The Economy Vote

Lee Hudson Teslik
Council on Foreign Relations
Tuesday, September 2, 2008; 12:02 PM

As Democrats and Republicans push into the final stretch of the 2008 presidential elections, economic concerns remain an enigmatic element of the U.S. electoral landscape. For months, the U.S. economy has veered from one crisis to the next -- tight credit markets, a housing slump, inflation, a falling dollar, and surging oil prices. Yet more recently, things have looked a little less dire (Bloomberg): since early summer, oil prices have retreated more than thirty dollars off their highs, stock markets have stabilized, and the U.S. dollar has bounced. What, then, to expect in the elections?

For starters, experts say, it's far too early to think the candidates can expect an easing of economic concerns. The Wall Street Journal reported August 26 that Sen. Barack Obama's (D-IL) ambitious economic agenda was increasingly coming into the crosshairs as the Democratic convention opened in Denver, particularly given new signs that credit-market problems might linger into the fall. Obama has proposed an economic revival plan defined by big government programs, tax increases, and major outlays for alternative energy development, and he hopes to use state and local infrastructure projects on roads and ports as a way of stimulating job growth.

Obama's presumptive opponent, Sen. John McCain (R-AZ), has put forth fundamentally different ideas on how to stimulate the U.S. economy. McCain's plan, reports the Associated Press in a news analysis, takes the view that the best way to create jobs is to lower taxes on corporations to allow them to operate more efficiently and hire more workers. He says he intends to limit government spending and strongly opposes what he calls Democrats' "tired ideas of tax and spend." In contrast to Obama's proposed $115 billion short-term stimulus package, McCain says he opposes temporary economic relief for individuals, saying it will only exacerbate government spending woes.

Both candidates' plans have come under increasing scrutiny, particularly given persistent uncertainties about the short-term U.S. economic outlook. Despite the summer bounce, the Financial Times reports troubles at U.S. mortgage lenders Fannie Mae and Freddie Mac are only spreading. A slew of other economic indicators also spell trouble. A graphic from the Journal compares Obama's campaign to those of three Democrat predecessors -- Lyndon Johnson, Jimmy Carter, and Bill Clinton. It notes that inflation is higher and inflation-adjusted economic growth rates are lower than in any of those election cycles. It's also possible that the United States could have higher war costs -- if, for example, the situation in Afghanistan further deteriorates -- or that oil prices could again skyrocket.

All these factors, combined with political realities, could limit the ability of either candidate to fulfill sweeping economic promises. Obama and McCain have made starkly divergent statements on trade -- with McCain favoring trade liberalization, and Obama taking a more protectionist tack -- but the Economist expects that Obama would move to a more centrist position, if elected, and that McCain would find himself politically unable to push through any major liberalization. Similarly, both candidates find themselves somewhat limited in their options on energy security. The Wall Street Journal reports that the "Gang of Ten" plan -- a proposition by a bipartisan group of senators to allow oil and gas drilling in some off-limits offshore areas -- poses political problems for both McCain and Obama, given the strong opposition it has drawn from groups both on the right and left.

There remains yet another contingency, which is that the economy could improve significantly over the next few months. Experts say it remains unclear how this outcome would alter the dynamics of the campaign. One possibility is that the U.S. population would redouble its focus on national security or the U.S. wars in Afghanistan and Iraq -- though economic concerns are sufficiently entrenched that the likelihood of them evaporating altogether seems highly improbable.

© 2008