Whenever the American people elect a new president, they're rolling the dice. No one can be absolutely sure what we'll get, even though the candidates have paraded around the country making promises about what they'll do if elected. Through the fog of the verbiage, it's often hard to discern fact from fiction.
Economists have their own ideas about what Tuesday's election will mean for the slumping U.S. economy. One school of thought says that just getting past the election will help the economy - regardless of the winner - by ending the heated rhetoric and eliminating the uncertainty of who will lead the country for the next four years. That might increase confidence and spur consumers to spend, the thinking goes.
"It's referred to as the CNN effect," said Dennis Hoffman, an economist at the W.P. Carey School of Business at Arizona State University. "People are frozen and not making normal consumption purchases because they're waiting to see the outcome of the big event."
To skeptics, he points to the 2000 election, when the outcome between George W. Bush and Al Gore dragged on for weeks, as evidence that news events have an effect.
"I figured at least it would be over and we could get on with business. But it wasn't over. It went on for six weeks, and I think it really did prolong the downturn in 2001 because of that issue," Hoffman said.
Elliott Pollack, a Scottsdale-based economist who operates his own consulting firm, doesn't believe the voting per-se will have any impact this year. He sees the economy heading into a recession anyway, and just getting past the election won't change the underlying dynamics.
"There are too many houses out there, there is too much debt and not enough savings," he said, adding that 2009 is likely to be a weak year for the economy regardless of the election outcome.
"2009 will be bad to terrible," he said. "Good is not in the range of possibilities."
If Democratic Sen. Barack Obama wins, as the pundits predict, Pollack believes he will try a variety of measures to jump-start the economy, including helping distressed homeowners stay in their houses.
"I don't think he will be successful, but he will try to quench the anxiety and fears," Pollack said.
Republican Sen. John McCain, on the other hand, will likely face gridlock if he's elected because both houses of Congress are likely to be controlled by the Democrats, he said. But McCain too would probably try measures to stimulate the economy.
Pollack warns of the possibility of unintended consequences if the new president and Congress go too far. That could include greatly increased deficits or making mortgages more difficult to get by imposing new regulations of financial institutions.
"You just never know when the politicians (mess) around with it," Pollack said. "Hopefully they will restore confidence, but there are underlying problems."
Pollack said those problems - a surplus of houses and too much consumer debt - will require time to correct.
"I think there will be a serious recession, but in the long run the U.S. will do fine," he said. "But it's going to be more like the 1970s. People will actually have to have a down payment when they buy a house and will actually have to save money."
For investors, some segments of the economy might do better than others depending on who is elected. For example, solar energy companies could do well if Obama is elected, but conventional coal and oil stocks might fare poorly, the thinking being that Obama has advocated a windfall profits tax on oil firms and carbon emission controls that could hurt coal companies.
A McCain win could be good for defense contractors and nuclear power companies but bad for ethanol producers because he has been an opponent of ethanol subsidies.
In general, ASU's Hoffman thinks there won't be much difference in the performance of the stock market regardless of who wins. He discounts arguments by some that stocks might fare better with McCain because he wants lower corporate taxes.
"But the tax proposals by Mr. Obama are not that out of line," Hoffman said. "He's not proposing going back to yesteryear when we had really high rates. More like the 1990s, when we did well."
UNCERTAINTY WITH OBAMA?
Byron Schlomach, economist for the conservative Goldwater Institute in Phoenix, isn't so sure Obama would be good for the U.S. economy. Not surprisingly, he thinks some of Obama's policies, if enacted, would slow economic growth. But he added too much is unknown to tell for sure.
"Regardless of how much he has put out, the details of his tax proposals are not fleshed out," Schlomach said. "The overall uncertainty with Obama is a lot higher."
Obama's health care plans are too socialistic for Schlomach's taste, and Obama's views on regulating the financial sector are "not the kind of talk that bodes well for a financial recovery," Schlomach said.
In general, Schlomach is concerned about the type of economic advice Obama is receiving. He subscribes to the view that Obama could finally reverse the conservative course set by Ronald Reagan in 1980. He's unwilling to admit that might be what Americans want in 2008.
"What people want is stability," he argued. "They want reassurance that life will be normal, whatever that is. Reagan was popular because he brought that reassurance to people, and the 1980s were a pretty stable decade. I think that's what people are looking for, not a radical restructuring of government."
DEMOCRATS BETTER FOR STOCKS
Although many economists see the GOP's free-market emphasis as better for economic growth, in reality the U.S. economy and the stock market have performed better in Democratic administrations.
According to a study by Forbes magazine, the S&P 500 has averaged a total return of 14.1 percent per year under Democratic presidents since the end of World War II, and 11.8 percent under Republicans. The best total return of 17.4 percent a year was achieved under President Bill Clinton, the worst of 0.6 percent with President Richard Nixon.
Another study found that stocks do best of all when the president is from one party, and the Congress is controlled by the other, regardless of which way around it is. Analysts point out the stock market fared best in recent decades when Clinton was with a Republican Congress and Reagan was with a Democratic Congress.
A possible reason: gridlock means neither party can do something goofy that upsets the markets. Proponents of this school of thought therefore see problems ahead with one-party control of the two branches of government.
But not everybody agrees with that, either. As reported by Reuters, a study by Bespoke Investment Group in Harrison, N.Y., found that during the seven periods when Democrats had complete control of the presidency and Congress, the S&P 500 rose 14.7 percent annually on average. But the firm also found that a Republican Congress and Democratic president - highly unlikely this year - has been the best scenario for stocks.
Hoffman doesn't put much stock in any of those analyses, saying the markets are driven more by business cycles and shocks that are not induced by either party.
"I don't see that involved in these current issues," he said. "They were caused by pressures that built up over the past ten to 20 years."