Economy emerging as key election issue

America switching focus from war in Iraq to economic woes

Like other presidential hopefuls, Democrat Hillary Clinton has increasingly focused her campaign on economic issues, including a joint appearance Tuesday with billionaire investor Warren Buffett.

WASHINGTON - Americans have turned markedly gloomier about the economy in recent months, a shift that is reshaping a presidential campaign long dominated by the war in Iraq and national security concerns.

Higher prices for gasoline and home heating oil, stock market volatility and rising mortgage foreclosures all account for some of the pessimism, in the view of political pollsters.

Significantly, they also cite the recent drop in real estate prices as a major worry for millions who have long viewed their homes as a source of retirement income.

“People feel less secure these days,” and their concerns turn to issues such as education, health care and retirement security as well as the economy, said Sara Taylor, a former White House political director not aligned with any of the Republican presidential hopefuls.

“What you’re going to do is see candidates focus more intensely on those issues because the voters are going to demand it,” she predicted. She acknowledged that voters tend to favor Democrats over Republicans in those areas.

The past several election campaigns have largely played out in reaction to the terror attacks of Sept. 11, 2001, and the war in Iraq. But now, said Democratic pollster Pete Brodnitz, “the war seems more stable, and in the meantime the economic situation seems less stable.”

He added that unlike the war, domestic issues are areas “where a candidate can really be responsible for concrete solutions.”

Recently, the wave of mortgage foreclosures has created a campaign issue where none had existed, particularly among Democrats who are critical of President Bush’s proposal for relief and are offering competing alternatives.

Prompted by turmoil in the credit markets, Bush announced an effort to help some homeowners facing possible foreclosures because they are not able to afford scheduled interest rate increases. The administration hopes to stabilize the housing market and help some homeowners by freezing their mortgage rates so they have time to refinance into more affordable fixed-rate loans.

He drew criticism from some Republicans who accused him of violating conservative principles by injecting the government into the marketplace.

At the same time, several Democratic presidential contenders accused him of a tepid response.

“For most Americans, a home is not just a place to live; it’s their most valuable possession — so preventing a larger crisis in the housing market means providing greater economic security for middle-class families,” Illinois Sen. Barack Obama wrote recently in a Wall Street Journal op-ed article.

Like Obama, Sen. Hillary Rodham Clinton and former Sen. John Edwards proposed more sweeping steps.

Clinton traveled to Wall Street to urge the securities industry and mortgage bankers to agree to a voluntary, 90-day moratorium on further loan foreclosures on owner-occupied homes and an interest-rate freeze of at least five years on subprime loans.

“If we cannot reach a voluntary agreement, I will consider legislation to address the problem,” added the New York Democrat.

Edwards sought to trump Clinton with a seven-year moratorium on interest rates for borrowers with subprime mortgages and a requirement on lenders to offer concessions to try and avoid foreclosure. “We also need a national rescue fund to help these families,” he said, as well as new laws to crack down on predatory lending.

Whatever the impact on the political campaign, the spike in economic pessimism is dramatic.
Republican pollster David Winston’s frequent surveys show the electorate was split almost evenly on the future of the economy through the first half of the year. Beginning in late summer, though, the percentage of those saying it was headed on the wrong track took a jump. By October, 63 percent said the economy was moving on the wrong track, compared with 32 percent who said it was headed in the right direction.

Gallup, the polling organization, reported that 78 percent of Americans surveyed in November said the economy is getting worse. Only 13 percent said they expect improvement, a disparity that the organization called “the most negative responses” since it began asking the question in 1991.

The widely watched Conference Board’s Consumer Confidence Index has plummeted in recent months, and Lynn Franco, the organization’s director of consumer research, said it is not clear whether the trend will quickly reverse itself.

Two recent polls found the economy has supplanted the war in Iraq as the No. 1 issue in the campaign, although that does not appear to be the case in early voting states such as Iowa and New Hampshire.

Still, concern about the economy is evident there, as well.

Margaret Fleming, a single retiree in Wolfeboro, N.H., said the economy is the issue that matters most to her. At 67, she said she has investments and her condo is paid for. Still, she added, “I’m concerned about the economy so I have enough money to live in the style I’m accustomed to.” Her candidate is Sen. John McCain, R-Ariz.

Traditionally, a bad economy and the sour public mood that goes with it spell trouble for an incumbent in the White House. Pessimism in the run-up to the 1992 presidential election campaign was only marginally better than it is at present by Gallup’s numbers. President George H. W. Bush was turned out of office that fall by a Democrat, Bill Clinton, whose strategists made “It’s the economy, stupid,” both a reminder to themselves and a succinct slogan for the campaign.

Taylor said that Democrats “historically have had an advantage” on many domestic issues, including education, health care and retirement. It’s going to be incumbent on Republicans to figure out how to get ahead of it now before we’re in a general election campaign,” she said.

Brodnitz agreed that Democrats have an advantage. “If you ask people who they trust on economic issues Democrats do very well,” he said.

URL: http://www.msnbc.msn.com/id/22221732/

Myth: Presidents are responsible for the economy's performance.

Fact: Presidents are at the mercy of the business cycle.

