It is clear that the financial crisis had a big effect on the course of the election. But how did the election affect the financial crisis?
Writing political and socioeconomic commentary for a legally non-partisan blog on the day of a presidential election is difficult. The election has been the bottom line for almost every political or socioeconomic story in the country for more than a few months. This is natural, as it is current events, along with our personal dispositions, political leanings and ideological commitments that inform how we will vote. But for the past few months, as it happens every four years, America has been looking at the world through an election-tinted lens.
But just as current events have shaped the course of the campaign for the White House and the 111th Congress, so has this election season shaped those events. Nowhere is that more apparent than the financial crisis, which, almost from the day Henry Paulson publicly announced his bailout plan, has been affected by the campaign almost as much as it has affected the campaign.
Since I can't write about the campaign, I am going to turn this limitation into a thought experiment. Here is the question: "What if the financial meltdown had occurred in September of 2007 or 2009, not 2008?" In other words, how have the election cycle and the media's focus on politics affected the crisis and bailout?
In some ways it's a simple question. The farther out a politician is from her election, the less intertwined are her policy decisions and her political maneuverings. When an election is not just over a horizon, but perhaps a year or a year and a half away, a politician has more time to let his less volatile policy decisions become the status quo, his more volatile policy decisions fade out of public memory, and his riskiest decisions pertaining to policy payoff hugely. Or, conversely, there is time for him to spin blame for failure away to someone else.
But when a national election is a month and half away, the media is already devoting a considerable chunk of time to the campaign, and it is already the principle narrative of the news. So, when a crisis like the financial meltdown occurs, the public is already primed to understand it through the lens of the election. When something as huge and complex as the financial crisis hits the country, it is hard for the public to contextualize the situation or localize themselves in the broader landscape of the problem. For the media, the election provided the best way for readers and viewers and listeners to decode these tumultuous events.
So the media internalized the crisis into its election coverage. Now obviously, the health of the economy is something that voters pay attention to when making decisions. It wasn't that the media simply reported on the crisis; it was that suddenly, in addition to the debates and the Saddleback Church forum, voters were supposed to measure each candidate based on his reaction to the crisis.
And this meant that both parties, when it came to addressing the crisis, had two objectives: the obvious one of fixing the economy and staving off collapse of the global financial system, and the less laudatory but equally pursued goal of portraying their party as the party in touch with "Main Street Concerns" and as the hero of the crisis. Two goals: one economic, one political.
And these goals conflicted when voters made it clear to their representatives that they were not happy with the idea of a bailout that they saw as rewarding bankers who had been gambling with their mortgages. Elite opinion had pretty much converged around the fact that swift action was needed to stabilize the financial sector, and the bailout was the only option that was already on the table, so it needed to be passed.
But there was too much political risk involved in explaining to voters that if Wall Street wasn't helped, the real economy would be in a lot of trouble. Election season is not the time to explain policy, it's not the time to take a stance on a controversial measure with an unknown conclusion, and it's not the time to tell your electorate that you aren't going to listen to them when there is so much stigma around being labeled a "Washington insider."
So the first attempt to pass the bailout failed in Congress due to electoral pressure.
And the same day the bailout failed, the stock market dropped more than 770 points. The financial sector was focused on Washington, knowing that the bailout plan would bring confidence back to financial markets. But election politics had stopped the financial sector from getting the exact signal it needed--swift, decisive action by the government to show that it would not allow collapse.
And, in fact, it was that desire to send a signal to Wall Street which pushed members of Congress to move so quickly that they never stepped back to think about whether Paulson's plan was in fact the right one. It is becoming increasingly clear that the bailout was deeply flawed from the start. But no one wanted to slow down the process in fear that they would look like they didn't care about the economy.
These politicians were on a political balance beam--they needed to move swiftly or else the economic problems would start to affect their chances of being re-elected, but they also had been told by voters that the bailout would hurt them politically. When faced with these options, they made the choice that acting swiftly would be the best compromise--they would show that they could act quickly under fire, that they cared about the economy, and best of all, the faster something happened, the farther away from the crisis they would be on November 4th. The best thing for an incumbent would be to hope that this had all faded from the public discourse before election day, and to maximize the chances of that happening, they jumped to the swiftest action.
Politics became the filter for economic crisis, and the election became the method for the public to understand financial mayhem. As these two things--the crisis and the election--were conflated in the minds of the electorate, policy decisions became politicized and subject to scrutiny by the media. The economic need for decisive action was suddenly inhibited by the political need to stay appealing to voters. And so, just as the election was affected by the crisis, the crisis was affected by the election.
