Democrats pin hopes on sinking stock market

0 Comments | Insight on the News, August 19, 2002 | by Scott Hagen

As the closing bell marked the 390-point drop in the stock market on July 18, some Democrats began to salivate. After trying for so many months, had they finally found an issue on which to run? Hardly. The effort of House Minority Leader Dick Gephardt (D-Mo.) and company to tie stock prices to the Bush administration is transparent and pathetic.

Gephardt lately has been speechifying on corporate accountability and the struggling stock market, looking to pin the nearly 20 percent downturn in the market this year on President George W. Bush and his "evil" corporate friends. In a July 12 press conference, Gephardt said that, "So far, the administration's approach has been a familiar strategy: Use harsh rhetoric to condemn wrongdoers while delaying and watering down whatever reforms might come out of Congress."

On the day prior to the pseudocrash, Gephardt told a group of Hill Democrats that the ailing stock market and the corporate scandals of big-board companies such as Enron, WorldCom, Global Crossing and Adelphia were opportunities to pick up as many as 40 to 50 seats in the upcoming elections. In a separate press conference berating the Republicans' 1994 Contract with America, the House minority leader said that, "The main purpose of the contract was to totally deregulate American business. And they went about the business of doing that, and now we see the result." The fact is, the result of deregulating business was a massive rise in the stock market. Of course, the Democrats claimed that the Clinton tax increases, not the deregulations, were the life ring that saved a drowning economy.

As the Republicans entered Congress in January 1995, the Dow Jones stood at 3834, up 500 points (21 percent) from the beginning of the Clinton administration. Only two years later, in 1997, the Dow opened at 6448, up nearly 70 percent from when the Republicans gained majority control of Congress.

But even that figure might afford too much credit to Washington's role in Wall Street's success. The market rises and falls under Democrat- and Republican-controlled presidents, Houses and Senates. But the invisible hand over time ineluctably pushes the market upward, no matter who controls which branch of government.

Corporate responsibility is needed, but to blame the Republican takeover of Congress as the prime mover of corruption in big business is just wrong. Corporate corruption was not invented in 1994. Witness a comment from the April 1, 1922, edition of Forbes magazine, "Every stockbroker found guilty of having defrauded customers should be sent to prison for the longest term permitted by law. It is extremely regrettable that a procession of such scoundrels to the penitentiary hasn't yet started. It is deplorable that our courts operate so slowly."

Instead of using it as a political issue, Gephardt needs to call a spade a spade, acknowledge that evil exists and work in a bipartisan manner to help end the corruption. Nothing is served by dragging the issue through the mud until November.

Some market-watchers also fail to remember that a decline such as we have experienced is merely an adjustment. During such times, real wealth is created; the only question is, how long will it take? The recession woes of the 1970s, including the oil crises, left the markets stagnant. What followed was a 20-year boom starting in the first years of the Reagan administration.

Since that time, the Dow has increased around 814 percent. This virtually was the same span of growth of the U.S. economy in a prior 30-year period (1942-72). The Clinton bubble did burst, but the market has proved that it will rise again, providing the opportunity for greater wealth. Ric Edelman, president of Edelman Financial Services in Fairfax, Va., compares the market to a coiled spring. "The lower it goes, the more excited you should get. Because the more it goes down, the bigger it will rise later. History has taught us that."

Since the crash of 1929, the Dow only twice has felt three consecutive declining years--the three years following the crash, and the three years preceding U.S. involvement in World War Il. If the market continues its current decline, or at least fails to close this year above 10,021, this would mark the third time. Both times previously, the results were similar: a healthy and steady increase continuing for decades.

Facing a president with a high approval rating is a daunting task. Having failed to latch onto anything significant that makes voters passionate, Gephardt finally hopes the stock market will be the issue to sweep the Democrats into majority control in the House. Maybe he should keep looking.