October 15, 2006


Fear Will Fade (Kenneth L. Fisher, 10.16.06, Forbes)

I predict that the GOP will lose seats but not enough seats to lose either house of Congress.

What if I'm wrong? There are only three possibilities. One is that the Democrats win one house but not both. Another is they win both houses but with weak majorities. The third is a Democratic landslide.

With the first two, the outcome is gridlock, the mirror image of what we had in the late 1990s, when Republicans had Congress and Bill Clinton was President. The market loves gridlock. Nothing gets done. That is, we have no tax or regulatory upheavals.

For structural reasons, I believe there is zero chance the Democrats will win by an amount greater than gridlock--by enough, in other words, to override a Bush veto. There just aren't that many iffy seats. Not even close.

Still, suppose I'm wrong. Look ahead. We are only three months away from the third year of George Bush's term. In the entire history of the S&P 500 there have been only two negative third years of any President's term. They were both long ago: in 1931, in the midst of the 1929--32 crash, and in 1939, as we entered World War II. Both very weird and unusual times.

All other third years were double-digit positive, except single-digit positives in 1947 and 1987. The average return in third years is 20%. In fact, there have been only five negative S&P 500 years in the back half of presidential terms. Market risk is highest in the front half of Presidents' terms, which is historically when most attempts at redistributive legislation have occurred. Once the midterms are over, it gets better.

The House seats are easy enough to win back in the McCain/Hillary landslide, but it would be too bad to lose natural GOP Senate seats for six years, given that it seems like Democrats are hellbent on requiring a 60 seat Republican majority for SS Reform.

Donkeys Lack Ideas For 2008 (MICHAEL BARONE, October 16, 2006, NY Sun)

[W]hat are the new ideas that Democrats are campaigning on? They've had a hard time coming up with a list. At the top, usually, is raising the minimum wage. That's a law that Congress first passed in 1938. Liberal think tankers will tell you that if you want progressive redistribution of income, the minimum wage is a far weaker tool than the Earned Income Tax Credit.

Bill Clinton and the Democratic Congress did expand the EITC in the 1990s, with a small but perceptible redistributive effect — one of their policy successes. Democrats today could campaign on expanding it further. But the minimum wage tests better in polls.

As for the macroeconomy, the Democrats offer few policies except to refuse to extend the Bush tax cuts, which in important cases don't expire till 2010. On foreign policy, their stands tend to be incoherent: We should be more multilateral in Iraq and less multilateral on North Korea. "Redeployment" of troops from Iraq to Okinawa (John Murtha) or Kuwait (Hillary Clinton).

The Democratic plea is that the Republicans should be punished for incompetence. But even with majorities in both houses of Congress, Democrats will be poorly positioned to offer competence itself.

Reagan's 1986 Election,/a> (Jeffrey Lord, 10/16/2006, American Spectator)
The political goal for the Reagan White House had been to hold that Senate majority and make some incremental gains in the House, the latter last accomplished by FDR in 1934. As Reagan biographer Lou Cannon later wrote, President Reagan had agreed to an "extraordinary midterm campaign effort," for his sixth year. Certainly the President knew, as did all of us who worked for him, that year number six of a two-term presidency was historically a killer for Presidents when it came to congressional elections. The mighty Franklin Roosevelt had gotten clobbered in 1938, the beloved Dwight Eisenhower saw his party buried in 1958. Still, Reagan chose to fight. Rereading Cannon's account of that time period brings those memories flooding back.

The President traveled 24,000 miles for 54 appearances in 22 states. He raised some $33 million for Republican candidates. Over and over again, from one airport hangar to the next town square, he restated conservative principles. In the middle of it all we had to call a halt while he suddenly re-routed Air Force One to Reykjavik, Iceland, for a surprise summit with the Soviet Union's Mikhail Gorbachev. Returning in a hail of negative press for walking away from a deal to give up the Strategic Defense Initiative (it was only years later that his refusal to abandon the principle of military strength won him credit for toppling the Soviet Union), he picked up the fight. Extra campaign stops were laid on, many of us suddenly catching planes to California or North Carolina or Nevada to speak or lend a hand to the over-stretched advance operation abruptly charged with the details of yet another presidential stop at some destination we ourselves had recommended. Only once did the ever-protective Mrs. Reagan protest that I can remember, putting her foot down at the notion her husband was being sent to a Western state with a same-day return to Washington. Firmly noting the president's age (75) and the fact that he was already putting in a schedule that would exhaust a man half his years, she saw to it that there would be an overnight breather at his Santa Barbara ranch, much closer indeed.

And what did all of this win for the Reagan presidency? A loss of 9 of those 12 seats gained in 1980 and the end of the GOP Senate Majority. House races, which I was shepherding, produced a loss of five seats. While not bad for a six-year election, it was not the victory everyone wanted.

Posted by Orrin Judd at October 15, 2006 10:51 PM

In today's WSJ, there is an excellent peice by Kim Strassel that highlights the troubles of the stellar Ken Blackwell compared to Crist in FL.

Ohio Republicans have become like their IL counterparts, and a great candidate is suffering for it. In FL, Jeb did what he ran on, and Rs are coasting to a win.

Which of these two examples best fit Dennis Fatstert's party?

Posted by: Bruno at October 16, 2006 9:45 AM

The GOP is supposed to be punished for behaving like Democrats-lite by electing the real ones. Yep, that makes as 'bout as much sense as anything.

Posted by: Raoul Ortega at October 16, 2006 11:30 AM