 When it comes to the economy, presidents are at the mercy of the business cycle. Often their fortune (or misfortune) with the economy depends on what happened in the previous administration. There are tools to influence the business cycle, but the President has almost no control over them. At least in economic terms, the most powerful person in the United States is the Chairman of the Federal Reserve Board.
In all truth, presidents probably have the least control over the economy of any major government player. The belief that presidents deserve blame for recessions or credit for recoveries is an economic myth. A very popular myth, to be sure, but one that no mainstream economist takes seriously.

At the heart of the economy's performance lies the business cycle. For reasons which are still debated, the economy has a natural tendency to expand and contract - otherwise known as recoveries and recessions. This has been going on for centuries, at irregular intervals that economists cannot yet predict. However, one generalization about the business cycle is known. The economy grows in the long run, thanks to the growing population and rising productivity per worker. This means that expansions tend to be longer than contractions. Also, the deeper the recession, the steeper the recovery. The deepest contraction in U.S. history was the Great Depression (1929 to 1933); the steepest recovery was the New Deal and World War II (1934 to 1945).

This does not mean that the government does not have tools to influence the business cycle. It's just that presidents do not have access to most of them.

The most powerful person in the United States, at least in economic terms, is the Chairman of the Federal Reserve Board. He controls the size of the nation's money supply (through interest rates and other methods), which has a profound influence on the business cycle. By contracting the money supply, he can create a recession, by removing the dollars that would normally cover the financial transactions between customers and businesses. This drives up unemployment, but it also has a positive effect: it reduces inflation, by causing businesses to lower their prices, and workers their wage demands, to stay working through tough times.

The role of the Federal Reserve, therefore, is to find the right balance. It seeks to expand the money supply just fast enough to avoid high unemployment, but not so fast as to create inflation. Often it's work is counter-cyclical, or in opposition to the business cycle. It expands the money supply during recessions, and contracts it during recoveries, to keep both unemployment and inflation in line.

The importance of the Fed cannot be understated. With a few phone calls, the Fed Chairman can create a crushing recession or runaway inflation in a very short period of time. So powerful is the Fed's role that it has completely eliminated the depression from the American economic experience. Before World War II, we suffered eight depressions; since World War II, we have suffered none.

The decisions of the Fed are called monetary policy. There is another way to influence the business cycle: fiscal policy, which is conducted by Congress and, superficially, the president. Much like the Fed, Congress can either pump money into the economy or take it out, by varying its level of borrowing and spending. For example, the Great Depression ended when the U.S. government began massive borrowing and spending on defense in preparation for World War II. The massive influx of dollars into the economy not only eradicated the nation's huge unemployment problem, but also fueled the greatest economic boom in U.S. history.

Fiscal policy is less effective than monetary policy for another reason as well. Whereas the Chairman of the Fed has only to make a few phone calls to turn the economy on a dime, the government must take long, slow and uncertain action. Suppose the president wants to pass a budget filled with deficit spending. First he has to campaign to get the nation behind it. Then he has to make deals and twist arms in Congress to win support for it. If either of these efforts fail, then his budget won't get passed at all. If he is lucky enough to win plausible support, then the budget must be debated in Congress. Members of Congress will make extensive and profound changes to his original budget proposal. Lobbyists will make further changes in conference committee. (The power of lobbyists is not to be underestimated -- their control over the budget is near absolute.) When the final budget is passed, it often bears little resemblance to what the president requested. Then the bill has to be put into effect; this happens in next fiscal year. Bids for government projects must be received and evaluated, contracts awarded, and implementation begun. The effects of fiscal spending may take years to have an effect on the economy.

Which begs the question: what, exactly, can a president do to influence the economy? His role in determining monetary policy is limited to nominating the members of the Federal Reserve Board. His role in determining fiscal policy is limited to cheerleading budgets through Congress.

   By now it is evident to most Americans that the next President will inherit an economic mess. The Bush Administration through borrowing billions of dollars from China and other foreign countries to finance it's unjustified War In Iraq has our country in a huge deficit that has no quick fix. In the short term President's have no control over the American economy unless he (or she) has great influence over the The Federal Reserve Board and it's Chairman and the President's party controls Congress. We as Americans must come to the realization that in a "free enterprise" economic system, the President really has little or no power to execute any change. Many Americans have given former President Bill Clinton credit for the economic "good times" of the '90's. and they reason that by having Hilary Clinton in office the economic "good times" will return. In my opinion the economic landscape is much different now than what it was in the '90's because of increased economic globalization. The value of the US dollar is shrinking rapidly. Every decision the next President makes will have to take into account the repercussions upon the American economy. The next President has to realize "it's the economy, stupid!" and have a clear vision and plan of bringing prosperity back to America, at least by the next generation of our grandchildren and we must have an a-r-t-i-c-u-l-a-t-e President who can convey his or her vision and plan to The Fed, Congress and the American people. ( This country, in my opinion, cannot stand another inarticulate, "status quo", "business as usual" President Bush) It is incumbent upon both the Democrat and Republican parties to nominate candidates that really understand that in '08 "it's the economy, stupid!" and be capable of "quarterbacking" America out of this economic mess She is in.

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