Wall Street?s initial positive reaction to last week?s election results was probably right on the money. Not because the Democrats are good for the economy ? they aren?t ? but because divided government is.
Once they finally gained control of both Congress and the White House, Republicans proved they are just as much the party of Big Government as Democrats. George W. Bush is the biggest domestic spender since Lyndon Johnson, and the Republican Congress did nothing to stand in his way. At least for the next two years, partisan squabbling will slow the Republican domestic spending juggernaut, to the benefit of the economy.
In addition to presiding over unrestrained growth in domestic spending, the Bush administration will go down in history as having squandered tremendous amounts of American blood and money in Iraq. Until they were repudiated at the polls, Republican Party luminaries including Newt Gingrich were confidently promoting an escalation of what Gingrich calls “World War III” in the form of possible military invasions of Iran, Syria, North Korea and elsewhere (he did so in the Sept. 7 Wall Street Journal Online). The Democrats returned to power in Congress because of a national protest against the war in Iraq, which renders Gingrich?s and others? hoped-for “World War III” nothing but the ruminations of back benchers. Had the Republicans prevailed in the elections, such an escalation of the war may well have been attempted. That would have required recession-generating tax increases and the likely re-introduction of military conscription.
Instead of a lame-duck president and a rubber-stamp Congress itching to raise taxes and escalate the war, the political dynamic is very likely to be the opposite: Both parties will compete for votes in the 2008 elections by promising and maybe even enacting tax cuts of some kind, which is always good for the economy. They might also wage a campaign to pressure the Federal Reserve to keep interest rates low by supplying plenty of liquidity. This would boost sections of the economy for the next two years, but could spell recession after the election as too many marginally profitable or overly speculative and unprofitable businesses would become capitalized, just as they did before the NASDAQ crash.
Maryland bucked the national trend and returned to a one-party political monopoly governed by Democrats. The Maryland economy will continue to thrive, for the most part, because of the tremendous growth of government that has been set in motion by the Bush administration. But Maryland?s ruling political class can be counted on to do as much damage as it can to the prospects fordeveloping a larger private business sector. It was not encouraging that one of the first public statements by Governor-elect Martin O?Malley was that Maryland?s rapidly-growing government under Robert Ehrlich?s administration was too “small and minimal.”
Judging from their campaign rhetoric, Maryland Democrats believe that trying to stimulate business development and employment in the state is “selling out to large corporate interests at the expense of the rest of us.”
These are the same legislators who, in 1999, regulated the price of electricity at 1996 prices and called it “deregulation,” and then were surprised when no new electric power providers found it profitable to enter the state.
They enacted punitive legislation against one of the state?s largest employers, Wal-Mart, just to curry favor with labor union supporters in the unionized (and much pricier) segment of the grocery industry. This sent a clear message to American business that investing in Maryland is a perilous venture.
We can expect more of the same, in the form of more pro-union legislation that will further tarnish Maryland?s reputation among American businesses; more foolish energy policies; an attempt to drive the private health insurance industry from the state with a renewed push for state-financed health care; and job-destroying tax increases. Citizens are always exploited by monopoly government.
Thomas DiLorenzo is professor of economics at Loyola College and author of “How Capitalism Saved America: The Untold History of Our Country, from the Pilgrims to the Present.”
