Friday, October 31, 2014

Friday Flotsam - The "Midterms And End of Unified Government As We Know It" Edition

Time once again for the Dividist to stroll down our metaphorical beach and take note of the detritus that has washed ashore and cluttered this little island of rationality in the great big blogospheric ocean.

With the midterm election only days away, the looming reality of divided government continuing indefinitely into the future is beginning to sink in for partisans and independents alike. The prospect of President Obama facing a unified GOP Congress with majorities in the Senate and the House of Representatives have Republicans giddy and Democrats checking off the stages of grief on the Kübler-Ross  Index - Denial... Anger... Depression... Bargaining... I guess we'll have to wait a while for "Acceptance".

A good time to go beachcombing and look for any shiny bits of divided government flotsam we previously overlooked. Submitted here for your reading enjoyment...

ITEM - Mitch McConnell is a fan of divided government... sort of...  at least in 2014 

""This crap" is six years of Democratic control of both the presidency and the Senate, McConnell said during a visit to Northern Kentucky Thursday. When voters head to the polls Tuesday in Kentucky and across the nation, he said they should elect Republicans to the Senate and restore divided government.  "Six years later, it's time to draw a conclusion about how this all worked out," he told a crowd of 85 business and political leaders at the Northern Kentucky Chamber of Commerce's monthly Government Forum. "I think the American people want to send a message – we'll find out Tuesday – want to send a message they want divided government." And what would that divided government look like?  McConnell said the Senate would seek to work with President Barack Obama on issues like comprehensive tax reform and trade reform, but would also send bills to the president's desk that he won't like.  "We are going to be able to pass a budget," McConnell promised, "but it won't spend nearly as much as he would like."
Of course we've already had divided government for the last four years. It's been a relatively rare form of divided government, a divided congress with democrats controlling the Presidency and the Senate while republicans control the House. Mitch is apparently a fan of a more common flavor of divided government - where a unified legislative branch is controlled by one party and the executive branch by the other.  The Dividist is delighted to learn that the prospective Senate Majority leader is a proponent of divided government.  We hope and expect he'll still be an advocate in 2016, when the divided government vote will be to elect Hillary Clinton as President, in order to keep the government divided with the Republican Congress that Mitch seemingly prefers.

ITEM - Not just any divided government, the best divided government. 

As it turns out, the particular flavor of divided government we are likely to have after the midterms - Democratic president / Republican congress - happens to be the form of divided government preferred by the investor class:

Jeff Hirsch of Stock Trader's Almanac says "If the Republicans do win it's the best situation for the market... Democratic President, Republican Congress, 19.5% average return since 1949."  The Dividist has followed the Investors Love Divided Government meme since it first appeared in 2006. We are also on the record as being dubious about any claims that stock performance can be correlated with any partisan mix in Washington DC, which is why we are interested when anyone claims to answer the question...

MIdterms and Money

ITEM - Do the midterm results really matter to the market?

Ruth Mantel - MarketWatch 
"Some relish the legislative impasses that have characterized U.S. politics in recent years — after all, their thinking goes, a divided government can’t do too much harm.... 
Of particular interest to investors who plan to vote in the midterm elections, there’s evidence to contradict the idea that markets prefer a divided government. For example, investors traded down equities in 2006 after Democrats took control of Congress, while Republican George W. Bush was in the Oval Office. “This suggests that the response of markets to the Republican victory in 1994 more likely reflects a preference for Republican control than divided government,” according to “Party Influence in Congress and the Economy,” a paper from the National Bureau of Economic Research, a Cambridge, Mass.- based organization."
Ms.Mantel's thesis is consistent with the Dividist's oft repeated views on this blog. To whit:
"Over the long or medium term, we do not think any attempt to correlate political parties in power and stock market performance should be taken more seriously than the Hemline Index or the Super Bowl Indicator. The reason is simple. The federal government does not and can not control GDP, private employment, corporate profits, and/or the stock market as much as congress, presidents or presidential wannabes would like us to believe. Studies that look for correlation between parties in power and those things that the federal government does directly control (spending, deficits, legislation, armed conflict, and currency) are interesting and informative. For that we can look to political scientists and economists like Niskanen, Van Doren, Mayhew, and Slivinski for answers. But lasting effects on the stock market based on party in power? I think not."
OTOH, if the investor class believe that divided government produces strong stock market performance it can be a self-fulfilling prophecy in the short term. We're good with it.

ITEM - Could Independents control the senate and the the government? Is a bear Catholic? Does the Pope shit in the woods?

