A clear distinction has emerged between the platforms of President Obama and Governor Romney. It is evident that – from taxes and healthcare through to defence spending and immigration – the two candidates have contrasting visions of how the US should be governed. These differences may be grist to the mill of a partisan news media but what, if anything, do they mean to investors? Should we be poring over the respective merits of the two candidates’ manifestos or focusing our attention elsewhere?
History provides a clue. It suggests that we shouldn’t be too disappointed if events don’t unfold in quite the way that the candidates envisage. Take, for example, the close-run contest between Al Gore and George W Bush in 2000. The two contenders’ manifestos would have told you little about what came next. The issues dominating that campaign were mainly domestic, with much focus on a projected budget surplus. Of course, the first term of President Bush’s presidency was actually defined by foreign policy, by the events of 9/11 and the subsequent war on terror.
Four years later, President Bush and John Kerry spent their debates jousting over foreign policy. But even as the candidates exchanged barbs over Iraq, banks on Wall Street were busy over-extending themselves. This rapid rise in leverage throughout the US financial system wasn’t mentioned by either Bush or Kerry. By the time the electorate returned to the polling booths in 2008, several of the largest financial institutions in the US had gone bust.
Ignore campaign promises
Similarly, foreign policy was the key battleground over which Ronald Reagan and President Carter fought the 1980 election; with the Cold War raging, the one-time actor was propelled into the White House by a perception that Carter had bungled the Iran hostage crisis. And while Reagan made no bones about his enthusiasm for supply-side economics and lower taxes on the campaign trail, few voters could have predicted how important that election would prove to be for the future course of the world economy. Yet it was Reagan’s laissez-faire economic policies that came to define not only his presidency but the go-getting 1980s as a whole.
Despite the apparent lack of connection between election campaigns and the administrations that follow, it is hard to resist the temptation to extrapolate from the campaign-trail rhetoric the candidates to their future policies. The fate of the US is of huge importance to us all. For good or ill, it is inconceivable that the rest of the world can decouple from the world’s largest economy.
Recent fund manager surveys have shown that worries about the US fiscal cliff have eclipsed the eurozone crisis as the biggest risk facing the market. But as to the question of whether the current election campaign has anything useful to tell us about how the next administration will shape up? Ask me again in four years’ time.