This Economy Defies Cure -- No Matter Who Wins

The election of your lifetime.

That's what it's been called, and it's probably true in many policy areas. The two candidates differ on a host of issues, from international affairs to economic strategy to tax policy. Even on basic issues of applied science -- stem cell research (biology), global warming (chemistry), missile defense (physics) -- there are huge distinctions between the Republican and Democratic candidates.

When it comes to the capital markets, conventional wisdom assumes that the outcome of this election will matter a great deal. I disagree.

Why? There are simply far too many structural factors at work that hamstring what any president can do. The postbubble environment has its own problems that will be cured only by time. The budget deficit will continue under either man, and neither will be able to avoid the ongoing weakness of the dollar.

Indeed, the president has far less power over the economy than most people believe. The business cycle of a multitrillion dollar economy is not readily changed by minor -- or even major -- course corrections.

Consider the environment the president-elect steps into: With the 2003 stimulus fading, the economic expansion has started to slow. The trend of the past four quarters of GDP growth is revealing: 7.4% in the third quarter of 2003, 4.2% in the fourth quarter, 4.5% in the first quarter of 2004, and 3.3% in the second quarter.

Unless another trillion-dollar stimulus package is forthcoming -- and that is highly doubtful, given the huge deficit -- economic growth will be in the 2.5% to 3% range. And that's without factoring in the impact of $50-plus-a-barrel crude.

So far, it's been the consumer who has kept this recovery going, via advantageous interest rates and home-equity refinancing. At this point in any recovery, 36 months after the recession's official end, we should be seeing the corporate half of the equation ramping up. But we are not. What we hear from CEOs during earnings conference calls is not particularly encouraging, with the focus on cost-cutting and "hitting their numbers." They are not very sanguine about 2005, expecting little in the way of expansion. Few are announcing increases in capital expenditures; fewer are stating their intentions to ramp up hiring.