Friedman: The 2016 Election Isn’t All That Important for Investors

BY GEORGE FRIEDMAN

As an outsider to the investment community, I am constantly struck by its obsession with politics… and particularly with the role of the president. Attention and money flow to candidates in the belief that there is a unique importance to the president in shaping the republic’s future.

I find that interesting because, in my view, the American president is one of the least powerful national leaders in the world. This is particularly true in domestic affairs where he is a very visible, but a rather minor player in crafting policy.

Russian President Vladimir Putin or Chinese President Xi Jinping are obviously more powerful than the American president. But so is British Prime Minister David Cameron, who operates in a parliamentary system where his ability to pass legislation is far greater than the American president’s.

The President Has Little Control over the Legislative Process

The president represents one of three branches of government, presiding over 50 states, which also have their own rights to legislate. All legislation must pass through Congress.

Both the Senate and House of Representatives have the power to determine whether legislation is adopted or rejected. The Speaker of the House can frequently choose simply not to allow a bill to come to a vote. In the Senate, any senator can prevent a bill from coming to a vote, and a handful of senators can take the floor and block the vote.

The president can veto legislation, but Congress can override the veto. The president cannot compel action or control the outcome.

So for example, while President Barack Obama got healthcare reforms through Congress, the final legislation was far from the bill he wanted. He had to bargain away part of his legislative agenda just to get these reforms through Congress. The level of effort required to achieve anything is enormous.

Then there is the third branch of government, the Supreme Court, which has the power to invalidate any legislation or presidential decision. For example, the court blocked implementation of Obama’s plans to cut power plant emissions.

The US federal government is composed of these three branches. However, we should also mention the Federal Reserve, which is the government body that has the most influence over the economy. Like the Supreme Court, the Fed was designed to operate independently of the president and Congress.

Although the members of its Board of Governors are nominated by the president and confirmed by the Senate, the Fed is not answerable to either.
The president ultimately has limited powers over Congress and the Supreme Court. He can nominate Supreme Court justices, but only with the concurrence of Congress.

Justice Antonin Scalia died this weekend, and Senate Majority Leader Mitch McConnell has already declared that he wants the next president, not Obama, to appoint Scalia’s replacement. There is good reason to believe that he can make that happen.

The president may propose any legislation he wishes and nominate any candidate to the high court he wants. Whether his bill becomes law, and whether his nominee takes office, is not up to him.

The Constitution Restricts the President's Domestic Powers

The US was designed to be this way. The founders did not believe in the goodness of man… but in his corruption. They understood the need for government, but wanted its authority to be limited.

When necessary, they wanted the government to act with general conviction. Barring that condition, they expected gridlock.

It is interesting that Americans now regard the paralysis of government as pathological and a government that gets things done as healthy.

There is frequently discussion of government being run in a businesslike manner. This misses the obvious point: government is not a business. The purpose of business is to make money.

The purpose of the American government is to contain the worst impulses of human beings by making the legislative process as difficult as possible, without rendering it impossible.

The founders valued business. They knew business thrives on rapid decision making. But they feared an efficient government. That’s why the American government was designed to slow down decision making.

The President’s Major Role Is to Fight Wars

The exception of course is in foreign policy. The founders understood that it was a dangerous world and the need to go to war might arise suddenly. Therefore, they gave the president another post in government: commander in chief.

It is that post that causes people to think the president is powerful… because in that role he is. That role didn’t come to define the presidency until Franklin D. Roosevelt’s presidency.

Roosevelt managed to introduce some significant reforms through the New Deal. It was his response to World War II, however, that brought the commander-in-chief role to the fore.

World War II set the stage for a new type of republic, the republic at war, near war, or preparing for war. From 1941 until today, the primary responsibility of the president has been to prepare to act as commander in chief.

The advent of nuclear weapons made this role central to the presidency. The declaration of war became obsolete. In the event of a nuclear attack, decisions would have to be fast. The country couldn’t wait the time needed for the political system to function.

This declaration had never been as respected as the founders may have wanted. The wars against the Native Americans (recognized by treaty as nations) did not involve declarations of war. Countless interventions in the first half of the twentieth century, from Haiti to China, had no such declarations.

The declaration of war petered out after Roosevelt, and the constant state of war and near war elevated the role of commander in chief to the prime function of the president. As commander in chief, the president became enormously powerful outside the United States.

The great symbol of this power was the passing of the nuclear codes from the outgoing president to the new one—something both symbolic and very real. And the power he derived from the threat of nuclear war was extended to all other aspects of foreign policy.

Congress could intervene by withholding money or blocking an agreement, but blocking presidential initiatives in foreign affairs was difficult.

And the Supreme Court repeatedly ruled that the president’s actions in foreign affairs was outside its sphere of authority. Congress couldn’t act and the Supreme Court wouldn’t. After World War II, however, the president’s power in foreign affairs and matters of war became unchallenged.

Since then, the president has filled two roles. One related to domestic policy, the other as commander in chief.

The nuclear threat during the Cold War made the president’s major role become the owner of the nuclear arsenal. Even as the nuclear threat declined, the role of the president in managing this new reality increased.

This was in spite of Congressional attempts, through the War Powers Resolution of 1973, to boost its decision-making abilities regarding foreign interventions.

George H.W. Bush invaded Panama and intervened in Somalia and Kuwait. Bill Clinton intervened in Haiti and went to war in Serbia. And of course following 9/11, when war became what appears to be a permanent feature, the president’s role as commander in chief became central.

The founders always wanted a paradoxical president: weak in domestic politics, but not in foreign policy or war. What shifted was not the office… but the world.

The president had not been regarded as a decisive figure before Roosevelt. Roosevelt spoke of the bully pulpit as the means of compensating for the lack of power in the office. But as the United States entered a state of permanent near war, the president’s role in foreign policy became the core of his authority.

The Illusion of Power

As foreign policy became the core of the presidency, this illusion of the president as enormously powerful grew. And the financial community became obsessed with who would become president. Whether Donald Trump, Bernie Sanders, or whomever.

A careful reading of a presidential candidate’s policy papers is one of the most pointless exercises imaginable. Even assuming that a candidate has read these documents and believes in them, he is not in control of what his own policies look like.

In terms of domestic proposals, a candidate’s options are profoundly limited. And in terms of foreign policy, a candidate is limited by not knowing what the US will face in the next four years.

George W. Bush opposed nation building during the campaign. Bush did not anticipate that 9/11 would render all his positions meaningless. Obama assumed that he could reverse the hatred of the Islamic world for the United States by being conciliatory, but he was forced to become involved in the region’s conflicts.

It is essential to remember that presidents don’t make history, but history makes them. History causes us to remember FDR for his role in World War II. It causes us to remember Lyndon B. Johnson for his role in Vietnam. LBJ did not expect to be remembered in that way.

In the end, policies—like plans in war—die the first day in office. But the character of the president might make a difference. It’s not that the president doesn’t matter. It is just that he doesn’t matter nearly as much as the financial markets and others think.

And if we ask why almost half the country doesn’t vote in presidential elections, it may be that they are on to something.

The intentions of the president are unimportant. They are subject to many forces that can block and overpower him. They are hostage to events that might make his intentions pointless.

The obsession with the American president is partly due to the fact that he is the only official directly elected by all of the people. It is partly due to the role of commander in chief, in an age of nuclear weapons and global presence.

In domestic affairs the president can be an influencer or a bystander. But he is never, by himself alone, a decision maker. The presidential election is interesting, but it does not define the future of the republic.

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