Primary season is fast approaching, and it’s fair to assume that White House strategists are mapping a policy course that will maximize the president’s chances for reelection. Not surprisingly, prior to the recent signs of a strong recovery, the Democratic plan for recapturing the White House was one of attacking Bush’s economic record while conceding the defense issue. But all of that has changed: The economy is booming while there is a perception that things are not going so well in Iraq. George W. Bush may face a political situation that is the mirror image of what his father faced three elections ago, when the war went smashingly and the economy dipped.
#ad#National defense and U.S. security aside, the Bush administration will in all likelihood get the strong economic performance it wanted, improving its chances for reelection. While there is, in general, a solid correlation between the popular vote and an election’s outcome, the last presidential election made it painfully clear that the name of the game is electoral votes. And this time around, a strong economy could give Bush the marginal states while a weak economy could subtract them.
So, how many states can the president’s vote-counters hope to pick up from a rising economic tide?
Going by the state-by-state outcome of the 2000 election, there are a total of 149 Electoral College votes hanging in the balance for either side. In 2000, Bush took 76 of these electoral votes: Florida (25), Missouri (11), Nevada (4), New Hampshire (4), Ohio (21), and Tennessee (11). And Gore claimed 63: Iowa (7), Minnesota (10), New Mexico (5), Oregon (7), Pennsylvania (23), and Wisconsin (11).
While a robust economic recovery will tend to get the president more votes, this circumstance does not guarantee that popular votes will come from the marginal states. Hence, the Bushies have been trying to improve chances for reelection by focusing on government programs that fall disproportionately on marginal states or regions. But this is one place where the administration has succumbed to static analysis: It has pursued protectionist policies that in the long run will harm the country’s economic interests.
By enacting trade restrictions on steel (now rescinded) and textiles, the administration has attempted to save jobs in regions or states where these industries are concentrated, thereby gaining votes in those areas. Ohio, Pennsylvania, and Tennessee — all swing states — are steel- and textile-intensive states. If you add the reluctance of the U.S. to reduce agricultural subsides during the current free-trade negotiations, a few Midwestern states could be added to the list.
Yet if vote getting is the rationale for Bush trade policy, the administration is getting bad political and economic advice.
Protectionism is a flawed program resulting from partial economic analysis. It’s true that if we succeed in preventing some foreign imports from entering our borders, these goods may be produced at home, creating employment in the import-competing industries. But that’s less than half the story.
If we import less, it necessarily follows that we either must export less or have a smaller capital inflow. And when employment in the export sector, or the industries financed by the capital inflow, declines, the president’s chances of winning the states intensive in those industries will also deteriorate.
To the extent that trade restrictions reduce the economy’s growth rate, protectionism is a negative-sum game — one that could end up losing Bush precious electoral votes. So what can Bush do? Well, he can return to his principles and pursue an uplifting economic strategy — one that makes us all better off. He can return to a positive-sum game.
States that improve their competitive environment tend to experience above-average growth rates, above-average reductions in unemployment, and above-average gains in the stocks of companies located in their regions. In addition, this strategy forces neighboring states to react to increased competition, thereby setting the stage for a broad, positive-sum gain.
Bush has already done much in this regard. Due to the progressivity of the tax system, state coffers will fill at a faster-than-expected rate as the U.S. economy recovers. Meanwhile, the fiscal woes of many states will be greatly reduced. But the federal government can accelerate this positive-sum gain: It can assist states in this transition as long as the states commit to flatter, less-progressive tax structures as well as spending restraint.
Working with the Republican governors, especially those located in states where Bush had a close election last time around, may be a better and more fruitful reelection strategy than a protectionist agenda. More important, it would lend extra fuel to an already strong economic recovery — possibly adding a few additional marginal states. To be sure, Bush can now seriously consider collecting California’s 54 electoral votes. Should the administration help Gov. Arnold Schwarzenegger succeed, the Golden State’s payload of electoral votes could fall to Bush, dwarfing any possible gains from a protectionist agenda.
The administration has already set the tone on the tax front, and pushing the states to follow suit would never be construed as hypocritical. Where the Bushies will have trouble keeping a straight face is in preaching spending restraint. In fact, a cynic might say that this administration has never seen a spending program it didn’t like.
But this view may be unfair to the administration. There is a kinder-and-gentler interpretation of the administration’s big-government behavior.
Conservatives in general favor lower tax rates, but the reasons for doing so differ greatly among the various sub-groups on the right. For example, some argue that lower tax rates reduce government revenues and thus starve the government, producing less intrusion on the economy. This group favors lower tax rates because they reduce the size of the public sector. Another group believes that lower tax rates lead to higher government revenues and thus allow the government to afford larger social programs. The heart of what we now call compassionate conservatism may reside in this latter group.
Indeed, Bush’s compassionate-conservative agenda leads to a larger public sector — and there is nothing wrong with having a large public sector as long as it is efficiently run. But as most conservatives know, unlike the private sector, there is no competition to force the public sector to behave efficiently.
While compassionate conservatism may very well be the administration’s guiding light, a shadow has been cast over true economic conservatism along the way. For example, we have yet to see any major government program cut or major government department or agency eliminated by the Bush administration. The administration needs to reassure voters that compassionate conservatism does not translate to runaway spending. Returning to the theme of elimination of the double taxation of income, a strong defense, a strong dollar, and some spending restraint á lá Gramm-Rudman-Hollings would be a good agenda for a reelection campaign and a second term.
It did wonders for the Gipper.
— Victor Canto, Ph.D., is the founder of La Jolla Economics, an economics research and consulting firm in La Jolla, California.