Business will be the loser in the election
November 7, 2006
by Irwin Stelzer
They say economic forecasters were invented to make weather forecasters look good.
To that I might add that political forecasters were invented to make economic forecasters look good. So it is with great trepidation that I build this week's column on a political forecast -in two days the Democrats will gain control of the House of Representatives by picking up the 15 seats they need. If that happens, and the only thing that can prevent it is a huge turnout by the hard core Republican "base", the changes in the political and economic environment will be far from trivial.
President George Bush's approval rating on his handling of the economy has gone from 39% in June to 46% now. But the Iraq war still tops voters' concerns, and by 52% to 37% they express a preference for a Democrat-controlled Congress, according to a Wall Street Journal/NBC poll.
Businessmen who have hedged their bets by contributing to both parties will notice the difference when Democrats assume the chairs of the powerful congressional committees -far more powerful than their parliamentary counterparts in Britain because they can issue subpoenas, compel testimony under oath (creating the danger of perjury indictments), and conduct the sort of public hearings that make it on to the evening television news.
Investors who have been pouring money into shares might find it disconcerting if the indexes turn down because John Conyers, due to take over the house judiciary committee, launches impeachment proceedings against Bush, as he has been promising. True, Nancy Pelosi, the far-left San Francisco Democrat who will become speaker of the house (and third in line for the presidency) has said she won't approve such a move, but she is not the sort to stand between an insistent Conyers and his heart's desire.
Then there is Charlie Rangel, the smooth-talking congressman who has represented the black constituency of Harlem for 36 years. Rangel is an engaging sort -it is almost impossible not to like him -who will use the chairmanship of the ways and means committee to see to it that Bush's tax cuts are unravelled as rapidly as possible and that any tax breaks available are funnelled to low-earners. Whether he will make good on Democratic promises to introduce some restraint into congressional spending remains to be seen, but it is certain he will look far less favourably on requests for money to fund the Iraq war and to upgrade America's military.
His let's-spend-less-in-Iraq attitude will be buttressed by Henry Waxman, the California congressman who will get the chair of the government reform committee as a reward for his 32 years in the house. Waxman plans extensive hearings on what he sees as excessive profiteering by contractors engaged in rebuilding efforts in Iraq and the area hit by hurricane Katrina.
In addition, anyone holding shares in oil or pharmaceutical companies will face a new risk: Waxman promises to go after what he considers to be the obscene profits made by these companies. Love him or hate him, everyone concedes that Waxman is very good at what he does. He is the business community's nightmare.
John Dingell, dubbed "dean of the house" because of more than 50 years of service there, will take over the energy and commerce committee. I need to make a declaration of interest here: he is an old friend and a colleague in some past legislative battles. Dingell knows the oil and utility industries better than most, is an old-line regulator but no lefty rabble-rouser, and has over the years protected the motor industry in his native Michigan from the most dangerous onslaughts of the environmental lobby. If you worry that the reaction to the Stern report on global warming is more than slightly hysterical, Dingell is your man: he might, just might, prove a useful brake on some of the more hare-brained efforts to force uneconomic change on the car makers.
Of greatest interest to investors in Britain is the fact that Barney Frank will inherit the financial-services committee. The good news is that Frank understands that the regulators have to ease up on their application of Sarbanes-Oxley if New York is to compete as a financial centre. The bad news is that he is attracted by the notion of a supra-national financial regulator to bring uniformity to the regulatory regimes governing the global markets for securities and financial services.But there is an even more important change than those due in Congress. Eliot Spitzer will move from the state attorney-general's office into the New York governor's mansion. Nobody in the financial community needs any reminding that Spitzer is the man who forced leading investment banks and insurers to revamp their governance structures and pay huge fines for their practices, some of which can only be described as indefensible.
Unfortunately, he trampled due process and individual rights in the process.Spitzer wants to follow his hero Theodore Roosevelt, the scourge of "malefactors of great wealth", from the governor's mansion to the White House by gathering support from millions of small shareholders, a group he considers the modern day equivalent of the working men and women who once formed the backbone of the Democratic party. That bodes ill for investment bankers and corporate "fat cats".
It also means that two New York politicians for whom publicity is as vital as the air they breathe -senators Chuck Schumer and Hillary Clinton -will have a new competitor for the best slots on the evening news.So much for political prognostication. Unlike long-term economic forecasts, these will be proved right or wrong in a little more than 48 hours.
This article originally appeared in the November 5, 2006, edition of the Sunday Times.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.