Why did Al Gore not coast to victory in the US presidential election on the back of a boom economy? The US is currently enjoying the longest boom since World War II, unemployment has fallen and productivity risen to record heights, and incomes have risen among all ethnic groups.
The state of the economy typically makes or breaks candidates. George Bush Sr. tried to win the 1992 election on the basis of his foreign policy and victory in the Gulf War against Saddam Hussein. But Bill Clinton came out with his famous strategy focusing on “It’s the economy, stupid.” The US had skidded into recession in 1991-92. A telling bumper sticker on cars said “Saddam has kept his job. Have you?” And by focusing on the economy, Clinton won a famous victory.
What about this election? In the middle of this year, George Bush Jr enjoyed a lead of 10 percentage points or more over Gore. I wrote in this column in July that I nevertheless expected a Gore victory. Why? Because I felt Americans would ultimately give more weight to the economy than other factors like Gore’s poor personality, evasions and fibs. Maybe Gore will still squeak through, but I was clearly wrong in saying that the economy would clinch the issue for him. Why?
I made the mistake of analysing the economy in terms of growth, inflation, employment and other traditional indicators. In fact, I should have thought more in terms of the stock market, where more than half of US voters have invested their savings. The real economy may be booming, but the stock market is in indifferent shape. It’s not the real economy, stupid, it’s the stock market. And of all the markets, it is the Nasdaq, the stock exchange specialising in hi-tech shares, which has overtaken the venerable New York Stock Exchange in trading volume.
If you look at stock market trends and opinion poll trends, down to the final vote, you will find a remarkable correlation between the popularity of Gore and the rise and fall of the Nasdaq.
The Nasdaq index had already tripled over the previous three years to 3,000 by November 1999. The new millennium began with further strident gains. The Nasdaq shot up to a peak of 5,000 in March 2000. Americans felt immensely pleased and rich. The stock market boom of the 1990s had attracted unprecedented millions of citizens, and for the first time in history, more than half of all American had become shareholders.
On the Nasdaq, technology stocks skyrocketed to unbelievable heights, leaving far behind the stately oldies of the Dow Jones index (which covers the 30 largest companies on NYSE). Many hi-tech companies rose a hundred-fold in price.
But then, although the economy kept growing strongly, the Nasdaq crashed in spring this year, from its March peak of 5,000 all the way down to 3,000 at one point in May. Some of the star stocks which had made the biggest gains earlier now crashed. Priceline, e-Bay and other dotcoms lost up to 90 per cent of their value. Internet Capital Group, which mothered an entire brood of Internet companies, crashed from a peak of $ 210 to a low of $ 7. Millions of Americans investors saw huge chunks of their wealth going up in smoke.
One consequence of the spring crash, little noticed at the time, was that George Bush Jr forged well ahead of Gore in opinion polls. Many experts wondered at the time why Bush was doing so well and Gore so badly in a boom economy. The answer is that the boom in the real economy was not reflected in the Nasdaq, that millions of Americans were worried sick by their loss of stock market wealth.
Then, the Nasdaq started climbing back in June and July, and crossed the 4,000-mark again. Gore’s stock soared along with the Nasdaq. By the end of July, he overtook Bush in the opinion polls and went five percentage points ahead. He looked a winner at the time.
But then the Nasdaq crashed again from the beginning of September to the middle of October, losing a quarter of its value. One consequence: Bush once again overtook Gore in the opinion polls. Going into the final month of the campaign, the Bush group felt it had unstoppable momentum.
But then the Nasdaq began rising again in late October, and from a low of 3,000 went up to around 3,400 by election day. In this final leg of the election campaign, hi-tech stocks like Dell Computer and Microsoft recovered from their troughs by a third in value, and Internet Capital Group doubled at one point.
This, in my view, helps explains why Gore unexpectedly ended with a fractional majority in the popular vote. The Nasdaq rally assuaged the anxiety of many voters, and this just about sufficed to allow him to overtake Bush at the last moment. Whether it will suffice for victory in Florida remains to be seen.
Am I overstating the case? Maybe. A hundred factors affect any election, and victory can never be attributed to one cause alone. In this case, some people will say the clincher was Ralph Nader’s candidacy, which diverted critical votes from Gore. Others will blame Gore’s poor personality and fibs. Still others will highlight the failure of the campaign managers to focus on Tennessee and Arkansas, home states of Gore and Clinton, both of which were won by Bush.
So, no single factor wins elections. But some factors are more important than others. A close look at trends in the Nasdaq and the opinion polls shows that voters are motivated in considerable measure by their gut feeling about the state of the economy. Economists may define the economy in terms of growth and employment, but ordinary folk are more interested in the price of shares. And in recent years they have been interested, above all, in technology stocks listed on the Nasdaq. It’s not the economy, stupid, it’s the Nasdaq.