Insights & Advice


Will gridlock be good for the economy?

Now that mid-term elections have come and gone, the accepted wisdom on Wall Street is that we will now enter a two-year period of gridlock. That has been good for the stock market on average but will it be good for you and I: not likely.

Take the Bush era income and estate-tax cuts, for example. Those tax cuts will expire at the end of this year. If they do, that will mean a hike not only in income taxes but also capital gains, dividend and other taxes that most of us don’t even realize we face in every aspect of our lives. At the moment, the Republicans want to extend those cuts for everyone, while the democrats want to exclude those households earning over $250,000/year. Unless the two sides are willing to compromise, gridlock is going to put a hurting on each and every one of us.

The Republicans want to reduce spending by $100 billion next year, which is a grand idea, but how will that impact the government’s efforts to increase spending in order to reduce the unemployment rate? Do we reduce spending proactively or do we do it by refusing to pass needed legislation? The latter tactic only insures that programs that really need to be cut won’t be nor will new initiatives be passed that might strengthen the economy

In healthcare, the Republicans have vowed to roll back President Obama’s health care over-haul bill. Will that create more or less uncertainty among doctors, nurses and hospitals? Will employers really want to hire on the margin while that debate rages?

What about consumer spending, the engine of growth in America; does spending increase if nothing is being done on the job front or in the housing markets? Don’t count on it.

The underlying reason Wall Street and Corporate America look favorably on gridlock is that most planners and investors do not like change, especially government-mandated change. They would rather live with the status quo where they can avoid the negatives (or at least hedge against them) while overweighting those areas that offer promise. That’s all well and good when talking about securities but when an economy is struggling to grow and unemployment remains far too high, real people suffer. Under those circumstances, who in their right mind would want gridlock in Washington? Not I.

When all conventional methods of growing the economy have either failed or had limited success, when health care legislation is up for revision, when the uncertainty of paying higher taxes in just two months is looming ahead of us, I repeat—who wants gridlock in Washington?

It is, in my opinion, a time for radical solutions not stalemate. It is time for out of the box thinking on both sides of the aisle, not partisan in-fighting. As I listened to the acceptance speeches of the victors in the aftermath of the mid-term elections, I heard a great deal about working together to find the right solutions for America. I heard the same thing two years ago and over that time all I witnessed was two political parties hell bent on achieving their own agendas. Are we better off today as a result?

Am I angry and frustrated? Sure I am, just like I bet you are. But the answer is not accepting gridlock for two more years. The GOP isn’t expecting to get much if anything passed during this term. They plan instead to roll out an agenda and policies that will help them take back the White House in 2012 and make Obama a one-term president. The Democrats plan to protect what seats remain to them while defending policies that have either not worked or worked poorly; hoping against hope that the economy will pull itself out of the doldrums and unemployment will miraculously decline.

Regardless of what Wall Street wants, Main Street needs solutions, not in two years, but right now. So don’t let your newly-elected official’s party too long down there in the capital. The clock is ticking, unemployment compensation is running out for many, and we deserve much more from Washington than gridlock.

Posted in Macroeconomics, The Retired Advisor