Economic downturns have helped determine the results of four U.S. presidential elections in the past five decades.

By Matthew Benjamin
Bloomberg Markets April 2008

Wall Street economists say a recession is likely this year. Does that mean the Democrats, no matter who runs against the presumptive Republican nominee John McCain, will win the White House in November?

If history is a guide, yes. "Presidential elections are lost over recessions, and a slump will certainly hurt the incumbent party," says Pete Davis, who as head of Davis Capital Investment Ideas advises investors on economics and politics in Washington.

In the past 50 years, Davis says, recessions shaped the outcome of four presidential elections. In 1960, a downturn helped John F. Kennedy defeat Republican Vice President Richard Nixon. A 16-month slump lasting until March 1975--and the Watergate scandal--led to Jimmy Carter's victory over Republican President Gerald Ford the following year. Another recession and the Iran hostage crisis helped Republican Ronald Reagan limit Carter to one term. In 1992, voters still smarting from a contraction that ended the year before ousted Republican George H.W. Bush for Bill Clinton.

This year, even if a recession takes hold, McCain has a chance to break with the historical trend. He will face either a woman, Hillary Clinton, or an African-American, Barack Obama--an unprecedented development that makes the election outcome more difficult to predict. And voters may not blame McCain, 71, for the Bush administration's handling of the economy. The Arizona senator opposed the 2001 and '03 tax cuts, which were the linchpin of President George W. Bush's economic policy. Although McCain now supports extending the tax cuts, he's also making balancing the budget central to his fiscal policy. "He can argue that he's a significant break from Bush," says Stuart Rothenberg, publisher of the Rothenberg Political Report in Washington.

In fact, a slump may actually help Republicans by depressing the surge in Democratic voters, according to University of Minnesota political scientist Steven Rosenstone. He says those hit hardest by recessions--people with low incomes, who tend to be Democratic- -are less likely to vote during one. Yale University economist Ray Fair's forecasting model suggests an economic slowdown won't hurt McCain as much as a recession. The model computes the popular vote using growth, inflation, the time the current party has held the White House and whether an incumbent is running. If the U.S. economy grows at about a 0.9 percent pace this year through September, McCain will get 47.3 percent of the vote. That makes the race close to a dead heat when the margin of error is considered. If the economy shrinks at a 1.7 percent pace during that time, McCain's share of votes cast on Nov. 4 would fall to 45.6 percent. "In order for the Republicans to win in this recession case, a lot of very fortunate noneconomic things would have to happen from the Republican perspective," Fair says.

#<257571.18602.1.0.69.26862.25># -0- Mar/03/2008 20:17 GMT

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