I offhandedly asked a conservative political activist not long ago how the economy might affect the 2008 presidential race. He immediately stuck his hand in front of my face and started moving it quickly back and forth. "See, I'm still talking, but you're not really paying attention to me anymore. You're paying attention to my hand. My hand is like Iraq." He then lowered his still-oscillating hand down next to his hip and continued. "Now you still notice that my hand's moving, but now at least you can focus more easily on what I'm saying. To win the election, we just need to move Iraq from up here to down there."
The GOP message: The economy has been pretty darn good under President Bush—six years of growth with low unemployment—and nominee Rudy Thompson McRomney can be trusted as America's next CEO. Yet unfortunately for Republicans, damage from the subprime mortgage meltdown and credit crunch on Wall Street seems to be spreading even as some good news trickles in from Iraq. The economy lost jobs last month for the first time since 2003. And Wall Street economists have been raising their estimates of a recession happening even if the Federal Reserve begins cutting interest rates this week. Swiss Re, for instance, recently upped its recession odds to 35 percent from 20, and some of Merrill Lynch's fancy computer models peg the chances of a downturn at as high as 70 percent. The online betting market TradeSports now puts the probability of a 2008 downward trend at 59 percent, about the same odds that a Democrat—most likely Sen. Hillary Clinton—will win the White House.
Boom gone bust. If the pessimists are right and the economy deteriorates, "that certainly wouldn't help Republicans," says pollster Scott Rasmussen. "A recession would give GOP candidates one less safe topic to talk about." Not that they have too many as it is. Current Rasmussen polling gives the Democrats at least a slight edge in 9 of 10 major issue areas from ethics to education. On the economy, Dems inch past Republicans 42 to 41, but the poll was taken when the August credit panic was just beginning to unfold. A further slowdown would merely reinforce a running Democratic campaign theme that the Bush boom has been a bust all along. As Clinton put it after the disappointing jobs report, "The Bush administration's simplistic supply-side economic strategy is not working for working Americans."
How badly might a weak economy hurt the gop? Ray Fair, an economics professor at Yale University, has developed a political forecasting model that incorporates economic data. Right now, assuming the economy stays relatively healthy, his model is predicting a Democratic win in 2008 with 52 percent of the two-party vote. But if there's a recession, then the Democrats' share would rise to 55 percent. Fair correctly predicted Bush would win in 2004, but with 54.6 percent of the vote rather than the 51.2 percent he actually got. He guesses that there is perhaps a 3-point Iraq-related penalty that his model isn't catching. Add that to the Dems' vote total, and you end up with a landslide.
Yet each election has its own dynamics, and who the candidates are matters. The Republicans do have two contenders in Rudy Giuliani and Mitt Romney who can make some claim as turnaround artists for troubled enterprises. And Daniel Clifton, political analyst at Strategas Research, suggests a recession would push issues like education and healthcare—where Democrats have a massive advantage—to the background in favor of economic growth and job creation. Voters might be drawn to a fresh gop tax-cutting, pro-growth message—something beyond extending the Bush tax cuts—but only if they're listening.