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Why the Election Won't Touch the Economy

Don't worry if the guy you don't like wins the election; a trio of Wharton faculty says in the short-term it's unlikely to matter much to the economy.
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Presidential politics can get people pretty exercised, with partisans warning the election of their opponent will plunge the country into recession, socialism, or some other evil.

Well, that's extremely unlikely, according to a trio of experts out of the Wharton School recently.

The three business school professors make the case that despite all the hand-wringing from small business owners about which candidate will do more to support their enterprises, the plain fact is that the new president--whichever candidate wins--will face difficulty correcting the country's economic problems.

"The future is likely to look much like the present, for several years at least," conclude the less than supremely cheerful experts in a Knowledge@Wharton post.

So what's holding back the ability of whoever gets elected in November from moving the needle much on the economy? The article lists four knotty problems that neither candidate looks poised to rapidly solve:

  • Millions of American homeowners are "underwater," owing more than their homes are worth and weakening the consumer demand that is key to the economy.
  • Employers, even if they are flush with money, won't hire more workers until they need them--when demand rises or appears ready to.
  • The debt crisis in Europe resists a quick solution. 
  • Deficits and overhanging debt in the U.S. are too big to be whittled down very fast. These deficits will compete for federal revenue that could stimulate the economy through more spending or cuts in taxes.

These are huge problems, but the next president is unlikely to be able to make commensurately big changes. Why? You guessed it, partisanship and divided government. "Neither [candidate] is likely to engineer a sweeping policy change," according to one of the professors, Richard J. Herring.

The result of these problems and the limited space in which presidents can maneuver, says finance professor Franklin Allen, is that the changes a president can make often barely dent the economy.

"The notion in the political debate is that if you just do something a little bit differently, things will get much better. But it doesn't work like that," he tells Knowledge@Wharton.

It's a less than sunny conclusion if you look at it from the perspective of a citizen dreaming of a less dysfunctional democracy, but it is a point one worth considering for entrepreneurs trying to peer into the economic crystal ball and plan for their businesses. 

Have the professors convinced you that, economically at least, the election is less consequential than many make it out to be?

 

IMAGE: spirit of america / Shutterstock.com / Christopher Halloran / Shutterstock.com
Last updated: Sep 14, 2012

JESSICA STILLMAN

Jessica Stillman is a freelance writer based in London with interests in unconventional career paths, generational differences, and the future of work. She has blogged for CBS MoneyWatch, GigaOM, and Brazen Careerist.




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