the Wall Street view
[early commentary by Merrill Lynch economist David Rosenberg]
Early election response: It does indeed look like the DEMS far
exceeded expectations - more than just picking up the 15 seats they
needed to regain control of the House. At last count, it was 227 DEM,
191 GOP and 17 undecided. In the Senate, so far it is a draw at
49-49, but the two states still counting (Montana and Virginia) show
the DEMS ahead by about 1% (in the event of a 50-50 draw, VP Cheney
would get to make the choice as to which party would have the
majority). Not only that, but the 36 gubernatorial seats that were up
for grabs also went Democrat (the GOP went in last night with a 28-22
majority - it now looks like the DEMS have a majority). Taking the
majority of the governorship houses is a big deal because (i) it
sends a message to the DEMS that they have a mandate to push for
change at the legislative level, and (ii) this will come to play in
the 2008 elections as governors can often play a big role in getting
out the regional vote (as it did for Mr. Bush big-time in 2000). The
exit polls show that the Independents supported the DEMS by a 20-
point margin, which was way above expected and again will signal to
the DEMS that their support was broadly based.
So we had a huge DEM victory, with big voter turnout and no voting
irregularities to speak of - but the Democratic leadership, led by
Nancy Pelosi who is very likely to be the next Speaker of the House,
is probably going to read both the big voter turnout and the success
of the party as a mandate to try and invoke political and economic
change - the question is whether the President is getting the blotter
out for his veto pen (Pelosi’s “Six in ‘06″ platform called for
Congress to quickly raise the minimum wage, cut interest rates on
student loans, roll back subsidies to oil companies, boost spending
in stem-cell research and strengthen homeland security).
The reason why gridlock worked under Reagan (1986 tax code change)
and Clinton (1996 welfare overhaul) was because they were willing to
cross the aisle and work with the opposing party. So it’s not that
“gridlock is good”; it’s more that “compromise is cool”. Whether or
not we actually have really had “gridlock” under two-party rule is
debatable, but what we didn’t have was “stalemate” - we are hard-
pressed to believe that rudderless leadership is actually good news
for the economy or the markets. As the front page of the WSJ
questions: “will Mr. Bush suddenly change his one-party governing
style to reach out to Democrats? And will they in turn reach
accommodations with the president and avoid stalemates in Washington?”