Things That Go Bump in the Night

Every now and then there is a sound out in the countryside loud enough to break through to the Beltway echo chamber. Last week that sound came from Massachusetts, ground zero for the original revolution. Scott Brown's stunning upset in the special election for Senate has everyone talking. Democrats are rattled and Republicans are cheering, perhaps prematurely, an apparent mood shift in their direction.

President Obama noted, "The same thing that swept Scott Brown into office swept me into the White House." Well, maybe. Does either party truly understand the forces at work? At this point Washington is so far out of phase with the economic concerns of the rest of us it is hard to imagine how it can shift back into line.

The initial response was not encouraging: more populist attacks on the private sector — especially on greedy bankers and insurance companies — which do not resonate with the people that elected Scott Brown. For the vast majority of Americans, the private sector commonly maligned in Beltway demonology is where they get their paycheck. Attack my company and aren't you attacking my livelihood? In a recent poll, fully 77 percent of U.S. investors see the current administration's policies as antibusiness.

So what does this previously somnolent but now aroused independent center know? These people know that, while they are deleveraging and getting their fiscal house in order, their federal and state representatives are adding to their family's debt burden. They know that government deficits and spending can never create sustainable economic growth the way investment by capitalists (there is that vulgarity) and corporations (the other vulgarity) will.

Finally, they know that every new make-work government job represents a 60-year annuity claim on their household's cash flow. In an ABC News/Washington Post poll last week, 58 percent of respondents said that they would prefer "a smaller government with fewer services, and only 38 percent said they favor a larger government with more services." As The Economist headlined their leader this week, "STOP!"

What importance does this have on the economy and the markets? Washington needs to begin to modify its public statements and take policy actions that mitigate the uncertainty that stands in the way of economic activity by consumers and businesses. The Senate should stop fooling around and confirm Ben Bernanke as Fed chairman (his term expires at the end of this month). The administration should stop floating trial balloons about massive new regulations and taxes to curry favor with assorted constituencies. This only makes our government appear confused and desperate. It should make some definitive comment about the massive tax increases pending in 2011. The great, unhappy center wants to hear that the politicians are in favor of profits because that leads to more investment, economic growth and job creation.

Can either party learn to ride this wave of centrist voter discontent? Or is it more like a vicious riptide with mysterious eddies and currents drawing anyone in power into an undertow of ignominy? It seems not to be a complex case. Unmotivated by ideological arguments this wave sees the problem in simple terms. No growth means no jobs. Too much spending means too much debt. What they want is common sense and competency — two attributes in very short supply in Washington these days.

Endnote
Recently people have wondered why this commentary seems to have so much political content in the last two years. The truth is that with the government so intimately involved in all aspects of economic activity, it is difficult to write about economic matters without considering the political positions. When I worked abroad we called it country risk analysis. 


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