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The Elections, the Fed, and Jobs Data: Next Week the Fog Lifts a Bit

12:00 AM, Oct 30, 2010 • By IRWIN M. STELZER
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If you abhor uncertainty, this coming week will be a good week for you. On Tuesday voters will let you know the direction in which we want our politicians to take our country. On Wednesday Federal Reserve Board chairman Ben Bernanke and his colleagues -- or some of them, since unanimity at the Fed is no longer assured -- will let you know their plans for the U.S. economy. And on Friday the government will release the monthly jobs report, which will give us a clue as to whether the unemployment rate might, just might, be headed down, or is stuck at 9.6 percent, and might be headed up.

The Elections, the Fed, and Jobs Data: Next Week the Fog Lifts a Bit

Start with Tuesday’s congressional elections. If the pollsters are right, or even close to right, the Republicans will take control of the House of Representatives. They might even take over the Senate, but that seems less likely. More important for its implication for the 2012 presidential race, the Republicans are slated to make big gains in state-wide races, winning several governorships and statehouses, giving them control of the process of re-drawing congressional districts to reflect new Census data.

If all of this comes to pass, the implications for the economy are significant. Republicans will be in control of the key committee chairmanships. Hordes of bureaucrats are now drafting thousands of regulations to implement the president’s health care and financial reform legislation. Democratic chairmen would be pressing them to move in the direction of tighter and more expensive regulation; Republican chairmen will skewer them if they do that. Republicans will move to repeal the president’s health care “reform,” considering a majority of voters in key congressional districts want them to do just that – but, at least for now, Obama would surely veto such a bill. But they can, and will, “de-fund” major portions and, by refusing funds for implementation and enforcement, negate some of the more costly parts of the legislation.

Most important, the Tea Party will have made its point -- Americans don’t want more and more intrusive government, bigger and bigger deficits, and higher and higher taxes. The atmosphere will be acrimonious. For one thing, many of the Democrats headed for involuntary retirement from Congress are moderates, who represent seats they had won by very small margins in 2008 when Obama brought Democrats trooping to the polls in unusually large numbers. Those who will retain their seats represent heavily Democratic constituencies, and are left-of-center, long-serving politicians of the Pelosi variety. They will be unlikely to surrender their principles -- activist government as a force for good -- to Tea-Party-sponsored congressmen who were elected to control Obama’s hyperactive expansion of government’s role in the lives of Americans. Result: gridlock -- usually a good thing, but with mounting deficits, a weak recovery, and the extension of the Bush tax cuts to be decided -- no action lets them lapse -- perhaps not this time around.

Equally important, Obama is not a man given to compromise: it took him 18 months to invite the Republican leader of the Senate to the White House for a one-on-one chat, and he has been touring the country accusing his opponents of receiving funding from unnamed foreign sources. As Shelby Steele put it in a brilliant article in Thursday’s Wall Street Journal, Obama sees his opponents as “really only the latest incarnation of that old [American] characterological evil that you always knew was there.” On the other side, the Republicans have made it clear that their number one goal is to set the stage for the defeat of the president when he stands for re-election in 2012. None of this conducive to Ronald Reagan - Tip O’Neill style drinks and bonhomie.

There is some talk that when campaign-induced passions have cooled, the new Congress will come up with a deal: raise some taxes to please the Democrats, cut some spending to please the Republicans, with the result of a reduction in the budget deficit. Right now that is just talk. 

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