It has been several weeks since I wanted to talk about the stock market. Consequently, recent columns have focused on Augusta National (in favor), lawyers (in favor), the Ku Klux Klan (in favor, because it has made August National and lawyers look good by comparison), Nelson Mandela (against), SUVs (in favor), and Joe Millionaire (in favor). Put all that aside. It's time to get back to business.
The stock market is sending George W. Bush a message, and I don't think he's getting it: Your presidency is at stake and if you don't change your game plan, we will consign you to the scrap heap of history. Don't blame the messenger for this one. Even with general public support for the President on domestic and foreign policy, and the difficult hand his presidency has been dealt, he is blowing it.
Contrast the first President Bush's failure to win re-election with President Clinton's success: Bush had big ideas and stated them boldly, while Clinton lacked big ideas and refused to be pinned down on what he stood for. Bush had to break his no-new-taxes pledge, and allowed the war with Iraq to end with Saddam Hussein still in power. Clinton, in contrast, never articulated a view of the United States in the world, but succeeded in hijacking elements of the Republicans' domestic agenda and passing compromise versions.
George W. Bush is on the ropes because he refuses to give the financial markets (and, simultaneously, the American public) a good basis for predicting the future. Granted, the precarious world situation makes predicting the future more difficult than in years past. It is Bush's personal style, more than the situation, that's responsible for our collective funk.
George W. Bush has made a habit of underpromising or, if possible, avoiding making promises. His big themes are good themes and he articulates them well, but he never claims that his political opponents at home or abroad will agree with his positions, and make it possible to pursue them.
This style may yield some political benefits -- he can't be accused of breaking promises he hasn't made, and he enjoys the luxury of being underestimated -- but it is poison to the financial markets and, indeed, for the economic mood of the country. Almost more than from good conditions, the financial markets benefit from predictable conditions. Stock prices reflect the value of the future money flow from the stock's fractional ownership of the company. With the stock market, an uncertain future will always trump a good present.
President Bush has a poor record of turning his ideas into policy. He is too opaque for investors to view his pronouncements on big issues with confidence. Consequently, the financial markets usually view Bush's public utterances with disdain. To do otherwise is to get burned.
Following Bush's early January announcement of his economic plan, the stock market rallied. The Dow Industrials, at their late December 2002 lows, were around 8300. By January 14, 2003, the Dow had risen to 8800, a 6% increase in less than three weeks. Bush hadn't promised anything, but there was plenty from which to infer confidence: he had majorities in both the houses of Congress, he had purged and reshaped his economic team, and he proposed to eliminate individual taxes on dividends, which had the markets buzzing. He even had the benefit of a weak, unfocused Democratic response to his economic plan.
Unfortunately, Bush never counted the votes. There are apparently enough Republicans against the elimination of individual taxes on dividends that Democrats have labeled the proposal as a non-starter. With that perception, the financial markets have to view the likelihood of changes in taxes (especially the elimination of individual taxes on dividends) as distant and uncertain.
Wall Street is terrified every time Bush talks about Iraq because no one knows where his ideas are going to lead. We've spent over a year explicitly preparing for war. Now, perhaps only a few days from the beginning of that war, we are either uncertain of who our allies are or pretty certain we won't have allies. Did Bush really take his aggressive posture without a basis for thinking he would get broad international support? I'm sure the administration had hoped our aggressiveness would help bring Hussein down by forces in his own country, or he would save his skin by arranging some cushy exile deal, but what was Plan B?
Every day the market goes down on "war jitters" -- and that seems to have happened just about every day over the past two months -- Bush is getting a signal from the stock market that standard operating procedure would have been to line up international support before talking about war against Iraq. This is not just some Wall Street types who don't have the guts to handle a war.
The whole economy is shrinking back at the uncertainty of the situation. People are putting off big-ticket purchases like cars. Businesses are afraid to spend on technology or expansion. Everyone wants a sign that they can see into the future, and President Bush won't give it to them.
The stock market usually slumps before a war, but the current situation is different. First, we've been on the brink of war for a long time, further evidence that the Administration isn't sufficiently in control of the situation. Second, the beginning of the war, and military success, can't be expected to have their usual positive effects. Going in without an international force will have repercussions, or will threaten to have repercussions. There will also be tremendous uncertainty about how much of a commitment the U.S. will have to make to post-war Iraq in the absence of allies.
George W. Bush's presidency won't be brought down because he has refused to find the right themes. He may, however, lose his ability to govern (and his political future beyond 2004) because he has failed to guide the nation through the process of turning those ideas into results.