Will Growth Become the Real Election Casualty?
Wounded by the war in Iraq, embarrassed by Katrina and rendered inert by his decision to stick by Defense Secretary [...]
November 14 2006 by JP Donlon
Wounded by the war in Iraq, embarrassed by Katrina and rendered inert by his decision to stick by Defense Secretary Donald Rumsfeld, President Bush became the lightning rod for all manner of frustration. A majority of independent voters along with 10 percent of Republicans voted Democrat in the recent mid-term elections.
Now that the Democratic Party has returned from the wilderness to share power with a President what can we expect? Many Democrats who captured seats held by Republicans have been described as moderates. Some, such as Jon Testor from Montana, are said to be social conservatives. Maybe so, but the truth is that the party’s leaders are burdened with a highly visible extremist wing.
Charles Rangel, the most likely chairman of the Ways and Means Committee is a fierce critic of the President’s tax cuts and social security reforms. Bush’s attempts to make the cuts permanent would appear to be doomed which would mean that taxes are destined to shoot up when the cuts expire in 2010. Americans will be looking at an almost unprecedented increase in their tax bill. If the tax cuts are allowed to expire, the U.S. Treasury estimates that 115 million taxpayers would see an average increase of $1,716.
It will be interesting if Alcee Hastings will be named chairman of the extremely important Intelligence Committee–he of course being the Florida ex-judge impeached and removed in 1989 on corruption charges. Henry Waxman can be expected to go after the oil companies, his favorite punching bag, when the California congressmen takes over the government reform committee. Nancy Pelosi, the new House Speaker, has said she plans to introduce legislation allowing the government to negotiate better prices from pharmaceutical companies. Shares of major drug makers took a hit after the election even as Wall Street analysts cautioned that a Democrat controlled house is not likely to change the industry very much. As chairman of the Financial Services committee Massachusetts representative Barney Frank will have hedge funds in his gun sights. Michigan’s John Dingell, the auto workers’ best friend and Colin Peterson, a rabid supporter of farm subsidies, are likely to drive a stake through the heart of the Doha Round leaving free trade twisting in the wind.
There is an instructional difference between economic populism of the Lou Dobbs variety and the type of economic nationalism that made Richard Gephardt the jihadist du jour of protectionism. Democrat candidates stressed familiar themes of corporate misbehavior, raising the minimum wage and the impact of outsourcing on local employment. (This despite the fact that national unemployment at 4.4 percent is the lowest at any time since the first Clinton administration.) James Webb denounced Republican George Allen for allowing more “foreign” guest workers into Virginia. This is to be expected as candidates naturally appeal to their base.
But 16 overtly protectionist Democrats have replaced free traders from across the aisle. The most prominent of these is Sherrod Brown who trumped Senator Mike DeWine in Ohio. DeWine had been a supporter of free trade agreements and related moves to open markets. Brown, on the other hand, is the author of “Myths of Free Trade: Why American Trade Policy Has Failed.” In Missouri, Claire McCaskill said in one of campaign advertisements that “unfair trade agreements have sent good American jobs packing, hurting Missouri workers.”
In 1992 Bill Clinton made a decisive break in his party by supporting the North American Free Trade Agreement. His free-trade ideas were among the few things he and his Republican opponents could agree on. (Judging from her pronouncements it’s very hard to know where Senator Hillary Clinton stands on the issue.) Some experts say that Democrats will exact huge concessions from a lame duck president before any further trade deals are done. But it’s a cinch that Congress will not go along by extending President’s Bush’s “fast-track” trade negotiating authority. If so, it will inhibit other countries from negotiating trade deals with the U.S.
Any disruption of trade hurts the American economy. The big losers will be the American people, who if such developments progress will face higher prices, higher interest rates, fewer jobs and a less dynamic economy. Last year we witnessed an hysterical outcry by some of these same politicians forcing CNOOC, the Chinese oil company, to withdraw its bid for the small U.S. based Unocal, as if a country with a near $15 trillion economy had anything to fear from such an asset sale. (Remember when the Japanese bought Rockefeller Center? One would have thought from the outcry that the edifice was about to be shipped stone-by-stone back to Tokyo.) Globalization enhances prosperity everywhere, and lowering trade barriers promotes broad prosperity for the poor and rich alike.
But reality and perceptions in Washington are far apart these days. Do such impulses stem from fear or ignorance? If we intend to maintain our standard of living we had better overcome both. And soon.
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