numbers, Mr. Bush appears to have been helped by them, as he defeated Michael Dukakis in November.

Thus the record seems to be that one vice president (Nixon) was hurt by slowing growth, one (Humphrey) was not helped at all by very strong growth, and one (Bush) appears to have benefited from fairly modest growth.

So far in 2000, we have only data from the first quarter, which shows real GDP rising 5.4 percent. This is a solidly positive number, though down from the 7.3 percent figure in the fourth quarter of 1999.

How the rest of the year turns out mainly depends on how the economy reacts to the tightening of Federal Reserve policy that began one year ago. Since Fed policy impacts on the economy with a lag of about one year, we can expect a slowing of growth for the balance of this year. The key, from Mr. Gore's point of view, may be how quickly the economy slows.

So far, economists are not marking down their GDP forecasts in light of a slowdown in some key economic indicators, such as retail sales, which fell in both April and May. However, even if growth falls sharply for the rest of the year--something no economist is predicting--it may not necessarily hurt Mr. Gore anyway. The most politically important economic statistic is not real GDP growth, but the unemployment rate. But unemployment is what economists call a lagging indicator--it does not rise until well after a slowdown has begun and does not fall until well after a recovery has started.

Even if a recession began today, therefore, it is quite possible that no one will even notice before November. It is worth remembering that as late as October 2, 1990, Federal Reserve Chairman Alan Greenspan still thought the economy had not yet fallen into a recession. Subsequent data now indicate a recession had in fact started in June of that year.

Thus it is quite possible that Mr. Gore will not be hurt at all even if a recession begins between now and November. Moreover, it may well be that his Republican opponent, George W. Bush, will be the one to suffer. The reason is that Mr. Bush is strongly pushing a plan to allow younger workers to invest part of their Social Security taxes in the stock market.

Clearly, a rising stock market helps Mr. Bush a great deal, allowing him to plausibly make the argument that his plan is better for workers than Mr. Gore's play-it-safe, do-nothing plan. However, just as unemployment is a lagging economic indicator, the stock market is a leading indicator. In the event of a slowdown, we can expect the stock market to fall much more quickly than the economy as a whole. This could damage Mr. Bush by making Mr. Gore's charge that his plan is too risky appear valid.

How all this will play out is impossible to say at this time. The point, simply, is that the interaction between the economy and electoral outcomes is complex. The only thing we can say with certainty is that economic conditions between now and election day are likely to have an important impact on voting. Who will ultimately suffer or benefit remains to be seen.

 

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The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.