"Change" and "the economy" were the driving forces in last week's Super-Duper Tuesday primaries, at least according to the exit polls. Since they represent the out-of-power party, what kind of change might Hillary Clinton or Barack Obama bring to the American economy if either was elected the 44th president of the United States? Here is what one successful and high-profile political consultant—one who has worked for both Democrats and Republicans—told me recently: "What most people don't understand is that Hillary is the idealist and Obama is the pragmatist."
It's an assessment that will surely surprise many people. Clinton, after all, is the "experience" candidate with five- and 10-point plans on pretty much every possible policy topic, including housing, healthcare, and technological innovation. And critics will point to her Iraq war vote in 2002 as the ultimate pragmatic political move. Obama, on the other hand, is more noted for soaring speeches about hope and unity than for Washington wonkery. He was also rated the most liberal U.S. senator in 2007 by National Journal. Yet this veteran politico was sure that if elected, Clinton would be the one, for instance, to push hard for a government-run, European-style healthcare system that would go far beyond what either she or Obama has suggested so far.
Centrist brain trust. Now I have no idea if Clinton has some secret, liberalism-on-steroids policy agenda that she will suddenly spring on America if elected. Obama, though, is a plausible pragmatist. His domestic policy advisers are hardly a radical bunch. One economic adviser, Jeffrey Liebman of Harvard, has coauthored an interesting compromise plan on Social Security that would raise taxes a bit, extend the retirement age a bit, and put a bit of money into personal retirement accounts.
Or look at Obama's tax plan. In addition to new middle-class tax credits, it has a technocratic reform proposal that would make filing many tax returns easier by letting the Internal Revenue Service fill them out in advance. And the economist who devised the plan, the University of Chicago's Austan Goolsbee, is no class warrior on taxes or China basher on trade. Don't forget, too, that in his book The Audacity of Hope, Obama himself found a few kind words for President Reagan's 1981 tax cuts, which slashed the top marginal rate to 50 percent from 70 percent, saying that the old sky-high rate did "distort investment decisions." Sounds pretty pragmatic.
Don't look to Wall Street for much insight here—at least not yet. With the economy weakening, investors have been fixated on economic reports and Fed meetings rather than on caucuses and primaries and policy papers. "The market has just not been paying attention," says market strategist Jeffrey Kleintop of LPL Financial Services. Though it should, he advises: "Washington could be moving from gridlock to unlock. If we get a Democratic president with near-filibusterproof majorities, there is the potential for sweeping change."
That's all bad news if you buy the classic investing axiom that "gridlock is good." Or maybe Wall Street doesn't see it that way these days. Maybe it doesn't care that "change" means capital-gains-tax rates could double in the next administration.
But don't bet on it. If the odds of a total Democratic blowout rise, says political analyst Daniel Clifton of Strategas Research, "the investment implication will be significant" and translate into "real risk." He advises keeping an eye on the managed healthcare and pharmaceutical sectors in particular as bellwethers. They may give better insight than any poll into what will happen on Election Day in November.