Anyone reading the polls has to begin to wonder about the economic consequences of a Kerry presidency. The latest national poll taken by the Pew Research Center shows the president in a statistical dead head with his challenger, and the latest Gallup poll shows that is true as well in the 16 so-called battleground states where a few undecided voters can tip the scales one way or the other. Worse still for Bush, whereas in January 66% of Americans thought the economy was getting better, and only 27% believed it was getting worse, this month only 47% say things are improving, while 45% say they are not.
The readings on Iraq are even worse. Whereas last summer 57% of Americans approved of the president's handling of the situation with Iraq, now 57% disapprove, according to a new Gallup poll.
None of this means that Bush is a goner. The economy is adding about 10,000 jobs every day, and sooner or later perception will catch up with the reality that the economy is booming, adding permanent, high-paying jobs. And once the Iraq hot potato is handed back to the Iraqis, and something resembling a sovereign government is put in place, the president will be in a better position to argue that his policy has been successful.
Still, the race is close enough to make it imprudent for investors and policymakers not to consider the economic consequences of John Kerry, especially in the unlikely event that the Democrats win working control of the congress. Start with a comforting thought: the team Kerry has assembled is hardly loaded with scary radicals. Robert Rubin, who served as Bill Clinton's treasury secretary; Larry Summers, who succeeded Rubin and is now president of Harvard; and Alan Blinder, who left the Federal Reserve Board to return to Princeton, all have reasonably good Wall Street or academic credentials, and most have considerable government experience. Equally important, Alan Greenspan has been confirmed to serve as Fed chairman for another two years, providing a steady hand on the economic tiller, no matter who finally ends up in the Oval Office.
Nevertheless, a Kerry presidency will be different from a second Bush term in many ways. Both candidates have promised to cut the federal deficit in half in the next five years. Bush will rely primarily on the increased flow of revenues that economic growth will generate, indeed, is already generating. Kerry has chosen a different route. He has promised to raise taxes on families earning more than $200,000 per year, no surprise given the fact that during his 17 years in the Senate he has repeatedly voted for tax increases. He also plans to repeal the corporate and capital gains tax cuts pushed through by Bush. That, says Mark Sumerlin of The Lindsey Group consultancy, would knock about 7% off the Dow-Jones average of leading shares.
Bush and Kerry also have widely different views on trade. The president has recently refurbished the free-trade credentials he tarnished by raising duties on steel. Despite a record current account deficit, he has rejected pressure from congressmen in both parties to extend quotas on imports of textiles and garments. The congressmen say that the end of quotas will cost some 650,000 jobs. That is no doubt an exaggeration, but the president's adherence to his free trade instincts might well cost him dearly in states such as North Carolina.
Bush has also taken Kerry on the question of outsourcing. Kerry says that outsourcing has cost hundreds of thousands of jobs. Bush responds that outsourcing lowers the cost of American companies, makes them more efficient and competitive, and enables them to grow and create jobs. Bush is probably closer to right. The Department of Labor survey concludes that the number of jobs being lost to outsourcing is relatively small, and the Joint Economic Committee of the congress notes, "Companies must hire staff at home to support overseas operations, meaning good-paying jobs for Americans."
But Kerry feels he is riding a winner with the trade issue, and has promised to review all free trade agreements, and to include in future ones the requirement that overseas companies meet U.S.-approved labour and environmental standards. His promise of a tougher review is holding up approval of an important agreement with Australia, which has rallied to America's side in Iraq, and stalled congressional consideration of the recently negotiated Central American Free Trade Agreement.
If Kerry keeps his promise to get tough on trade deals, the free-trade system that has contributed so much to world economic growth will be damaged; if he reneges, he will antagonise the trade unions that are such an important part of his constituency.
Other Kerry-Bush policy differences will affect important industries. Kerry has never voted to fund a major weapons system, so his election would be bad news for the defence industry. He favours allowing the reimportation of lower-priced pharmaceuticals, which is bad news for drug companies. And he is likely to impose some sort of price controls on health care providers. But industries that might benefit from protection -- textiles leaps to mind -- would have reason to cheer, as would producers of alternative, "greener" sources of energy.
Bush's reelection would be good news for the 50% of Americans who own shares, and for all the companies that benefit from the more rapid growth rate induced by lower taxes. But bad news for sellers of expensive annuities if he can persuade congress to expand tax-free savings accounts.
The good news is this: the big, boisterous, flexible American economy in the end depends on the animal spirits of its risk-taking entrepreneurs and its hard-working, skilled work force. Only a disastrous presidency, on the order of Herbert Hoover or Jimmy Carter, can do it serious long-term damage.
This article appeared in The Sunday Times (London) on June 27, 2004.