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Good Week for the Economy; Bad Week for Obama and the Democrats

12:00 AM, Nov 6, 2010 • By IRWIN M. STELZER
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“The people have spoken, the bastards,” said minor politician and prankster Dick Tuck after losing his bid for a seat in the California State Senate almost 50 years ago. Barack Obama undoubtedly shares that sentiment as he plans to face a Republican-controlled House of Representatives and a Senate that now has enough Republican members to filibuster to death anything they don’t like. But at least the three uncertainties we mentioned last week – the Tuesday elections, the Wednesday decision by the Federal Reserve Board’s monetary policy gurus, and the Friday jobs report – have been removed. And the new certainties bode well for the economic outlook.

Good Week for the Economy; Bad Week for Obama and the Democrats

The power shift in Washington is probably the first step in bringing the deficit under control. Republicans say they are pledged “to follow the will of the American people” and shrink spending and the reach of government. No second stimulus. But we won’t know whether an axe will be taken to entitlement spending – the real driver of the long-run deficit – until the president’s bipartisan committee lays out its recommendations in a few weeks.

The Republicans would like to repeal the costly health care bill but cannot so long as the Democrats control the Senate and the White House. So they will try to de-fund portions of the bill they find most offensive. In their sights is the provision that forces everyone to have insurance or pay a fine, the provision most beloved of insurance companies who see profits rolling in from healthy, young newly insureds. The president will fight such moves, but spending bills must originate in the House, giving the Republicans the ability to deny any presidential wish that involves the spending of money.

Republicans are going to find the going tougher than they so far seem to have recognized. Take the repeal of the section of the health care bill that requires businesses to file a 1099 form covering any supplier with whom they do business, a provision the president has indicated he won’t try to protect. But that provision was slated in the original cost projections to generate $17 billion in revenue, although how it could, and at what cost to the private sector remains a mystery to this writer. No matter: The Republicans will have to come up with $17 billion in savings somewhere if the repeal of the 1099 provision is not to add to the deficit, as computed. No easy thing.

The president has already indicated that he is prepared to negotiate his refusal, so far, to extend the Bush tax cuts to families with incomes in excess of $250,000 per year. Sources at the top of the Republican Senate leadership tell me privately that they expect the bargaining with Obama to result in permanent tax cuts for families earning under $250,000 annually, a two-year extension of the cuts for higher-income families, and reinstitution of the estate tax at 35 - 40 percent, with a $3.5 million exemption indexed to inflation. They also expect – hope might be a better word – to cooperate with the president to pass the trade agreements with Panama, Colombia and South Korea over opposition from his own union-beholden party.

That sort of thing will make the headlines. But what many observers often overlook is the battle that will be fought below the radar. Regulatory and administrative agencies are busily writing the regulations to implement the provisions of the health care and financial reform laws, and to set the environmental rules for the future. And these agencies are thoroughly Obama-ized, and more regulation is an area in which the president ne regrette rien, to borrow from Edith Piaff.

Unable to get his very leftish appointee approved even by the then-overwhelmingly Democratic senate, Obama has given Dr. Donald Berwick – famous for his statement, “I am romantic about the NHS; I love it…” – a recess appointment, no confirmation required. Berwick’s views were less well received in America than they were in Britain. Elizabeth Warren and Carole Browner have been made special assistants to the president – no confirmation needed here either. From which perches the unconfirmable trio are shaping the rules under which the health care, financial services and energy industry will operate. Those rules will reflect the president’s continued faith in increased regulation of business. Whether control of these agencies’ purse strings will enable the Republican majority in the House to derail the regulatory express remains to be seen.

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