Gloom and Doom, or Zoom?

Which way is the U.S. economy moving?


Barack Obama and John Edwards, meet Leonard Wood and Frank Lowden, two of the unluckiest presidential hopefuls of the 20th century. Wood, a former Army general, and Lowden, a reform governor of Illinois, were the top two finishers in each of the first eight ballots at the deadlocked 1920 Republican National Convention. But they lost the final ballot to Sen. Warren Harding of Ohio. Actually, what those two gentlemen lost was the presidency itself. Whoever captured the GOP nomination that year was almost a cinch to become our 29th president. Not only was the nation sour about the prosecution of World War I and the subsequent Versailles peace treaty, but the economy was tanking. It shrank nearly 1 percent that year in a downturn that extended midway into 1921 and saw unemployment vault from 4 to 12 percent.

"It was really more of a depression," says David Pietrusza, author of 1920: The Year of the Six Presidents. "Along with the disillusionment over the war, you really had a perfect storm for Republicans." Indeed, Harding won in a landslide over Democrat James Cox, 60 to 34 percent, still the largest victory margin of any U.S. presidential race.

Flash forward to today, and you could make the case that the runners-up for the Democratic presidential nomination—Hillary Clinton is currently far ahead in the national polls—will be missing out on as good an opportunity to waltz into the White House as existed in 1920. Again there's wide disillusionment over a foreign war and fear about an economy in trouble. Just last week, you had the stock market officially entering "correction" mode (meaning it was down 10 percent from its high), consumer confidence falling to its lowest level since right after Hurricane Katrina in 2005, housing prices suffering their sharpest drop in decades, and the nation's largest bank, Citigroup, needing a $7.5 billion cash infusion from Abu Dhabi.

And the worst may be yet to come. Goldman Sachs economist Jan Hatzius, hardly the gloomiest guy on Wall Street, now thinks the economy will grow at a meager 1.8 percent rate next year because of the continued slowdown in housing. That would be the worst showing since 2002. Under those conditions, says Michael Lewis-Beck, a University of Iowa professor who studies the impact of the economy on elections, "for the Democrats to lose would be historically unprecedented." Political scientist Allan Lichtman, author of The 13 Keys to the Presidency, describes the outlook as "almost certain doom" for the incumbent Republican Party.

Or maybe not. Despite all the gloom, a new Zogby poll shows Clinton trailing all her major GOP rivals. And the 2008 election will be the first since 1952 with no incumbent president or vice president running. Maybe voters will give "Rudy Thompson McRomney" a fresh look. And perhaps a slow economy will focus the political debate on how to best juice growth. In that case, taxing the rich and adopting universal healthcare might seem less on point than gop talk of tax cuts. Likewise, candidates with experience fixing malfunctioning entities—such as New York City or the Salt Lake City Olympic Games—might have an edge over a candidate who tried fixing a big problem—healthcare—and fumbled.

Heck, the economy might even reaccelerate as the Fed slashes interest rates. Anticipation of that move helped propel the stock market last week to its best two-day session in five years. As it is, with wages up 7 percent the past year and consumption up 6 percent, consumers seem to be crying all the way to the mall. But they'd better keep it up, or it might be the Republicans who'll be weeping.