by Fisher Investments | September 25, 2012 10:56 am
With fall setting in and the conventions over, the race to determine the president of the United States is in full swing. And weather patterns notwithstanding, it seems the amount of hot air is set to increase — a normal quadrennial occurrence as two candidates jockey for position.
Most voters probably realize the economy’s been a key issue thus far. But it isn’t so much the real economy that many feel is a swing factor — it’s the emotional economy.
The emotional economy is what Bill Clinton cited in 1992’s famous, “It’s the economy, stupid” rhetoric. His campaign claimed the U.S. was in recession during the race, while Bush claimed the economy was growing. Voters, in general, opted for Clinton’s version — he was seen as being “in touch.”
But “in touch” doesn’t mean “factually accurate.” You see, Clinton was, in fact, wrong — voters rewarded his error because it felt right to them.
This year’s already been dotted with examples of candidates citing things that might ring emotionally true but are factually wrong. (And we’ll note, Fisher Investments has no favorites, finding fault with both political parties and candidates.)
This summer, President Barack Obama made the egregious error of stating the private sector is doing “fine” — which, by most meaningful measures, it is. Yet when criticized, he was quick to back off and suggest that by “fine,” he actually meant, “in dire shape.”
Mr. Obama’s error: Stating a fact when a feeling would’ve served his campaign better.
Just last week, Republican candidate Mitt Romney similarly erred, sharing a factoid: that 47% of Americans effectively pay no taxes and many receive benefits and credits from government. The media was quick to pounce, accusing Mr. Romney of polarized rhetoric seeking to divide the country. Yet this 47% figure is just a statistic — one based on IRS data.
As of now, it’s perhaps too soon to know what the fallout from Romney’s recitation of a fact will be, but he has been quick to backpedal. At any rate, his error was the same as his opponent’s.
And both Mr. Romney and Mr. Obama can be said to share a few other policy planks hinging on emotional economics. Consider China policy, in which Mr. Obama has already increased tariffs on some Chinese imports (tires, solar panels, etc.) and tattled to the WTO on a few other policies. Mr. Romney’s major criticism is these measures don’t go far enough, claiming he’d name the nation a currency manipulator and slap an across-the-board tariff.
Yet, as was reported in The Wall Street Journal recently, imports from China might be responsible for roughly 576,000 American jobs. Now, pinning this number down with precision is very unlikely to happen, but it shouldn’t much matter — it makes intuitive sense that someone has to unload, transport, distribute, store and market imported goods. Which also is one major reason research from the San Francisco Fed has shown the vast majority of profits earned on Chinese goods remain in American hands — those firms don’t work for free.
Lastly, to the extent Chinese goods might be artificially cheap, U.S. consumers benefit by paying less for goods than they otherwise might — affording them more cash to spend elsewhere. In this sense, a tariff on Chinese goods could amount to a regressive consumption tax.
We’re not suggesting some folks aren’t negatively impacted by China trade in the near term. But to focus on this group to the exclusion of all others doesn’t have a record of generating good policy. Politicians’ strategy here is to win voters’ hearts — there’s little if any appeal to their minds. Policies emerging are frequently similar.
In the 1930s, an emotional plea to help farmers led to the passage of the Tariff Act of 1930, which greatly increased tariffs on imported goods — despite the fact the U.S. imported relatively few agricultural products. The tariffs ended up hitting mostly foreign manufacturers. And in response, foreign nations increased tariffs on U.S. exports — like those agricultural goods. That might have been 82 years ago, but the world hasn’t changed much in this regard. Politicians are playing are to the audience with the most votes by tugging on their heartstrings, whether or not the policy championed makes economic sense.
For investors, the key is this: The economic “insight” you get from those running for office is generally far removed from actual, actionable facts.
–Todd Bliman, Fisher Investments
This article constitutes the views, opinions, analyses and commentary of Fisher Investments as of September 2012 and should not be regarded as personal investment advice. No assurances are made the Fisher Investments will continue to hold these views, which may change at any time without notice. In addition, no assurances are made regarding the accuracy of any forecast made herein. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.
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