SPG Trend Advisors Blog

Tuesday’s  stunning victory in Massachusetts by Republican Scott Brown to fill the Senate seat of the late Ted Kennedy is undeniable evidence of the failure of the Democratic Party and President Obama to capitalize on their voter mandate in 2008. In what should have been a year of great accomplishment with passage of landmark legislation in healthcare, the environment and economic reform the President marks his inaugural anniversary with no great success in his domestic agenda and his party losing its super majority in the Senate. Coupled with recent Republican victories in gubernatorial elections in New Jersey and Virginia and the retirement of several leading Democrats in the Senate, the Democratic Party is firmly on the defensive with low voter approval ratings and the object of intense voter anger. We have been commenting on building voter anger in our website articles (See “Long Term Outlook“, October 8, 2006, “The Election“, November 17, 2008 and “I am Mad as Hell…”, March 23, 2009) and it has now reached a fever pitch exacerbated by the severe recession. We repeat the mantra we have stated since 2006, “an angry electorate is an unpredictable electorate”.  A more detailed review and analysis of the domestic political environment and its implications will be covered in an upcoming website article. For now, we make the following observations:

1. The President must take responsibility for his party’s decline and his program failures. The President is an eloquent speaker but he does not follow the speeches with forceful actions. We commented in our July and August blog articles on the failure of the President’s healthcare initiative BECAUSE of splits within the Democratic Party. With all of the political capital expended by the President on healthcare, his failure to unify his own party and rally public support on this issue have been fatal. The election of Scott Brown in Massachusetts and the decline in public approval have made the President’s healthcare initiative all but dead.

2. Likewise, the loss of the Massachusetts Senate seat will now slow if not halt the President’s initiatives on carbon taxation, immigration, financial system regulation and other major agenda items that encompass higher taxes and increased federal government presence.

3. The anger in the electorate and the failures of the President and the Democratic Party have now resurrected the Republican opposition and make them a credible threat to unseat Democrats in this year’s Congressional elections. Faced with public anger and reelection, Democrats in Congress will be less inclined to support the President. Significant losses by the Democrats in the House and Senate will likely result in legislative gridlock for the remainder of President Obama’s term. The President would increasingly look like a one term president. This will prevent solutions to the major socio-economic issues we face in the next decade and cloud our longer term economic outlook. This will however alleviate increased regulation of business and provide a more benign environment for the stock market in the shorter term.

4. This latest political setback for President Obama will not go unnoticed overseas. A president already viewed as weak and unsuccessful overseas (See our recent website article, “The Obama Foreign Policy“, January 7, 2010), will be weakened further if he cannot control his own political party and win the public debates on domestic policy.  It will be harder to get agreements from allies and concessions from adversaries particularly if the president looks like a one termer.

Tuesday’s Senate election in Massachusetts has altered the domestic political landscape and thus the economic outlook for the next two years. Its repercussions will be felt not only here in the U.S. but around the world as well.

Morris R. Segall

Economic Trends Democratic Party, democrats, economy, Election, government, Massachusetts, Massachusetts Senate, political, politics, President Obama, Republican Party, republicans, Scott Brown, Ted Kennedy

As I feared from the beginning, the future of President Obama’s proposals were going to be in the hands of conservative or “Blue Dog” Democrats largely from the south, west and midwest. Their opposition to the high costs of the plan and a large federal presence in the system was going to be the defeat of the President’s program, rather than the expected “knee jerk” Republican opposition. The Republicans are now a marginal party lacking numbers and influence in the Congress to pass or defeat any legislation. It now appears the “Blue Dogs” will win out and “water down” the President’s plan to the point where it will be largely a failure in terms of progressive healthcare reform. It will eliminate a federal entity to offer insurance in competition to the private insurance industry. It will exempt thousands of so called small businesses, even those with payrolls of $500,000. It will also extract higher health insurance premiums on low-middle income wage earners. And most egregiously, push more of the increased Medicaid burden on the states who are already facing massive budget deficits and have no money to pay for anything. As a result of the “Blue Dog” opposition, in conjunction with the negative statements from the Republicans and the propaganda from the healthcare industry, popular support for the President’s program has been seriously eroded and the fact that Congress will adjourn for the month of August without passing healthcare reform legislation will give the President’s opponents an entire month to erode popular support further and “gut” the pending bills in committees even more.

I fear the final result will be little if any real healthcare reform; increased premiums for insured’s, particularly if private insurance firms have to accept less healthy members; and a continued increase in uninsured people as businesses are exempt from providing mandatory healthcare coverage. The winners will be the insurance and pharmaceutical industries who will have “dodged” a bullet for massive healthcare overhaul and reform. The costs to them will be a fraction of what the President’s program would have cost them and they will make it up by charging higher prices to the public. The losers will be the public who will continue to pay more for an unworkable system and doctors who will get paid less in an effort to control healthcare costs. By the way, the cost saving from the current compromise plan agreed to by the Democrats in the House is  $100 billion, the amount we sunk into General Motors and Chrysler in a futile attempt to save them from bankruptcy. As I said in my previous piece, it would appear we are more prone to spending billions saving corporate America than insuring the health of the American public.

The Democratic Party offered the American public comprehensive healthcare reform in the last two elections and the American public gave the Democratic Party the electoral majority they needed to get it done. It appears the Democrats decided that was a promise they are not willing to keep.

Morris R. Segall

Recommended reading:

Turning the Corner: GDP, Housing and Cash for Clunkers

An Open Letter to Congress

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Economic Trends Blue Dog Democrats, democrats, economics, economy, healthcare plan, healthcare reform, obama, republicans