Vitriolic Presidential Rhetoric Curbing Economic Uncertaintyby
Falling policy index reflects lack of real debate on issues
Trump, Sanders trade rhetoric could boost gauge at some point
Americans can’t be blamed for thinking this year’s presidential contest is more about style than substance. That’s what the numbers are saying, too.
Contrary to what happened in other recent elections in which incumbents weren’t in the race, uncertainty about future economic policy declined in the seven months through March, according to an index created by Northwestern University’s Scott Baker, Stanford University’s Nick Bloom and Steven Davis from the University of Chicago.
Unpredictability typically rises when an incumbent isn’t up for re-election to the Oval Office, as is the case this year, and peaks in November amid speculation on the president-elect’s positions on taxes, regulation and economic growth. The gauge’s current low reading, however, underscores the extent to which substantive policy debate has been smothered by grandstanding on issues that energize voters at the extremes of the political spectrum.
It also indicates growing skepticism that an anti-establishment candidate can win -- and even greater disbelief that such a president could enact unconventional plans.
“Debate on policy just isn’t there in this election,” said Diane Swonk, an economist and founder of Chicago-based DS Economics. “There isn’t any meat on the bones of the policy that’s out there. Sometimes you wonder if they wrote it on a napkin.”
The Baker-Bloom-Davis index tracks combinations of words such as “uncertainty,” “economy” and “regulation” in newspaper articles. Additionally, expiration of federal tax provisions and the size of the variation in growth forecasts among economists are considered. The readings slumped following the October 2013 partial federal government shutdown amid budget disagreements and have barely climbed since.
The measure’s tax component has been particularly calm after the prolonged period of inter-party bickering over sequestration, debt-ceiling negotiations and government shutdowns, said University of Chicago’s Davis.
“We went through several years of brinkmanship, and the appetite for brinkmanship, at least for the moment, is gone,” Davis said. “We’re living in a fairly quiescent interlude in terms of policy making and policy uncertainty.”
What’s replaced it on the campaign trail has been more personality-driven debate, speculation around a potential brokered Republican convention, and -- in a nod to the economy’s significance -- at least some talk of U.S. trade policy.
Since the mid-1990s, when the North American Free Trade Agreement sparked a spirited debate, the topic of trade hasn’t caused many blips on the uncertainty radar, said Davis, whose team compiles separate indexes on specific topic areas.
That could change. Presidential candidates on both sides of the aisle -- especially Republican frontrunner Donald Trump and Democratic contender Bernie Sanders -- have unleashed criticism on existing trade deals as they appeal to working-class anxiety over lost jobs and stagnant wages. Trump has proposed restricting imports, an idea supported by about two-thirds of respondents in a Bloomberg Politics national poll last month.
Should Trump keep hammering away at trade issues “and he looks like he has a real chance to win, then I’d expect that aspect of the index to start rising pretty strongly,” Davis said.
So far, market probabilities for Trump or Sanders taking the White House have remained slim, in line with the depressed uncertainty gauge. Democratic frontrunner Hillary Clinton retains a large advantage, with chances of winning the general election pegged at 64 percent as of April 6, according to PredictWise. Trump was second, with 17 percent, and Sanders had 8 percent.
The uncertainty index’s depressed levels reflect not only the perceived low odds that a political outsider like Trump would be elected, but also doubt that even as president he’d be able to push through unconventional policies, said Davis.
During elections without incumbents in 1988, 2000 and 2008, the index jumped in the seven months through March of the election year -- by 33 percent in the contest 28 years ago. Since September, however, the measure has fallen by 15 percent.
Still, the economy remains the hottest policy topic, with the potential to stir the uncertainty gauge in the months to come, said University of Texas-Austin political scientist Bruce Buchanan. Among Americans polled in January, the economy tied with terrorism as the No. 1 policy priority for 2016, according to the Pew Research Center.
Heightened economic-policy uncertainty typically means more volatility in stock markets and less investment and employment growth, according to outside research cited by the index’s creators. Recent results among those indicators have been mixed.
Business investment has been increasingly moribund, though its roots are more in sluggish global growth prospects than the presidential election. And while job growth is robust, voter anger has been driven by labor-market metrics that retain the scars of the last recession, including scant wage gains and still-elevated levels of involuntary part-time workers.
Even in this cycle, policy will eventually get a larger hearing, boosting the uncertainty gauge, said Buchanan, who focuses on voter behavior in presidential elections.
“There’s a lot of noise in the system because there’s so many people still vying for pride and position,” he said. “But it’s going to have to come down to that, because those are the big issues in every election -- peace, prosperity and sometimes civil rights.”