Campaigning in hard times

(Fortune Magazine) -- In case there was any doubt before, exit polls from the primaries now confirm a central truth of the '08 presidential election: The economy has replaced Iraq as the No. 1 concern of voters, and they are deeply worried. Slowing growth, rising home foreclosures, cranky consumer spending, nausea-inducing market swings, and the possibility of $4-a-gallon gas - that pileup of economic indicators has blanketed this presidential campaign with a chill not seen in 16 years. "Pessimism is not as deep as it was leading up to the 1980 or 1992 elections, but it could get there," says Karlyn Bowman, public opinion scholar at the American Enterprise Institute.

No doubt by now you've heard the punditry stating (and restating) the obvious: A sour Bush economy is bad news for the Republicans. When the economy goes south, the thinking goes, voters like to punish the party in power. Just look at past victims - Jimmy Carter, booted out of office in 1980 for sins of stagflation; Ronald Reagan, his party's hard-won congressional gains nearly wiped out in 1982 by double-digit unemployment; and George H.W. Bush, marched into retirement by a recession that sliced his approval ratings in half from a Gulf war high. Indeed, in the tight race now unfolding, Democratic strategists exude calm certitude that, barring a catastrophic world event, the Republicans are toast. "All the fundamentals point to the Democrats winning the White House," says veteran party pollster Mark Mellman, who predicted that Michael Dukakis would lose in 1988 even when midsummer polls showed him 17 points up. The reason: a strong Reagan economy.

The calculus isn't always so clear-cut. Consider a few recent exceptions: In 2000 the economy was tipping toward recession - the dot-com stock bubble began bursting in March - but no one thought Al Gore, the incumbent-party candidate and winner of the popular vote, suffered for it. Two years later the economy was still recovering from the 2001 recession, yet President Bush's Republicans enjoyed unprecedented gains in the congressional midterm elections as a new threat, terrorism, trumped economic concerns.

So what role will the country's - and voters' - fiscal health play in determining who ends up in the White House in 2008? When it comes to handicapping the race based on the economy alone, a closer look at the history books offers some surprising lessons.

First and foremost, timing is everything. The degree to which the economy weighs on the electorate depends on just when the downturn starts. Take the 2000 Bush-Gore race: Even though the economy teetered on recession, GDP growth didn't go negative until the third quarter - too late to alter the intoxicated zeitgeist of the '90s. As a result, during that campaign we heard a lot about other things, like a "lockbox" for Social Security (Gore) and "compassionate conservatism" (Bush), but almost nil about the wavering economy that the new President was about to inherit - and voters didn't seem to mind.

But studying the calendar only goes so far. That's because there's a lag between economic reality and public perception of economic reality that's tricky to gauge - and it can be lethal to candidates, as President George H.W. Bush learned in 1992. The economy was steaming along at a healthy 4%-plus clip in the third and fourth quarters, but voters ejected him anyway, locked in a mindset from six months earlier when the economy was struggling to emerge from recession. Pointing out the better economic news to voters leading up to Election Day "wouldn't have been believable," notes then-RNC chairman Richard Bond. GOP pollster Bill McInturff estimates the lag time to be roughly six to 12 months - which means that the Republicans this year have until about May for the economy to begin a serious rebound. Otherwise, as Bond puts it, "the goose is cooked."

No matter when in the cycle the hard times hit, history shows that candidates who don't express empathy for voters' economic anxiety can kiss victory goodbye. Consider George H.W. Bush's 1992 slaughter on Election Day: It doesn't matter it was a media myth that, while campaigning for reelection, the elder Bush asked how a grocery store scanner worked. A misleading headline fed late-night comedians - and solidified a perception voters already had that the President was tone deaf when it came to middle-class economic woes. This year the move by Democrats and Republicans to craft a bold stimulus plan is political as much as economic. Plenty of economists are dubious that it will provide a long-term economic boost. But proposing and passing it gives politicians a chance to say, "I feel your pain."

When it comes to which indicators make them feel that pain, though, voters are a fickle lot. Some numbers send them running for the hills, while they shrug off others. Gas prices almost always fall in the former category. In 2006, when the incumbent Republicans lost control of Congress, growth was strong and unemployment was at historic lows, but the price of gas was approaching a record high - and so was voter anxiety. A related indicator is inflation, which some analysts say has a more profound effect on the public psyche than unemployment. "Inflation tends to depress our views not only about the present, but also about the future," says Bowman.

What about stock market swings, which these days seem to dominate the headlines and airwaves? In fact, stock market drops have had only an indirect effect on voter mood. The crash in October 1987, for example, left no residual effect on the 1988 election, when incumbent Vice President Bush carried 40 states. To be sure, far more Americans are invested in the stock market today. But Mellman points out that most of them don't track the value of their funds on a daily or quarterly basis, let alone trade in individual stocks.

So what's the bottom line for Republicans in November? The reality of low economic growth in the first half of an election year, followed by possible healthier growth in the second half - 3%, according to the University of Michigan's gold-standard forecast - would seem to offer some hope. The bellwether favored by pollsters Mellman and McInturff - real disposable income - went bad in November, and how much further housing prices will fall is anyone's guess. But the Michigan forecast predicts growth, though slower than last year, through 2008. In other words, the signs right now aren't good - but they aren't as bad as they could be. Of course, any good news may come too late for a Republican nominee to cash in on.

But if there's anything to take away from the gyrations of the 2008 primaries, it's that nothing is predictable this political year. We've never had a woman or an African American as a major party's presidential nominee. Republicans think they're in good shape because Hillary Clinton is a polarizing political figure and Barack Obama is a relatively inexperienced one. Meanwhile, none of the Republican candidates is an incumbent, so voters may go easy on assigning the GOP too much blame. Then, of course, there are the perennial disclaimers: World events could push national security concerns to the forefront again or another issue could grab headlines. In other words, a lot can happen in nine months.

Research associate Joan L. Levinstein contributed to this article.