The Investor Election

Grover Norquist

Despite the presidential campaign focus on re-fighting the Vietnam War and second guessing the War in Iraq, history suggests most voters will be voting their pocketbook. But how does a voter judge the economy today?

In the wake of the Great Depression of the 1930s the single measure of economic well-being was the unemployment rate. It if was going up, the incumbent was in trouble, heading downward and the incumbent was safe.

Thanks to President Richard Nixon's unleashing of the Great Inflation in the 1970s, unemployment ceased to be the sole measure of economic well-being. Candidate Jimmy Carter popularized this new reality when he created the "Misery Index" the sum of the Unemployment and Inflation rates as the true measure of the economy. Furthering the interests of social science, if not his career, President Jimmy Carter proved his thesis by running the misery index up form 13 in 1976 to 20 in 1980 and losing his job.

Looking at unemployment alone the rate is 5.4 percent -- below the average unemployment rates of the 1970s, 1980s, and 1990s -- and falling. The economy has gained nearly 2 million jobs since last August. When employment is growing and unemployment is falling it becomes a weak political argument.

Today, the misery index stands at 7.8, compared to President Bill Clinton's 7.4 in September 1996. This is the lowest misery index for a candidate for re-election to the presidency since Lyndon Johnson ran in 1964.

But there is a third measure of the economy that may sway voters on November 2: the value of the stock market.

The largest demographic shift in America over the past twenty five years is not the number of Americans whose parents speak Spanish. It is the number of Americans who own stocks directly. In 1978 only 17 percent of American adults owned stocks. Today, more than 60 percent of adults own stock and 70 percent of those who voted in 2002 owned stocks.

The "investor voter" has already changed politics in the past four years. In 2000, then candidate George W. Bush touched, heck he fondled, the third rail of American politics, Social Security, by suggesting that younger Americans be able to invest some of their FICA taxes in personal savings accounts. Years ago this would have been attacked by the Democrats as "ending" social security. But with half of adults fully aware of how mutual funds work---and those Americans not yet investors had parents, siblings and co-workers who owned their own retirement in 40lK, Individual Retirement accounts or defined contribution pensions-this was no longer a threatening idea. It was a popular idea.

In 2001 when President Bush sent several tax cuts to the House the Democrats voted in lockstep against ending the death tax, cutting income tax rates, etc, but the vote to expand individual retirement accounts was 400 to 25.

And in 2003, Congress voted to trim the capital gains tax to 15 percent and cut in half the double taxation of dividend income paid out to investors by corporations. Someone noticed the growing number of Investor Voters.

So how will investor voters decide on November 2nd?

John Kerry could point out that the Dow Jones has fallen 863 points since Bush was inaugurated and hovers below 10,000. Perhaps investors will reject Bush for the decline in the market as previous generations of voters would have fired presidents who saw unemployment and/or inflation rise.

Well, we don't have to wonder how a declining market affects the modern investor voter. We have recent history: the 2002 election. From April 2000 to October 2002 the Dow Jones fell from 11,200 to 7,286, Americans lost $7 Trillion of shareholder wealth. Yet, Republicans won back the Senate-confounding the traditional off year loss by the party controlling the White House. Why?

Because Democrats did not have a narrative that blamed Republican policies for the decline, nor did they have any policies to increase stock prices. And that has not changed in the past two years.

The Democrats have told us for decades that Republicans will do anything to get market caps up. Their caricature of Republicans is that they will pollute the earth, club baby seals and slash government to get stock prices higher. While exaggerating to attack Republicans, the Democrats only confirm that the GOP has become the tribune of investor voters. When FDR talked like that he confidently knew he was attacking only a few "economic royalists." Now Bush has put his vision of the "Ownership Society – personal retirement accounts, Health Savings Accounts, Lifetime Savings Accounts -- front and center of his campaign and Bush picked up a net 16 points among all investors in the month of August according to Zogby's post convention poll. The new investor majority knows where he stands.

Democrats helpfully offer to sick the trial lawyers, labor unions, regulators and tax collectors on your mutual fund. No matter how low the stock market falls, how would this help?

Low stock market values make investors demand solutions from politicians that will increases their wealth. Kerry has chosen sides. In the 1995 debate on capital gains tax cuts he said, "This week defines the difference between them and us." Not wise to define 70% of voters as "them." It shows your political age. In fact, some of the weakness in the stock market is caused by the possibility of a Kerry Presidency.

An August poll by Scott Rasmussen showed 62 percent of undecided voters owned $5,000 of stocks, bonds, and mutual funds. They will decide who the next president will be.

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By Grover G. Norquist and Cesar V. Conda

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Mr. Norquist is President of Americans for Tax Reform. Mr. Conda, former domestic policy advisor to Vice President Dick Cheney, is a Senior Fellow with FreedomWorks.