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What do 2010 elections mean for the economy?

Will political paralysis be good for the financial markets? The stock market seemed pretty sanguine this Election Day, with the Dow Jones average rising 64 points and analysts talking about greater political clout for the business interests that have opposed the Democrats and contributed so generously this fall to the GOP.

But I'm dubious. What gridlock means for economics is that we can forget about fiscal policy for the next two years. That's a scary prospect at a time when we have an
economy that's in danger of stalling out just as it tries to get airborne again.

Despite endless repetition by Republican candidates that the problem is too much government spending, many economists argue the case for an additional boost of stimulus -- especially if it's targeted at infrastructure investment, as President Obama has proposed. At a time when interest rates are effectively zero, it makes sense to borrow money to invest in projects that have a long life (such as roads, bridges and telecommunications). That makes sense for government as well as business.

If predictions of GOP victory are correct, the new Congress will be focused on the deficit, rather than increasing economic growth. (Yes, I know, the Republicans say they favor growth. Too, they have a two-word formula, "tax cuts," that isn't very promising.) And however the numbers turn out, this isn't likely to be a Congress that will do much creative economic thinking, in any direction. (Zero interest rates make the deficit a lot less scary than is usually advertised, by the way, but that's another story.)

So our post-election economic fortunes rest with the Federal Reserve and its "quantitative easing" of long-term interest rates. Good luck to Fed Chairman Ben Bernanke with that. But if it doesn't work, the Fed will have run out of bullets in its monetary gun -- at the same time our political wars have crippled fiscal policy. Not an encouraging picture.

By David Ignatius  | November 2, 2010; 5:09 PM ET
Categories:  Ignatius  | Tags:  David Ignatius  
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Next: John Boehner: firebrand or statesman?

Comments

it means a return to the bad old days. big oil, pharma, banks, insurance, etc doing WHATEVER THEY WANT, totally unregulated. got a crazy worthless investment, sure sell it to old people on fixed incomes, who's to stop you. got a pink pill that will cure all cancers instantly, sell it to the sick and dying who will grasp at anything for one last chance. it just amazes me how the re-thuglicans can get people to vote against their own self inerest by framing it as patriotic. when will the electorate wake up and realize its the re-thuglicans who got us into this mess. the dems have been in power barely 2 years, re-thug fighting them all the way, and you wonder why Dems havvn't fixed things yet. you gotta give them a few more years to show the American people who really cares about the avaerge guy.

Posted by: submarinerssn774 | November 2, 2010 6:48 PM | Report abuse

What it means for the economy? The electorate has sent a clear message to Obama: Fix the unemployment problem.

He can't do that while giving taxpayer dollars to the rich. If he continues to turn a deaf ear to the electorate, he is destined to be a one-term president, leaving a shameful legacy of waste and excess.

Posted by: rexsolomon | November 2, 2010 8:49 PM | Report abuse

Investing in projects of infrastructure such as: energy (specially, but not exclusively, from renewable and newer sources), housing, roads and bridges, airports, water and sewage, hospitals, schools, internet, etc is the best and quickest way to create all sorts of blue collar jobs, technicians, administrative, economists, lawyers architects and engineers. The multiplier effect of their salaries, professional fees, and related investments to house and feed the field personnel, buy construction equipment and materials and other direct and indirect costs will jump start the economy... FURTHERMORE services would greatly improve. The White House and Congress should come together to prevent a further deterioration of the economy, and improve the living conditions of 200 million Americans. . Raleigh, NC Raul Cardenas. Civil/structural engineer.

Posted by: rcmypostid | November 2, 2010 9:39 PM | Report abuse

Many economists argue the case for an additional boost of stimulus -- especially if it's targeted at infrastructure investment.

Obama wasted time on climate change and health care - over a year - when he should have focused on infrastructure. Why did he wait? That's what FDR did. Obama is all AGENDA. Jobs are not even on the front burner. His priorities are twisted and he knows zip about fiscal restraint.

What is really obscene is his planned visit to Mumbai, India: The US will be spending a whopping $200 million per day on Obama's visit to the city. $200 million per day. This is really obscene.

