The Magazine

Bear Market for Bush?

Why the president--and the economy--really need a tax cut.

May 5, 2003, Vol. 8, No. 33 • By STEPHEN MOORE
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LIFE DOESN'T GET any better than this if you're a Republican. The decisive triumph in Iraq has sent President Bush's approval ratings soaring back above 70 percent, according to an April 15 NBC poll. If things go right for Republicans in '04 they could really go right. Under many plausible scenarios, 2004 could deliver for the GOP the kind of landslide that 1964 was for the LBJ Democrats.

Could Republicans possibly lose in 2004?

Oh, they could find a way. After all, the GOP has been here before--in 1991. After Bush Sr. muscled the Iraqis out of Kuwait, he was surfing on a crest of popularity higher than his son now enjoys or anything Reagan ever saw. Still, less than two years later, Bush Sr. was evicted from office--because he lacked a coherent program for reviving the economy after a relatively mild and short-lived recession. He also lost because he seemed completely inattentive to the anxieties of American workers and investors. To jittery voters, it seemed as though, to borrow a phrase from Clinton, Bush Sr. didn't "feel our pain."

This president is also vulnerable--though the well of support among conservatives enjoyed by George W. Bush runs far deeper than it ever did for his father. But there is no denying the economy has performed rottenly. And, if we suffer another year of a bear market and stagnant growth in the private economy (the public sector has been growing like gangbusters), voters may again rebel against a successful wartime president.

Not long ago, I sat through a Ted Kennedy slideshow presentation on the economy. It was depressingly persuasive. To summarize a 20-minute talk in two sentences: Under Clinton, the budget deficit and unemployment went way down, while the GDP, jobs, and the stock market soared upward. Under Bush, the deficit and unemployment went up, while the GDP, jobs, and the stock market went down. The Democrats are preparing to Herbert Hooverize George W., and they've got a lot of ammunition to do it with.

In particular, if the stock market doesn't recover soon, Bush will be running headlong against history in his reelection bid. Since Bush was inaugurated in January 2001, the Dow Jones has fallen 20 percent and the Nasdaq has tumbled 45 percent--though the mini-rally since the end of the Iraq war is helping to reverse these declines. Still, the stock market collapse has led to a liquidation of $5 trillion in wealth--some of which has been absorbed by foreigners, but most of it by American shareholders. These losses are bigger than the GDP of virtually every country in the world.

So I got to wondering how many times in the last 100 years a president has been reelected when the stock market fell during his first term, as it has under George W. Bush. Not once has this happened. Twice a president came up for reelection after a term in which the stock market fell, and both incumbents got the boot. They were Herbert Hoover and Jimmy Carter--not the kind of company Bush wants to keep.

Bush has two advantages in defending himself on the economy. First, most Americans acknowledge that the recession and stock market collapse began under Clinton. This was an economic tailspin that Bush inherited rather than created. The stock market hit its peak in the spring of 2000--about nine months before Bush was inaugurated. Signs of an economic slowdown first emerged in the third quarter of 2000. Moreover, voters seem to understand that the 9/11 attacks created a jolt to the economy from which we are still recovering. Bush's other advantage is that the Democrats are countering his tax cuts with moldy 1970s-style governmental expansionism that few Americans buy into. The Democratic stimulus package is pitifully unimaginative: more spending on infrastructure, on aid to states and cities, on expanded welfare benefits. Polls show the public is skeptical that the Bush tax cut will work, but even more distrustful that big government solutions are the key to growth.

SO BUSH may well coast to victory, even in a bear market, but why tempt fate? The political penalty for a lousy stock market should be even stiffer now, because of the sudden emergence of the new investor-class voter. The 2000 election was the first in which a majority of voters owned stock, up from about 20 percent as recently as 1976. Pollster Scott Rasmussen reports that Bush won a slight majority of these shareholders in 2000; and Republicans got nearly 55 percent of them in 2002. In 2004 these wealth-depleted voters might not be so forgiving to GOP incumbents.