NationStates Jolt Archive

This guy thinks so...

NEW YORK (MarketWatch) -- They could easily be wrong, but when politicians of both parties talk about next month's Congressional election, they more or less assume that that the Democrats will regain the House of Representatives.
The professionals also give the Democrats an outside chance of winning the Senate, but that seems far less likely.
Either scenario would represent radical change, far different from the current situation.
Republicans now lead in the House by a walloping 231 to 201, and in the Senate by 55 to 44. (There is one Independent, Jim Jeffords of Vermont.)
In any case, now is a good time to examine and evaluate what might happen in the economy if the Democrats regain one or both houses.
The short answer is that the change would be substantial -- in policies and in the people who would take charge.
With Democrats in the majority in either house, or both, the Republican dreams of making the Bush tax cuts permanent would fall to near zero. The dramatic reductions that have been enacted in the last few years -- in personal, corporate, capital gains, dividend, gift and estate taxes -- would be up for re-negotiation.
Chances are the taxes that emerge would be the product of split-the-difference compromise: lower than five years ago but higher than Republicans want. For example, forget about zero estate taxes. Affluent heirs will pay more than nothing but less than they used to.
The Democrats would also press hard for increasing the minimum wage to $7.25 an hour from $5.15, where it has been stuck since 1996.
Another intense cause for true Democrats is preserving the sanctity of Social Security. Whether in power or not, they will fight with a passion to preserve Social Security as we know it, not allowing recipients to invest their benefits privately.
The Democrats can also be expected to be tougher than Republicans on international trade policy. They will press China and other developing nations to open their markets wider to U.S. goods and to provide tougher environmental controls and intellectual property protection, if they want to continue selling freely to the U.S.
Robert Hormats, vice chairman of Goldman Sachs (International) has a forecast: "The Congressional Democrats will look harder at military contracts that have been issued during the Iraq war to make sure that the money has been used efficiently. They will also look harder at how the anti-terrorism money has been spent."
A Democratic victory would mean that the majority of members on every committee, and every chairman would shift from Republican to Democrat. This is potentially very important because so much legislation is hammered out at the committee level.
When in power, Democrats tend to be more active and vocal than the Republicans, holding more hearings and pursuing more investigations. The people in control of a new Democratic Congress would stand to do all that.
The key role of Speaker of the House would shift from mild-mannered moderate Dennis Hastert, 64, of Illinois to firebrand Nancy Pelosi, 66, a liberal Democrat grandmother of five from San Francisco. She would also be third in line to become President if anything untoward happened to President Bush and Vice President Dick Cheney. Though she can be exceptionally charming, Pelosi is also exceptionally tough, and it is widely expected that the House would be more activist under her than Hastert -- and that she will soon become one of the most talked about women in America.
Just about all the committee chairmen would be significantly more activist than their predecessors.
In the all-important Ways and Means Committee, which writes new taxation rules and oversees trade, tariffs, Social Security and other policies, the new chairman would be the vocal and robust Charles Rangel of Harlem, replacing Bill Thomas, a dutiful conservative from California.
Other prominent liberals would take over key committees, among them John Dingell of Michigan at Energy and Commerce, Barney Frank of Massachusetts at Financial Services, Henry Waxman of California at Government Reform, Dave Obey of Wisconsin at Appropriations, and John Spratt of South Carolina at Budget.
In the rather unlikely event that the Democrats capture the Senate, there would be similar changes in that body as well.
In sum, if the Democrats do indeed prevail, there would be more legislation that directly affects people. But the changes -- while important -- would not be so radical as to kick up inflation or recession or send the economy into a spin.
Historically, the economy and investment markets tend to do better when the usually freer-spending Democrats are in power. Wall Street recognizes this, and it is a main reason why the market has been rising rather steadily since it became clear that the Democrats stand a solid chance of returning to the majority.
Reporter Ismat Sarah Mangla contributed to this article.
Marshall Loeb, former editor of Fortune, Money, and The Columbia Journalism Review, writes "Your Dollars" exclusively for MarketWatch.
http://www.marketwatch.com/news/story/Story.aspx?guid=%7B1DA69DB7%2DC323%2D4FE9%2DABF3%2D63DB9A168C40%7D&siteid=

I think the market probably wants a return to gridlock more than the Democrats in power; they'd prefer a situation where interest rates are steady and neither party is powerful enough to push agenda issues, which means virtually all legislation will be much more rational and beneficial than what would have come from a party-dominated Congress.

Plus, a better economy isn't necessarily good for the stock market...after all, the market still fears rising interest rates more than anything.

I think the market probably wants a return to gridlock more than the Democrats in power; they'd prefer a situation where interest rates are steady and neither party is powerful enough to push agenda issues, which means virtually all legislation will be much more rational and beneficial than what would have come from a party-dominated Congress.

Plus, a better economy isn't necessarily good for the stock market...after all, the market still fears rising interest rates more than anything.

i know I feel much better wityh gridlock - although we need to move pretty fast on the energy front.

i know I feel much better wityh gridlock - although we need to move pretty fast on the energy front.

Unfortunately, that's one of the problems with gridlock...it makes acting even on vital things really difficult. I mean, we got nowhere on CAFE, carbon taxation, gas taxes, BTU taxes, or global warming because the Republican Congress stopped it (although a fair share of Democrats were less than helpful, especially from the auto states).

I mean, fuel economy in 2000 was at its lowest since CAFE was implemented and US gasoline demand was growing at easily 3-4% per year in the late 90's! We were less prepared for an energy crisis in 2000 than we had probably been at any time since the late 70's.

That was 6 years lost due to gridlock, and I think it hurt us pretty badly in the longer term. Even if something as simple as the tax credit for wind were to stagnate due to gridlock, we could suffer a major loss in terms of energy infrastructure preparedness.