The Atlantic - Norm Ornstein 
"Let's have a little fun. Imagine that Orman wins and joins two others elected as neither Democrats nor Republicans, independents Angus King of Maine and Bernie Sanders of Vermont. Now imagine that the Senate ends up with 50 Republicans, 47 Democrats, and the three who did not get elected as either D's or R's. Sanders almost certainly would continue to caucus with the Democrats—making it 50/48/2. King has said publicly that he is not wedded to continuing to caucus with Democrats—that it would depend on the numbers, and on what he could do for Maine. But King, who is a deep thinker with strong views on many policies and on how government should work and who has decried the deep dysfunction in the Senate, will also have broader objectives than a few narrow things for his state.

What if King and Orman align, and perhaps bring in one or more other senators—Joe Manchin of West Virginia is an obvious one—to form a Centrist Caucus. They go to both party leaders and offer to provide the votes for majority status in return for commitments on a list of policy and process priorities. But there is a twist: If the party that makes the commitments fails to deliver, the Centrist Caucus members will switch to the other side, changing the majority, including all the committee ratios, committee chairs, and so on. And if the other party fails to deliver, they might switch back. I am not sure what would be on their list; it might include Manchin's bipartisan background-check bill, an infrastructure package, corporate or broader tax reform, some spending priorities, maybe immigration. In my wildest dreams, it would include a demand of McConnell that to become majority leader, he would have to bring up meaningful campaign-finance reform, an issue King has championed."
There is a lot of wishful thinking in this piece by Norm Ornstein.  First some context. Norm Ornstein was a supporter of divided government when the alternative was One Party Republican Rule in 2006. Then he decried Republican "dysfunction" in divided government when the alternative was the One Party Democratic Rule he prefers. Which kind of makes him your run-of-the-mile liberal democratic partisan hack. Not that there is anything wrong with that. Some of my best friends are partisans. So we can safely assume that his preference for an "Independent Caucus" in the Senate in 2014 is only when compared to the alternative of a Republican majority control in the Senate, the prospect of which  makes him really unhappy.

The Centrist Manifesto by Charles WheelanThat said, there is something to his hope for a minority Centrist Caucus shaping policy in the Senate and the government as a whole. This very concept was explored in depth by Charles Wheelan in his book The Centrist Manifesto - reviewed by the Dividist here:
"The core concept of The Centrist Manifesto and what Wheelan calls "The Big Idea" is, in fact, a big idea because it is a third party strategy that can work. Unlike the Presidency, Independents like Angus King can and do get elected to the Senate in the United States. The modest goal of electing a handful of Senators who will act as a swing vote to moderate and broker the legislative agenda for the federal government is reasonable. Yes, It's still an extraordinarily difficult task. It still entails soliciting massive funding and creating all of the infrastructure of a national political party. It still entails convincing a significant voting block to organize around Centrist Party principles and identify as Centrist Party members. It still entails recruiting serious candidates of national stature to run under the Centrist Party banner. It's still an extreme long shot. But it could work. Perhaps the reason the Dividist finds this idea attractive is that it is not vastly different than the core concept of the divided government voting strategy we've been flogging on this blog for the last eight years."
It could work. But not yet. Sanders will always align with the Democratic Caucus, and it is in the interest of both King and Orman (if he wins) to caucus with the majority regardless of which party holds the majority in the Senate. Coincidentally, caucusing with the majority is also the right thing to do for their constituents in the states they represent. 

Two or three independent Senators are not enough to build a Centrist Caucus. But it's getting close. Two or three more, and the Wheelan Centrist Project could begin to have a real impact on policy prescriptions in Washington and an emerging Centrist caucus. It could happen.  But Wheelan and Ornstein both fail to mention one simple fact. A divided government is a necessary condition for an Independent/Centrist Caucus to succeed.

Ornstein's Independent Caucus, Wheelan's Centrist Project and the Dividist's Divided Government Voting Heuristic are complementary strategies with compatible objectives.

 In fact, maintaining a divided federal government is a necessary (if not sufficient) condition to implementing either Ornstein's Independent Caucus or Wheelan's Centrist Project strategy.

If either the Democratic or Republican party is elected into unified single party control of the executive and legislative branch, particularly if they also have a filibuster-proof supermajority in the Senate, then a handful of Independent or Centrist Party Senators will be as irrelevant as Republicans were in 2009 when the Democrats had a 60 vote supermajority.  Both the Independent Caucus or Centrist Party would absolutely need a divided and balanced government to be effective and succeed as brokers of centrist / independent policy. 

So if you like Ornstein's idea, or Wheelan's strategy, the place to start is simple. Just vote for divided government. Every time. Every election. Without exception. 

Divided and Balanced.™
Now that is fair.

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