Handicapping Post-Election Year Policy Shifts

CHICAGO, August 8, 2008 — "As McCain and Obama slug it out to differentiate themselves from each other and the current administration, the reality of a growing federal budget deficit, weak economic conditions (and prospects that the economy could deteriorate further), and a widening income gap make certain policy shifts inevitable," says Diane Swonk, chief economist of Mesirow Financial, in her August issue of Themes on the Economy.

"Some things, like increased regulation, higher overall tax rates, and constraints on government spending are inevitable, regardless of who gets elected and what he has promised," notes Swonk.

In her August newsletter, Swonk takes a look at the two presidential candidates and how they differ from each other, the economic and political realities that the next president is likely to face, and what those realities suggest about the outlook for public policy over the next four years, including:

• Obama vs. McCain. Obama tends to support more populist (protectionist) policies on trade; McCain endorses free trade. In an odd twist of fate, however, Obama has raised more funds from wealthy donors and Wall Street than McCain.

...Obama is seen as more of a traditional Democrat, but has moved further to the middle in recent weeks on issues of foreign policy, energy conservation, and taxes. This has raised criticisms of flip-flopping by the McCain camp and infuriated those at the left within the Democratic party. McCain, on the other hand, appears to have moved more to the right, despite his reputation as a moderate in the Senate. This shows itself in: promises to appoint conservative Federal and Supreme Court judges; opposition to gay marriage; and the extension of the 2003 tax cuts, which he initially voted against because of concerns about the size of future federal budget deficits.

• A Reality Check. A growing federal budget deficit, however, will limit the extent to which Congress and the next administration can stimulate the economy via lower taxes or increased spending.
• Facing the Inevitable. Regulatory burdens, taxes, and spending are all expected to rise in the near-term. The federal budget deficit will continue to grow as spending problems are not likely to be addressed until after the 2012 elections. Protectionism will be held at bay by downplaying free trade with individual trade negotiations instead of more broad-based treaties. Free trade and immigration have become convenient scapegoats for globalization, which have probably played as large a role as poor education in displacing workers in recent years.

"Do not expect either candidate to actually be able to deliver on his pre-election promises given the political reality of an economy that is likely to get worse before it gets better. It would be wise for the next president to focus more on policy than on his prospects for re-election in 2012, but that may be optimistic given the length of presidential campaigns," concludes Swonk.

The August issue of Themes on the Economy as well as archived issues can be found at www.mesirowfinancial.com. Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with $32.2 billion in assets under management and more than 1,100 employees in 30 locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals and was named one of Chicago's Best Places to Work by Crain's Chicago Business in 2008. For the fiscal year ended March 31, 2008, the firm posted $490 million in revenue (unaudited), with more than $245 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.

For more information, contact: Diane Swonk, Mesirow Financial, 312.595.7122, or Olga Camargo, Mesirow Financial, 312.595.7128.

 

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