It’s Not the Economy, Stupid!

 

It looks as though the Democratic candidates, who were shamelessly bashing President Bush for the economy in the early fall months, may have banked a great deal of their campaign messages on an issue that may not exist come November.

As of this writing, the Dow is inching its way up to another two-year high, as is the NASDAQ.  Tech companies are bouncing back in a big way as more large corporations announce increases in spending.  The economy is beginning to show sure signs of recovery, as it always does after a deep recession.  And it wasn’t as though we shouldn’t have seen the recession coming.  After the obnoxious, lengthy expansion of the economy in the late 1990’s, a severe snapback was long overdue.  Now we’re snapping back from the snapback like a violent hiccup in clockwork. 

Since the Great Depression, there has scarcely been a 10-year period in the history of the Dow where the value has not increased – and that is because, for lack of an act of God, time makes wealth grow.  The cycles and elasticity of that growth matter little – the trend is always up.  And that’s why just about any economic advisor would instruct a young person to contribute a modest $100 a month into an index fund and don’t even bother trading stocks.

So the market is going to go its way, and it is composed of the sum of all of its little bitty parts, and a few not-so-little bitty ones.  It is so much greater than any one person or administration, as thousands of publicly held companies and even more private ones vie for the green pieces of paper.  So why is it that people choose to continue to criticize a nearly powerless political candidate by pointing out the economic conditions that existed during their brief reign?  It is somewhat of an easy target, I suppose – since economic cycles last roughly as long as presidential terms, either side can take advantage of a crest and/or a trough in the wavelength of economic ebb and flow.  But it’s a big gamble, because the economic weather can turn on a dime and destroy those arguments in a cold minute, as is happening in these early months of 2004.

While it’s debatable whether Bush’s supply-side, tax-cutting policies or his wars had any effect on the recovery, the recovery was going to come, sure as Mars rises.  He’s getting lucky now that it’s happening in an election year, just as president Clinton was lucky enough to be presiding over the explosion of the Internet when his time came, and just as president Reagan was lucky enough to have recovered from the devastating recession of 1981 through 1982 just before the 1984 election.  And Bush senior was unlucky, as the once-popular president with a 91 percent approval rating after Gulf War One had a recession hit, prompting Clinton to run fiercely against him buttressed with the Democratic mantra, “It’s the economy, stupid!”  It pretty much made him a one-termer.  It’s a pretty convenient device – meanwhile Republicans claimed that their control of congress was what led to the economic explosion of the mid-90’s.

Short of squabbling congresses, wars, and terrorism, and the influences thereof, if any government agency truly has any direct control over what happens in the grand scheme of macroeconomics, it is the Federal Reserve Board, which was created by the Federal Reserve Act of 1913.  It is the central bank of the United States, designed to promote stability and fair treatment of consumers by the banking system.  Appointments to the “Fed” are made by the President and confirmed by the Senate, but wisely, they are for very long terms, nearly fourteen years, to prevent their policy decisions from being influenced by political considerations.  Investors listen to these people far more closely than they would a bumbling former Texas governor.  The board members of the Fed are arguably the most powerful people in the world, as a small quarter percent change based on seven peoples’ opinions can send the market plummeting or skyrocketing.  They are keeping money on track, and they’re not going anywhere anytime soon.

After watching the stock market somewhat, I am increasingly of the opinion, especially in the age of the Internet where investment amateurs are flooding the market with capital, that it is emotion that drives these dramatic deviations from economic trends, not inherent value.  This emotion about finances translates into misplaced feelings about the prowess of our leaders, and I fear that this economic recovery sentimentalism is what is going to get one George W. Bush reelected. 

That is, unless a scandal involving a hooker surfaces in mid-August.  But Bush has been relatively hooker-free.  And I’m certainly not going to wish for a stock market crash.  Nobody wants that – unless they’re silly enough to be selling stocks short right now.

If only it were possible for righteous idealism to be a currency in these unenlightened times.

 

The Concise Encyclopedia of Economics: http://www.econlib.org/

The Federal Reserve: http://www.federalreserve.gov/

Technocracy, Inc.: http://www.technocracyinc.org/