Still The Economy, Stupid
Sooner or later, one way or the other, interest rates will impact the race for the White House.
CBS News Chief White House Correspondent John Roberts reports Vice President Al Gore and Texas Governor George W. Bush clearly have a lot riding on the state of the economy in November. Economists point out any effect from the latest rate hike figures should be felt in about five months, around Election Day.
On the campaign trail in New York on Tuesday, Democrat Gore had one eye on Social Security and one on the Federal Reserve. Gore's political future could well rest on whether Greenspan slows the economic growth - or stalls it. When asked about the political implications of the rate hike, President Clinton replied, "The Fed will do its job and we will do ours."
By that, Mr. Clinton meant his administration would keep running federal budget surpluses and paying down the debt, which -- he argued -- would in turn keep interest rates low. But former Clinton Labor Secretary Robert Reich warned if the economy slows, then watch out.
"If it cools before election day, then Al Gore's going to have a hard time selling himself as the champion of the new economy," said Reich.
And Gore would come under withering attack from Gov. Bush, who would seize upon any economic stumble as a rationale for change. Ross Baker, a professor at Rutgers University, said while the Republican contender would certainly benefit from a downturn, he can't exactly root for one.
Bush's team "can't express this publicly, but their hearts leap up in joy when this (a downturn) happens," said Baker.
The Greenspan effect is not lost on former presidents. In a recent article in New Yorker magazine, Gerald Ford stated that when Greenspan was chief of Ford's Council of Economic Advisors in 1976, his refusal to support a tax cut was "the major reason we lost the election" to Jimmy Carter.
Reich remembers how the interest rate increase of 1979 hurt Ford's successor.
"Fed Chairman Paul Volcker raised interest rates dramatically (then) to break inflation," said Reich, "and some say he lost the election for Carter," who was beaten by Ronald Reagan the following year.
And George Bush - the former president, not the current GOP hopeful - went so far as to say that as Fed chairman, Greenspan disappointed him by not lowering interest rates more quickly in 1992, when the elder Bush lost the White House to Mr. Clinton and Gore.
"I would think that if the interest rates had been lowered more dramatically, that I would have been re-elected President, because the recovery that we were in would have been more visible," he said.
If the economy does slow, Gore will attempt to turn it into a positive by saying Bush's proposals to cut taxes and privatize Social Security are too risky. And because his programs rely on a robust economy, Bush must walk a fine line between planting seeds of doubt and appearing t be a prophet of doom.