The Republican Redistricting Nightmare

The Republican Party is all tangled up in a pickle of its own making: redistricting. And this pickle doesn't taste very good.

Redistricting is the re-drawing of the borders of Congressional districts.  It often happens after a decennial census, when the results show significant population change.  In most states, redistricting is done by state legislatures, sometimes subject to the approval of the governor.  The potential for political shenanigans is obvious, and the federal courts have presided over many cases alleging gerrymandering.  But stacking the deck in your favor isn't always unconstitutional, depending on how you do it, and there are many districts resembling Rorschach tests for ghouls that are legally tilted in favor of one party or the other. 

The Republicans have been very successful at redistricting.  In recent decades, they have used political successes at the state level to string together districts that look like they were inspired by Jackson Pollock but vote reliably Republican.  They got what they wished for.

Then came the Tea Party.  A problem with democracy is the little people can't always be kept in line.  They can sometimes be unruly and demanding.  When riled up enough, they may even assert control.  The doyens of the Republican Party found this out the hard way in 2009 and 2010, when malcontents of many kinds coalesced into the Tea Party movement.  Although Tea Partiers counted some Independents and even a few lapsed Democrats within their ranks, the movement as a whole gravitated toward the Republican Party and pushed it ideologically rightward.  To make things worse, the erstwhile 2008 Republican Vice Presidential nominee, Sarah Palin, went rogue on the party's leadership and helped many radical right Tea Partiers win primary elections in 2010 over mainstream Republicans.  Thus, in 2010, a number of Tea Party and other seriously right wing candidates won elections in reliably Republican districts.

Now, the Republican leadership is stuck with these Tea Party legislators.  Perched in districts well-drawn to protect incumbency, these birds ain't going nowhere.  They'll keep the Republican agenda firmly anchored to starboard, even though the route to an electoral majority veers to port.  The Republican chieftains can't sponsor centrist candidates or advance a more moderate iteration of the vision thing without alienating their base, now ensconced in Republican cocoons.  

Political segregation prevents the Republican Party from evolving.  For those that are creationists, this is probably okay.  But others in the GOP may realize that they've been too clever by half, and that they helped to make the Democratic strategy of political integration a winner.

November 2010

This month, the San Francisco Giants, a team few people outside of the Bay Area notice, with a roster of players few people outside of the Bay Area notice, brought home San Francisco's first World Series title. Improving as they progressed through the playoffs, the Giants determinedly won the championship, conceding only one game of the final series to the Rangers. Edgar Renteria, an aging Giants infielder on the verge of retirement, hit the winning home run in the last game, going out like the champion he became. It was a lyrical, magical victory, befitting the golden city by the bay, poetically inevitable and long to be remembered by baseball fans of all persuasions.

And, oh yeah, there were mid-term elections yesterday. As expected, the Republicans took control of the House of Representatives. Not unexpectedly, the Democrats kept control of the Senate. Gridlock is in our future. Then, today, the Federal Reserve announced that it would print $600 billion and use it over the next eleven months to buy long term U.S. Treasury securities in an effort to stimulate the economy. Various Wall Street analysts had prognosticated that the Fed would announce at least $500 billion, which is financial markets speak for saying they wanted more than $500 billion. The $600 billion was a tepid ante up by the Fed. The Dow Jones Industrial Average offered fair commentary, rising 26 points, or less than 0.25%. In spite of all the headlines, soundbites, points and counterpoints, nothing really surprising happened in the world of politics or in the financial markets. Nor will any of it be remembered like the Giants' World Series win.

Will a Republican Congress Smack Down the Fed?

Expectations are high that the Republicans will take control of the House of Representatives in the mid-term elections two days from now, and perhaps the Senate as well. Victory celebrations, however, will last only one night. The next morning, the victors, whoever they may be, will face an ornery electorate clamoring for action.

Action will be hard to come by. With a Democratic White House, and the Democrats either controlling the Senate or holding almost half its seats, gridlock is inevitable. Further fiscal stimulus is off the table. Tax "policy" will consist of chaos and lunacy. Congress will regress from its recent productive (albeit controversial) mode to its norm of swapping trash talking soundbites and issuing self-congratulatory press releases, while incessantly searching for the next photo op and more campaign contributions.

The only active part of the government, in regard to economic policy, will be the Federal Reserve. The worst kept secret in Washington is that next week the Fed will renew its program of quantitative easing, possibly beginning with the purchase of $500 billion of Treasury securities. Although Chairman Bernanke and other Fed officials wrap this policy in elegant bureaucratese, it amounts to printing money, pure and simple. Roll the lettuce out of the printing press and move it off the loading dock. Grumpy old skeptics mutter under their breath about inflationary risk, and point to gold's escalating price. But senior Fed officials repeatedly offer solemn assurances that they've got things under control.

Newly elected and emboldened Republicans, especially the ideologues, may see the Fed as a convenient target. It failed to spot the mortgage crisis until things blew up, then bailed out Wall Street at the expense of Main Street, next successfully lobbied for increased power under the Dodd-Frank financial regulatory reform bill, and more recently missed the foreclosure mess. Some conservatives, economists and others, view the Fed's easy money policy as the primary reason for the past decade's asset bubbles, and the Fed's regulatory failings as crucial reasons why those bubbles were so damaging. A few far right wing purists would find the printing of money to stimulate the economy indistinguishable from sorcery.

