Nasdaq: Campaign Gravitas

With the tech-heavy Nasdaq market taking a hit this week, many are concerned that the Internet-fueled economic boom may be slowing. The words "bear market" are again rising to the lips of financial analysts, and that's brought worry to not only Wall Street's power players but to the millions of Americans who now have a stake in the financial markets, often by way of mutual funds that hold their retirement savings.

All this has got to be making Vice President Al Gore, the all-but-certain Democratic presidential nominee, nervous.

Recent national polls have by and large showed presumptive Republican nominee George W. Bush ahead of Gore by a handful of points … yet political analysts tend to favor Gore's chances in the fall. The reasons have to do with the state-by-state math of the electoral vote, the advantages of incumbency, and the notion that it's still "the economy, stupid."

A similar dynamic prevailed in 1988, the last time a vice-president followed a two-term president as his party's nominee. Even when George Bush the Elder trailed Democrat Michael Dukakis by double-digits that summer, the conventional wisdom of the punditry was that, come Election Day, Mr. Bush would prevail.

There were a number of reasons for that prognostication, which of course turned out to be correct, but central was the precept that people ultimately vote their pocket books. The economy seemed generally strong in 1988, and that helped Mr. Bush overcome questions about scandals in Mr. Reagan's second term and general uneasiness over Mr. Bush as a candidate (the terrible campaign run by Dukakis didn't hurt, either, but that's another subject for another day).

Gore is, rightly, running in large part on the strength of the American economy. Some Republican commentators, all too aware of how hard that makes it for them, have claimed that it's not a Clinton-Gore success we're enjoying but rather the long-term results of Reaganomics. But as more than one Democratic observer and more than a few Republicans have pointed out, you've got to give credit where you would assign blame. And it's not too likely that Republicans would be giving the current administration a pass if the economy were in the tank today.

This week's market gyrations, most analysts agree, are not a harbinger of anything near that dire. And those who know also point out that, even with recent losses, the NASDAQ has so far this year outperformed even the rosiest scenarios. But we're clearly in a nerve-wracking new era of great market volatility, and the rules are still being written. Meanwhile, Gore sweats.

With so much of our current boom fed by the flow of capital into stocks whose profits are a matter of speculation, perceptions could be paramount. If this week's roller coaster starts to make enough people queasy, a profound market drop has the potential to take consumer confidence with it -- which might slow growth enough for the cycle to begin to feed on itself.

Gore's luck hs so far been mixed at best. The rise in oil prices has real potential to do him damage, OPEC's recent plans for a cost-trimming production hike notwithstanding. Monday's ruling against Microsoft in the Justice Department's anti-trust case against the software giant touched off the Nasdaq sellout. And consumer confidence has indeed fallen in recent months and likely will continue to do so as the economy reaches the equilibrium sought by Federal Reserve chairman Alan Greenspan.

Last quarter's growth numbers turned out to be even better than expected but with Greenspan at the helm, that's just an invitation to once again douse the embers of inflation with an interest rate hike -- which will continue to precipitate the sort of market corrections we've seen this week. You may remember that Bush the Elder pleaded with Greenspan to continue dropping rates as the '92 election neared, and that the owlish Fed Chairman made it clear then that he keeps no one's counsel but his own. Gore will get no undue help from that quarter if things start to sour.

Make no mistake - ours continues to be the strongest economy in the world and possibly in United States history. But politics, like the stock market, is a game of perceptions. Even if the American bottom line remains better off than it was eight years ago, a relative decline in fortunes could leave Gore far more vulnerable than he is today. For one, he would no longer be able to simply point to the economy as evidence that his proposals would also have the Midas touch. For another, his negatives will come under much clearer focus if removed from the dazzling light of this unprecedented boom.
It would be ironic indeed if events were to give George W. Bush the "It's the economy, stupid" issue that Clinton-Gore used so effectively against his father. And as the markets climb and dip and climb and dip again, there are likely no knuckles whiter than those of the vice president.