Analysis: Economic Hurdles Facing Next President
RENEE MONTAGNE, host:
A sluggish economy could weigh heavily on the next president, whether it's John McCain or Barack Obama - now effectively the two nominees. Whichever of the two men moves into the White House, he will have to deal with a housing slump and nervous financial markets.
To talk about the next president's economic challenges we brought in David Wessel. He's economics editor of the Wall Street Journal and a frequent guest on our program.
Good morning, David.
Mr. DAVID WESSEL (Wall Street Journal): Good morning, Renee.
MONTAGNE: Let's start with, gee, the housing slump and also the credit crunch, could those two things turn around between now and inauguration day?
Mr. WESSEL: There is a scenario that has a happy ending. That we have an economy that is buoyed over the next several months by those tax rebate checks that Congress and the president are sending out, by strong exports. We maybe have a little weakness when that stimulus wears off at the end of the year. But by early 2009, the weight of the higher energy prices, falling house prices and this credit crunch has been lifted.
MONTAGNE: That's a yes. That's one scenario.
Mr. WESSEL: Right. I think that's an awful lot of good luck to count on, but that's a possibility. For that to happen, housing prices have to stabilize, energy prices - which has defied all predictions - has to stop rising. And all these problems in the banks and the Wall Street firms have to start getting better rather than worse, and that's not happening yet.
MONTAGNE: So that's a no - or an unlikely, at least?
Mr. WESSEL: Unlikely in my view.
MONTAGNE: There are other issues that are clearly unlikely to go away anytime soon. The deficit, for instance, how much will that weigh on a new presidency?
Mr. WESSEL: I think that's going to be a major problem for President McCain or President Obama, especially given the weak economy, which makes the deficit bigger. This year, the deficit is likely to be three times the $162 billion reported for last year. And with the U.S. so dependent on lending from abroad, it's going to be something that the next president can't avoid, in my view, and may make it difficult for him to deliver on all those promises that he's going to make during the campaign.
MONTAGNE: There isn't that much that a president or his policy advisors can do to affect the economy, especially a global one. But what, in your opinion, could McCain or Obama do to boost the economy?
Mr. WESSEL: Well, I think you're right. The president, whoever he is, usually gets more credit or more blame for the economy than he deserves. The Federal Reserve actually has a lot more to say about the short term swings about the economy than the president. And the next president gets an unusual opportunity to restock the Federal Reserve Board.
Because the Democrats in Congress won't act on President Bush's nominations for the Fed, the next president right away gets to nominate candidates for four of the seven seats on the Fed board here in Washington. And then in 2010, he gets to decide whether to reappoint or replace Chairman Bernanke or his number two Vice Chairman Don Cone, who was a close advisor to former Chairman Greenspan.
And that may be some of the most important decisions that the next president makes, economically speaking, in the first year of his term.
MONTAGNE: How political is that, whether or not either of those men are reappointed or how the Fed goes?
Mr. WESSEL: Well, everything in Washington is political, but it's not as political as, say, the Supreme Court. I do think it's going to be an interesting dynamic with the decision whether to reappoint Chairman Bernanke.
A lot depends on how well the economy's doing. If it's doing well, either a President McCain or President Obama may find that it's to his advantage to reappoint a sound hand at the Fed, rather than take a chance with a new person. After all, Bill Clinton reappointed Alan Greenspan twice during his eight years as president.
MONTAGNE: And if it's not doing well?
Mr. WESSEL: If it's not doing well, I think the pressure to replace Mr. Bernanke with someone else will be quite strong.
MONTAGNE: David Wessel is economics editor of the Wall Street Journal. Thanks for joining us.
Mr. WESSEL: A pleasure.
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