Why Impeachment Made the Market’s Day

So the president gets impeached, and investors not only don’t yawn, they cheer. With the Dow Jones rising 85 points today, and the Nasdaq leaping ahead another 50, it’s apparent that the stock market understands what economists have long argued: that the impact of a president on the economy is relatively minor.

Obviously there are exceptions to that rule. The long-run impact of things like the Reagan tax cuts or, say, the New Deal was obviously somewhat more than “minor.” And it’s probably true that if Clinton were actually convicted by the Senate, the market might tremble a little. But I wouldn’t expect it to tremble too much. The fundamental truth of Clinton’s second term is that as long as he stayed (and stays) out of the way of Alan Greenspan and Robert Rubin, things work out all right.

A couple of concrete factors are also playing into the bulls’ hands. In the first place, much of the fear that gripped world markets in September and October has dissipated. Instability in Washington is thus considerably less threatening. And Congress did pass the reauthorization bill for the IMF, ensuring that the fund would be able to stay solvent. Were that bill still waiting to be worked on, impeachment would be more of a problem, not so much in terms of deposing Clinton as in terms of holding up Congress’ normal business.

The only long-term economic cost of Flytrap, in fact, may be a delay in coming to terms with Social Security. But the debate over “saving” Social Security has been so ill considered, and reliant on such dubious economic numbers (1.7-percent real annual growth for the next 30 years? Puh-leeze) that taking a little time to reconsider our initial assumptions might not be a bad idea.

Contrary to what the Wall Street Journal editorial page refuses to admit, the 1993 tax package that Clinton spearheaded did help spur the economic boom of the last five years, primarily in its reassuring impact on the bond market. But in today’s economy, and given the general bias against using fiscal policy as a macroeonomic tool, it’s not just Clinton and Gore who are six of one, half a dozen of the other. Even if Clinton were on the verge of being replaced by George W. Bush, the market would be fine.

If he were on the verge of being replaced by Bob Barr, on the other hand, I’d put all your money into gold.