Fisher Investments Editorial Staff
Politics, US Economy

Incorrectly Political

By, 09/13/2010

Story Highlights:

  • US midterm elections loom, and politically motivated economic arguments run rampant today
  • Candidates' economic talking points frequently miss the mark—on both sides.
  •   Investors would be better served to study economic reality and listen less to those vying for office.

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In less than two months, voters will determine the make-up of the next US Congress. Elections bring politicking, spin, and aggressive advertising campaigns to sway voters. And this year, with heated midterm elections fast approaching, one of the primary political issues is the US economy.

Politicians on both sides of the aisle frequently cite economic talking points to drum up votes for them and their like-minded cohorts. While each side has its own style, both seem far more inclined to bemoan fictional dour economies than discuss economic reality.

Republicans' basic argument is the economy is worse off than it was a year ago—or, in a slight concession, to claim a mostly stagnant recovery. Talks center on lagging economic statistics (like elevated unemployment and housing market woes) or on the size of national debt and deficits. As with many things, there is a kernel of truth in these criticisms—but that is overwhelmed by the sheer amount of fiction. Few admit (as we've written here on many occasions) employment gains normally lag economic growth—sometimes by a long way. As to the housing market, recent data on the subject was greatly skewed due to the recent expiration of the $8,000 tax credit for homebuyers. Trying to construct the "worse-off-than-a-year-ago" argument requires obscuring (or overlooking) an enormous amount of contradictory evidence—like four consecutive quarters of GDP growth, private businesses that have added jobs year-to-date, or myriad other economic statistics.

Democrats' discussions are generally more of decrying an income gap between low- and high-earners. They essentially discard the economic growth from 2002-2007 as "exclusive" and claim voters should go their way to avoid a return to this period. Talk is of misguided deregulation (without showing evidence of it), excessive CEO compensation, and corporations profiting while the "middle class" languishes. Income gaps are inherent in capitalism—not everyone benefits equally, as opportunity creates incentive. Moreover, comparisons between earning levels is a bizarre way to judge economic health—the economy isn't a pie of finite size, it expands over time. Comparing the gap between the two ignores the gains capitalism has brought to those on the lower end of the spectrum as well as the top. The aim here is fairly clear—prey upon jealousy and angst to win votes. Moreover, ignoring seven years' economic growth is pure spin.

As inconvenient as reality might be for these folks, the economy is growing. Global trade has risen dramatically in the past year. US companies have rapidly increased productivity, earnings, and sales. Sure, not everything is rosy today—which is normal only one year into economic expansion—but a likely continuation in growth holds the cure to lingering ills. Corporations have huge stockpiles of cash in the early stages of being deployed—in hiring, expansion plans, marketing, etc. The US private sector is in mostly fine shape, which benefits the vast majority of Americans over time, but neither side wants to admit it.

While it'd be refreshing to see a politician campaign on a "mea culpa" platform listing all the government's errors from the past decade or two (like lax Fannie and Freddie regulation, schizophrenic responses during and after the financial panic, and the list goes on), we're not holding our breath. Considering the many mistakes attributable to both parties, it's easy to see why the market typically favors gridlock.

While politicians have no problem publicly tar and feathering CEOs and businesses over pay and spending decisions (unless the company is mostly government-owned), the same simply doesn't apply to them. Politicians will deploy whatever amount is necessary to win an election. And there's a plus to this in the here-and-now—candidates have raised enormous cash stockpiles to fund advertising and campaigning. As annoying as political ads can be, cash spent is an incremental economic stimulus. Perhaps it might even help an overly dour media change its tune. (Some media might be politically bent, but their biggest bias is toward advertising dollars.)

As midterm races heat further and platforms solidify, expect intensified debate. For investors, taking a fact-driven, globally oriented view of the real economy and not buying into politically motivated fictional accounts targeting votes is critical.  

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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