Economy Has Big Vote in Elections

Economics always gets special attention in an election year.

Since the 1950s, two presidential elections have been importantly influenced by the poor state of the economy.

John Kennedy was helped, probably decisively, in his race against Richard Nixon by the Eisenhower recession of 1960. In 1980, the economy added greatly to all of Jimmy Carter’s other problems, ensuring his defeat by Ronald Reagan. That was the year of double-digit inflation brought on by OPEC II and of historically high interest rates brought on by Carter’s new Fed chairman, Paul Volcker, in his attempt to fight the inflation.

Good economic times have helped produce landslides for four incumbents during the same period: Dwight Eisenhower in 1956, Lyndon Johnson in 1964, Nixon in 1976 and Ronald Reagan in 1984. In each case, the economy was growing rapidly and inflation was subdued. On four occasions--1954, 1958, 1974 and 1982--economic recession cost the President’s party a lot of seats in the House and Senate.

These casual observations are supported by formal statistical studies of the relation between economic conditions and voting patterns.

The strong result that emerges is that high or rising unemployment and high inflation are both bad for the incumbent’s party, and, conversely, their opposites are good for incumbents.

Pressures Will Run Course

Some studies try to squeeze a lot more from the data, but there are just not enough observations to produce any further results that are reliable.

In light of this history, will the economy be a factor in this year’s presidential election? Right after last October’s stock market crash, forecasters were looking hard to gauge the economic fallout. At that time, many thought the crash would lead to a recession.

And even early this year, many forecasts called for a recession sometime before the November elections.

At the same time, some other forecasters anticipated a clear and worrisome pickup in inflation, stemming from the price pressures of the declining dollar and low levels of unemployment and spare capacity at home.

Based on my view of the economic outlook, none of these dramatic developments is likely, and the election is going to be run against a backdrop of largely benign current economic news.

The stock market crash did indeed have a negative effect on consumer and business spending, but the effect was brief and not very deep.

For example, car sales declined in October and November but have recovered since then.

Business orders for new high-tech equipment weakened after the crash but have come back as fear stemming from the stock market has receded.

All this could change if stocks suffer another big decline. But without it, the economic expansion looks healthy enough.

As for inflation, there are some price pressures from higher import prices.

But if the dollar has seen its lows, as I expect, these pressures will soon run their course. Unemployment has gotten below 6%, but that no longer represents a flash point for faster wage increases.

The memory and continued threat of foreign competition continue to moderate union wage increases in manufacturing, and several years of low inflation help hold down wage increases.

Meanwhile, OPEC is working hard just to keep volatile oil prices from falling too far, and food prices do not appear to pose an inflationary risk for now. So consumer prices, on average, should rise no more this year than last, which will hardly make inflation an election issue.

A recurring question among financial journalists in an election year is whether policy is being tilted to make the economy look good for the election, even if that stores up problems for later.

This year, fiscal policy is locked into place by the budget compromise agreed to by the President and Congress last fall. This leaves monetary policy--which is in the hands of an all Reagan-appointed Federal Reserve Board.

There was some excitement early in the year when a Treasury official improperly wrote a heavy-handed letter to all the board members urging on them an easier monetary policy. Fed Chairman Alan Greenspan objected strongly to this pressure, and there is no reason to believe that the Fed is playing politics with the economy this year.

In light of the economic outlook as I see it, a policy of unchanged interest rates is about what an objective outsider would call for, and that seems to be what the Fed is providing.

Does all this mean that the Republicans will win the election? Hardly. Voters will grapple with non-economic issues and differences in the personalities and perceived leadership qualities of the candidates.

Populist Message

And although the easy votes that would come from high unemployment or inflation are not going to be there for the Democrats in November, there are other economic issues for them to pursue.

Thus far in the primaries, the two most successful Democratic campaigners have been Jesse Jackson and Michael Dukakis. Jackson has forcefully offered a broad Populist message aimed at those who feel left out of the general prosperity, including those who have been hurt by foreign competition.

Dukakis has led with the fact that he has governed one of the most prosperous, fast-growing states in this period and offers hope of a greater generalized prosperity as the main way to benefit all Americans.

Both messages have clearly appealed to some large blocks of voters.

Finally, the big economic trauma of last year was the stock market’s crash. As I indicated in assessing the outlook, the economy has weathered that one. But experienced market observers do not rule out a second stock debacle, possibly before November.

Should that happen, it will be read as a condemnation of the incumbent’s economic management. And it will help the Democratic candidate as surely as unemployment or inflation would have done.