A political bull market

Amid Wall Street chaos, journalists and politicians try to pin specious blame on their foes.

By Brendan Nyhan
Published July 27, 2002 9:13PM (EDT)

As Washington scrambles in the wake of recent stock market declines, too many politicians and pundits are trying to simplistically blame their ideological counterparts for voters' withering 401Ks. Clearly, economic news has an impact on the markets -- good earnings reports generally boost prices and vice versa, for example. But the effect of political news on the markets is harder to interpret, and it creates a kind of ideological Rorschach blot for amateur prognosticators.

Take President Bush's corporate responsibility speech on July 9, with which his advisors said he "hoped to hearten traders and investors with harsh plans to crack down on corporate fraud -- and perhaps spark a rally," according to the Washington Post. When the market declined later that day and the next, it was therefore widely framed as a reaction to -- or a verdict on -- the speech. Rep. Ed Markey, D-Mass., went so far as to say on CNN's "Crossfire" that if Bush had asked for the resignation of Securities and Exchange Commission Chairman Harvey Pitt, "the market would have gone up instead of down. As the marketplace looked today at the reforms that were being proposed by the president, they didn't see enough teeth in them, and as a result, the market plummeted again."

But others framed the decline in the opposite way -- that Bush's speech portended a stampede to meddle in the markets, which scared traders fearful of over-regulation. The Wall Street Journal editorialized on July 10, for example, that "as if investors weren't already frightened enough, the politicians are now offering to help. This was worth 180 points off the Dow yesterday, but then stock prices aren't the point." Are either of these views right? Were other factors the cause? No one knows.

Some administration officials did their best to counter this view of the markets. Treasury Secretary Paul O'Neill tried valiantly (if incoherently) to argue against the notion of a causal link after Bush's corporate responsibility speech on July 9, saying, "To attach a speech to what movements in the markets, I think frankly, that's garbage." Presidential spokesperson Ari Fleischer echoed this in his July 12 White House press briefing, commenting that "[t]here seem to be a trend in Washington to attribute market behavior ... to speeches given by leaders in Washington. My point is, that's not the case." On the July 16, he attacked "part-time analysts" in Washington who think they can understand changes in the market better than Wall Street professionals. But the temptation to deviate from the official line evidently overcame Commerce Secretary Don Evans, who said on July 10 that "[s]ome people even surmised that the market was going down some because of the partisan politics being played with this issue."

When Bush gave his next speech about the economy on July 15, the cable news networks ran live graphics and video of stock market averages next to him. The juxtaposition was absurd -- is the market judging each paragraph of his speech? Bush's words were again linked to the performance of the market, even though other factors were almost surely more important. Analyzing the day's decline and late rally, for instance, a New York Newsday writer found, "Financial analysts said Bush's speech had little impact on either trend. They said the selloff was triggered by a general pessimism fed by reports of new federal investigations into energy traders, while the late rally was the result of bargain-hunting." But this kind of sober-minded reporting was all too rare.

As Howard Kurtz reported in the Washington Post, Fleischer rightly denounced the split-screen coverage, calling it "a troubling new development that sensationalizes and distorts what makes markets go up and down. It suggests to viewers there's a causal connection between a president's speech and minute-by-minute market shifts, which is a misleading representation ... It's economic nonsense." Fleischer is now claiming that "the White House policy is we do not and will not comment on day-to-day fluctuations in the market."

More common, though, was a viewpoint pushed by CNN "Crossfire" liberal co-host Paul Begala, who blamed three Bush appearances for a week of market declines on the night of the second speech, July 15: "The Dow Jones Industrial Average fell steadily as he spoke, eventually dropping more than 400 points before a last-minute rally. For those of you scoring at home, this little chart will tell you how our president is doing as an economic steward. On Tuesday of last week, Bush spoke out against corporate abuses. The speech was panned and the Dow fell. On Friday, Bush had a photo-op to boost investor confidence, and the Dow kept falling. And today, more losses. So far, the Dow dropped 634 points, 7 percent of its total value, since our president began trying to reassure us."

This week, everyone seems to have jumped onboard. On Monday, Julian Epstein, the former Democratic counsel for the House Judiciary Committee, turned this approach into jargon on "Crossfire," saying that "[e]very time [Bush and Vice President Dick Cheney] open their mouths, the stock market tanks. Why is that? Part of the reason is that they have become the poster children for the corporate malfeasance that's been occurring." Columnist John Kelso, writing in the Austin American-Statesman, says "My 401(k) cringes every time President Bush opens his mouth." On Tuesday, Fox News' "Hannity and Colmes" co-host Alan Colmes picked up on the line, saying that "every time President Bush gives a speech, the markets go down." And California Democrat Oliver Phillips told the Guardian, a British newspaper, that "Every time Bush opens his mouth on this issue, the stock market finds a new bottom." Democratic officials are also getting into the act. House Minority Leader Dick Gephardt, D-Mo., also advanced the notion Monday, with the Associated Press reporting that he "noted that stock market dips have now accompanied Bush's economic comments three times in a row." "The president continues to speak -- that isn't helping us," he said. "In fact, it may be hurting us because what people want is action, not words." Sen. John Kerry, D-Mass., made a similar comment to the Congressional Quarterly.

As a result, Republicans are now fighting back. Rep. Tom Davis, R-Va., who heads the National Republican Congressional Committee, said on "Hannity and Colmes" Tuesday that Democratic rhetoric was keeping the markets down. "Confidence in the markets is very, very critical for us to restore at this point," he said, accusing his opponents of "literally talking down the markets, talking about stirring this thing for another three months." But when challenged by Colmes, he partially backed down, saying only, "I, frankly, don't think the rhetoric is helpful to restoring confidence in the markets." And on Wednesday, Rep. Tom DeLay, R-Texas, who serves as the House Majority Whip, gave a speech that accused Democratic leaders of having "talked down the market," among other things.

In the end, what's happening on Wall Street may be extremely difficult to explain or predict, but one thing is certain: There will always be a bull market in spinning the markets in Washington.

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Brendan Nyhan

Brendan Nyhan is a political scientist currently serving as a RWJ Scholar in Health Policy Research at the University of Michigan.

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