Posted by: alance | November 2, 2010 9:41 PM | Report abuse

The reality is that the country will have to face the reality of the economic pain that has been deferred through the stimulus programs. That includes a large number of structurally unemployed, the reality of large numbers of foreclosures, and the budget problems of state and local governments. It is hard to believe that the federal government will be able to do anything constructive to address these problems. But it is pretty much impossible to predict what will come out of the political chaos of a fragmented federal government or what new problems will emerge from a still fragile global economy that has done nothing to deal with the massive imbalances in global trade.

Posted by: dnjake | November 2, 2010 11:01 PM | Report abuse

Sorry, but if Obama wanted to spend a stimulus on infrastructure, he should have devoted the last one to it.

Instead, the democrats wasted the last stimulus on the pet projects of congress members.

Maybe that's why it didn't work.

Posted by: postfan1 | November 2, 2010 11:50 PM | Report abuse

giving taxpayer dollars to the rich? how is that happening?

Or do you mean, raising taxes of those people who actually create jobs? Because we have already seen that companies - even though they are hoarding cash - aren't actually creating jobs. and our govt might be creating jobs, but not enough, or quickly enough, to be bringing down that unemployment rate (and do we want them to create more jobs...really?).

Do we really want a 'bigger' stimulus? really? Because every penny will be borrowed money - money our kids and grandkids will have to pay back. when we already borrow just to pay the 'regular' (budgeted) bills. and have a deficit over and above that.

how about lowering taxes so that states can have the money to do their OWN infrastructure planning? rather than being forced to come to the federal government like a child.

Posted by: atlmom1234 | November 3, 2010 2:51 AM | Report abuse

Since taxes are already at historic lows, and jobs are not being created, what possible good can Republicans do? The gridlock will be terrible, and in two years Dems will be voted back in. What else is new...

Posted by: lekenn | November 3, 2010 5:55 AM | Report abuse

submarinerssn774 You Need To Go Back Under The Rock You Came From This Loser Obama That Calls His Self President And The Dems Are Wrecking Our Country They Have Uncontrolable Spending They Have No Idea What A Balanced Budget Is And They Print Money Like Its Printer Paper So Maybe You Need To Go Research YOUR President A Little More Cause Well Over Half Of The Great People Of America Don't Want Him Or His Rejected Healthcare Crap

Posted by: mkw2700 | November 3, 2010 9:35 AM | Report abuse

The Tea Party cannot resolve the problems of the country. No is not a policy that can be implemented. You cannot simultaneously slash taxes on the uber rich and balance the budget. An obvious contradiction.

To really balance the budget, you would have to pull out of Iraq and Afghanistan entirely and right away, reduce the military budget by around 10%, and strictly means test Social Security and Medicare for eligibility. But that would take some major compromise with the Democrats. Gridlock will not let that occur, and gridlock is coming.

They will not go quietly into the night, meaning in all likelihood they will stand only for obstructionism. And very strongly so. You cannot reason with zealots. Or should I say idiots.


Posted by: tarquinis1 | November 3, 2010 10:41 AM | Report abuse

With the Republicans back again, I'm taking everything out and putting it in my mattress.

Posted by: newsraptor | November 3, 2010 4:43 PM | Report abuse

Only an idiot would look at the history of our nation and come to the conclusion that our government is actually able to solve problems. Attempting to "solve" supposed problems government policies created a few generations of fatherless young men making war zones of our inner cities. Social Security promised freedom from want and worry during our golden years in exchange for 15% of our wages. You would do better to bury that money in the ground. Graft and corruption run rampant. Laws and regulations are used to persecute political enemies and reward friends. Volumes could and have been written of the failures of government to solve problems. There is very little good to show for all the guild-ed promises of past and present Messiahs. We would be much better off with a government restricted to only those functions allowed under the most conservative reading of the Constitution and the whiners be dammed. The clear path to this end is a firm and resounding NO.

Posted by: gi123 | November 3, 2010 5:06 PM | Report abuse

To alance on his post.

200 million a day? You're an insane fool. Just because you heard it on FAUX News, or from Lush Rimjob, does not make it true.
One republican says something and it spreads as fact. You're all fools. Kepp voting against your own interest.

Posted by: ltd2112 | November 5, 2010 2:11 AM | Report abuse

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