Clinton’s Travails Show No Sign of Slowing Economy
Of all the political traps that might draw blood from an economy, it is hard to imagine one more perilous than a formal challenge to the leadership of a U.S. president.
Yet in a curious subplot to President Clinton’s impeachment trial, no sign of economic injury has yet to emerge. Consumers, investors, executives and entrepreneurs--rather than retrenching out of uncertainty about the future--are acting as if the political world is irrelevant to the business of daily life.
And to a significant degree, they may have good reason, according to experts. The transcendent forces of new technology, globalization, the Internet, financial innovations and a rising stock market all seem increasingly independent of the White House and Congress and matters that obsess the political culture of Washington.
Fears of Long Trial, Clinton Removal
Indeed, America’s private sector has blossomed in recent years, with federal spending shrinking as a share of the nation’s economic activity to about 19.6% last year from a 23% peak in the 1980s.
An economy can be affected by “all these psychological reactions that you can’t explain,” said Herbert Stein, former chairman of President Nixon’s Council of Economic Advisors. “But if you just look at [impeachment] in a quantitative or objective way, what difference does it make?”
Some analysts caution that a protracted conflict in the Senate, or Clinton’s removal from office, could alter the balance of political power, with unpredictable effects on federal tax and spending policy and on government regulation of such influential industries as health care and tobacco.
Moreover, analysts also fear that if a major new round of financial turmoil broke out during the impeachment trial, weak U.S. leadership--or even the impression of such weakness--would panic investors even further.
“That’s when not having strong political leadership in Washington will have a real economic impact,” warned Mark Zandi, chief economist at the RFA consulting firm in West Chester, Pa.
For now, though, the public is not acting as if the impeachment drama that preoccupies Washington is cause to change economic behavior. From spending in shopping malls to investing in the stock market, Americans are doing pretty much what they had been doing before anyone had heard of Monica S. Lewinsky.
On one level, the explanation seems apparent: Most people expect Clinton to remain in office. If they really believed he was about to get the boot, they might view the future more uncertainly. The situation reminds one analyst of past consumer surveys, in which people expressed more alarm over health care costs than a nuclear apocalypse.
“It’s not they didn’t think [nuclear war] would be bad, it’s that they didn’t think it was likely,” said Jason Bram, an economist formerly with the Conference Board, which conducted the surveys.
Continuation of Policy Seen
Further, Americans have little reason to believe that Vice President Al Gore would bring great change to economic policy or the economy itself if he moved into the White House, although Gore’s views on protecting the environment might raise concerns in certain business circles.
“Investors perceive that Bill Clinton will either survive or be replaced by a clone,” maintained David D. Hale, chief global economist with the Zurich Group in Chicago.
But there may be more profound reasons why the impeachment spectacle seems like something of a sideshow. In recent years, the very structure of the $8.5-trillion U.S. economy has been increasingly dominated by a gigantic private sector that has produced millions of high-paying jobs in technology, finance and other industries, all seeming to thrive in an atmosphere of less regulation and freer global trade.
Also, federal spending on goods and services--a gauge that excludes Social Security, Medicare and other so-called transfer payments--has declined sharply as a share of the economy--to 6% these days from 9.5% in the mid-1980s and above 20% in the early 1950s.
“The federal government is increasingly a smaller player in today’s economy--in terms of spending, in terms of borrowing, in terms of regulation,” Zandi said. “It’s probably the smallest of any time since World War II.”
Clinton’s impeachment also comes at a time of general peace--air strikes in Iraq do not compare in magnitude to the Vietnam War--and there is no global crisis on the scale of the Arab oil embargo that confronted politicians and consumers in the 1970s.
Moreover, economic policy has arguably improved. Double-digit inflation, for example, seems a relic of a miserable past. And Clinton’s Democratic administration counts eliminating the budget deficit as a signal accomplishment.
Stein maintained that policymakers have become more cautious about the effects that missteps could have on private enterprise and the economy, a change that has raised the hurdle for new regulations. “They’re more aware of the limitations of their policy, the limitations in their ability to see things,” he said.
Still, as some see it, the impeachment process has exerted a subtle economic impact. They note that the U.S. dollar has exhibited some weakness against Europe’s new euro currency and the Japanese yen in recent days. Many believe that a prolonged trial would spark further downward pressure on the dollar.
“If you look at the economic fundamentals, there’s no logical reason why the dollar should be depreciating against the Japanese yen,” said Sung Won Sohn, chief economist with Wells Fargo.
Financial Woe Scenario Outlined
In a recent report, Hale sketched a scenario of financial woe that could arise from an escalating impeachment battle: “If dramatic new information is forthcoming, the first casualty would probably be the U.S. dollar, followed by the bond market and the stock market. If the stock market correction were sustained, the dollar would then decline further.”
Some also point out that an ongoing impeachment crisis could stir the political landscape in unpredictable ways, perhaps emboldening advocates of big tax cuts, altering spending plans and changing the regulatory outlook for health care reform and restrictions on smoking and tobacco.
For now, however, the greatest concern might arise from the world’s still-shaky financial system: What happens if a major crisis breaks out in the global economy at a time when the ability of U.S. leadership to respond is in doubt?
Just last year, government changeovers in Japan and Germany--combined with Clinton’s woes in the United States and Congress’ resistance to financing the International Monetary Fund--added up to a vacuum of leadership that was believed to have fueled some of the investor panic that threatened a global financial meltdown.
Last week’s flare-up in Brazil was the latest reminder that the global economy remains fragile and that a new crisis could demand strong political leadership, a role traditionally filled by the United States.
“What if Brazil defaults the way Russia did?” asked Everett M. Ehrlich, a former Commerce Department official and president of ESC Co., a Washington consulting firm. “ . . . U.S. economic leadership in the world would be irreplaceable. No one else can stem the panic in the world economy the way the president of the United States can.”
