Money talks and walks in election aftermath

By James K. Glassman
web posted December 4, 2000

An old saying is that money talks. And in the aftermath of the current election, it's expressed a lot of displeasure.

The Dow Jones Industrial Average since election eve has lost nearly 5 percent its value through November 24. The technology heavy Nasdaq has slumped more than 15 percent. That election news is playing a major role is demonstrated by what happened on November 22.

Both indexes dived more than 100 points in morning trading the day after the Florida Supreme Court extended the time of the recounts of punch card ballots until November 26. Then immediately after Miami-Dade County, the largest of the three predominantly Democratic counties conducting recounts, decided to halt, both markets recovered nearly all of their losses.

Coincidence? Not likely. For then when the news came out that a judge ruled dimpled ballots would be counted in Palm Beach County, they markets swooned again.

On November 24, stocks rebounded a little on bargain hunting. Even after that bounce, the Dow was down 8 percent for the year and the Nasdaq 30 percent. They have a difficult climb if they are not to end the year down, something that hasn't happened since 1990, which presaged a recession the following year.

Indeed, Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter, warned: "Over the past few weeks, the risks of a hard landing have probably increased. The dynamics of what's happening pretty much assure that we'll be in a period of slower growth for a while."

Of course, the markets and economy aren't merely responding to election news. Earnings reports, oil prices and problems in the Middle East have taken their toll.

But the markets have demonstrated particular concern over the possible election of Vice President Al Gore. As I've noted earlier, the market averages fell most during the election campaign when he was showing the greatest gains and rebounded when it appeared he was falling back.

Why? After all, the economic boom of the 1990s took place for the most part under a Democratic administration of which he was a part.

Alan GreenspanOne reason may be that the administration receives very little credit for the economy's vibrancy. As Bob Woodward has noted in his new book, Maestro, about Federal Reserve Chairman Alan Greenspan, economic growth in great part came about not because of anything the administration did, but rather what it didn't do. It couldn't enact a foolhardy fiscal stimulus package in its first year, nor did it get a massive federal health care plan passed in the second.

That's an overly simplified view. The administration did conclude the North American Free Trade Agreement and a new world trade pact. It helped negotiate the Telecommunications Act of 1996 that created a road map for deregulation in that area. It also signed on to welfare reform and reductions in capital gains taxes.

But mostly, the administration stayed out of the way, especially of the New Economy being spurred by digital technology and the Internet. Until recently.

This year, antitrust zealots in the Justice Department won a court decisions to break up Microsoft. The success of their venture has encouraged European regulators to pursue their own controls on the software giant. The Federal Trade Commission, meanwhile, continues to hold up the merger of AOL and cable giant Time Warner. It wants to force the cable lines opened to other Internet Service Providers. The Federal Communications Commission is reviewing its hands off approach on that issue, even though doing so could stifle competition in deployment of high-speed Internet access.

These and other regulatory measures threaten to create what I have called a regulatory recession. They raise new uncertainty for business and investors, whose financing has spurred the technological innovation underlying the long economic boom.

How George W. Bush, if he withstands Gore's legal assault on his election, will deal with all these issues is problematic. Thanks to the divisive end of this election, Bush will find it difficult to enact any tax cut to boost growth. Indeed, Bob Dole has said to heal divisions he may have to pursue a prescription drug program first. All of which may explain why the Nasdaq got no bounce from Florida's certification of a Bush victory there.

Gore, though, suffers more because he is seen as favoring regulation. His legal spokesman in the Florida recount fight is none other than David Boies, who was the lead trial attorney in the Justice Department's case to break up Microsoft. Gore also was the negotiator of the Kyoto protocol on climate change, which as written would require cutbacks in energy use needed to run the New Economy. And during the campaign he promised to fight oil companies, pharmaceutical firms and other business as dangerous special interests.

If somehow he succeeds in overturning Bush's election, Gore will have to move boldly to assure the markets he isn't as anti-business as his rhetoric makes him seem. In the meantime, it is little wonder that the markets appear jittery.

Uncertainty before an election is one thing, but continued lack of direction after the vote is completed could be the final straw to tip an already slowing economy into reverse.

James K. Glassman is the host of

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