Why The Election Doesn't Matter To The Economy

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There is plenty of conventional wisdom about why the recession will not be helped or hindered by the results of the presidential and congressional elections.

The first and foremost among these is that the new people cannot get to their offices before the end of January. Before their embossed stationary gets in and they have their first orientation meetings, it will be March. The avalanche of the wounded economy will have already crushed large parts of the industrial and financial base. Getting down to work at the end of the first quarter is just too late.

Another popular view about the inability of the new order to help solve the credit, housing, and liquidity problems that vex the rest of the global GDP is that the individual governments do not have the power to fix troubles that do not have borders. Perhaps, the world financial system was not so global when FDR was president and tried to right the US economy, although there are still questions about whether his programs did any good.

The corollary to the globalization of the recession is that big governments will never see things the same way. There will be wrangling over who is in charge, who benefits, and where the capital comes from to make things better.

Sitting somewhere in the shadows is the argument that a recession is a recession because it is intractable. If it could be fixed, it would not be a recession. It would be an economic incident without the energy to resist government and central bank intervention.

The Great Depression is too harsh a comparison, but a great number of analysts believe that WWII saved the economy more than any government attempt to make matters better.

The 1973 recession began — based on most historians’ views — with the Arab oil embargo. Crude prices went from $3 to $12 in a matter of months. The consumer retreated into a shell from the shock of having a large portion of his income consumed by energy costs. The private housing industry took on water as buyers became cautious. Investment purchases dropped for almost two years.

Over that same period the Fed cut interest rates from 10.2% to 6.1%. Since inflation was widespread, that is probably comparable to the interest rate reductions taken by the agency over the last year.  But, the consumer did not react much to these actions and neither did business. Unemployment rose in every quarter for seven quarters.GDP fell seven quarters as well.

As oil prices moderated and businesses had access to cheaper labor, the ability to pay lower wages, and more favorable costs of goods, the economy made its way back.The recession had fixed it own troubles by making the system of creating jobs and capital investments more efficient. The adjustment to the cost of doing business made the economy healthy again.

Politicians do not have that power and, in all likelihood, neither do the officials they appoint.

Douglas A. McIntyre