Majority control of the House would give the Republicans control over committee hearings. Some of them might delight in holding Congressional hearings where they could berate Fed witnesses on C-Span and score points with their constituents. Since the Fed may be the only hope Democrats and President Obama, in particular, would have for a revival of the economy, some Republicans might see advantages to intimidating the central bank. The Fed, by law, is independent of Congress. But the law and political reality don't necessarily correspond closely. The Fed might be subdued by a barrage from Republican/Tea Party evening news headliner wannabes. If that happens, expect a lot of asset classes--stocks, bonds, gold and other commodities--to fall in value. The financial markets now depend heavily on government intervention to sustain prices. As a policy matter, that's not a good thing. But it's not easily undone. If political pressure smacks down the Fed, it could also smack down the markets.

Principles the Democrats Should Learn From the Tea Partiers

The stridency of the Tea Partiers should remind Democrats of a crucial fact: America is a nation founded on principles, Constitutional and other principles. The perception that these principles have been violated drives the anger and energy of the Tea Partiers and others similarly disillusioned. People tend to get fired up when they believe matters of principle are at stake, and that's what you see today.

It may well be that big corporate money is being quietly funneled by cynical Republican operatives into key political races. But that money works only if voters can be motivated or swayed by it. The populist outrage over perceived transgression of foundational political principles provides the fuel that conservative corporate funding can inflame.

The lesson for Democrats scrambling in this last week of campaigning is that they cannot just talk about accomplishments--economic stimulus, financial regulatory reform and, yes, health insurance reform--or (accurately) point out that they inherited a grossly mismanaged economy and a horribly misconceived foreign policy from George W. Bush, the worst President since the 19th Century. They can't just make promises; voters no longer have faith in politicians' promises. The Democrats have to talk about how they stand for principles and how they have and will vindicate principles. They need to remind voters that they are the party that promotes opportunity for all, that supports education through action and not just talk, that advances fairness and tolerance, and that protects liberty (after all, it was during the G.W. Bush administration that federal law enforcement and intelligence agencies were discovered to have engaged in questionable electronic snooping on the American public). Many voters in this election will make their decisions based their principles. The Democrats haven't been part of that dialogue, and they will lose many currently undecided votes if they don't talk about principles and take principled stands.

Wall Street's Contribution to the Democrats

Business interests evidently are contributing more money to Republicans than they did in 2008. Cash flow to Democrats from people who might pay estate taxes has fallen sharply. But the financial markets have been kind to the Democrats. The stock market has bounced up nicely thus far in September, and bonds continue their improbable two-decade bull market. Gold is flirting with new highs on almost a daily basis. Silver has rallied. Oil has edged down, as it usually does following the end of the summer driving season. But it hasn't edged far. One can hardly find a financial investment that isn't doing okay or better than okay in September.

Republicans might claim that the cheery financial markets are the result of their resurgence. But good news has a thousand parents, and political incumbents generally get some credit when investors benefit. Most of today's boat rockers are middle or moderate income folks living outside the Beltway, who feel they are about to lose the little that they have after years or decades of work. There are about as many investment bankers among Tea Partiers as Zionists in Iran.

The middle of the road voters who will decide the outcome of the mid-term elections will think about their 401(k) accounts as well as their taxes. Five weeks remain until the mid-term elections. October has been an unpredictable month for the stock markets. There is certainly reason to wonder if the markets won't fall. Corporate earnings announcements, set to begin next week, aren't expected to glow. Banks may report lower earnings, from a drop in stock market trading volume. Tech companies earnings could stagnate, as consumer demand has drifted. Trade skirmishing is flaring up. The U.S. is jawboning China about the yuan, and China has slapped tariffs on American chicken parts. Japan is trying to weaken the yen in response to the weakening dollar (something that may affect China and its dollar-linked yuan more than America, since China is Japan's largest trading partner). The European debt crisis is rumbling again. Portuguese and Irish debt are losing favor, and Greece's likelihood of defaulting is growing (although no default appears imminent).

Nevertheless, the financial markets have spent the last four weeks looking at silver linings, not clouds. That's not likely to change, unless something big and bad breaks in October. Otherwise, the financial markets, still holding a 60% stock market gain since the March 2009 low, will give a nice gift to the Democrats.

And If the Republicans Win This Fall, Then What?

The polls indicate the Republicans will do well in the fall mid-term elections, likely winning the House and perhaps the Senate as well. Let's assume that happens. Then what?

We will have a Democratic White House and a Congress partially or entirely controlled by Republicans. The government will largely be deadlocked. Even though the economy will still be a sick puppy, little will happen. But the blame for little happening will fall on both Democrats and Republicans. Once in power, the Republicans also have responsibility. If their only platform is to obstruct and criticize, they will have failed in their responsibilities. Voters don't put them in control just to whine and play gotcha politics. The electorate expects action.

Action would mean compromise and bipartisanship. In today's Tea Party-driven, hyper-partisan politics, compromise is the one thing that ain't gonna happen. All the more so since some of the soon-to-be elected Republicans are insurgents within their own party and can't reach agreement even with their own colleagues.

A political deadlock may well favor Barack Obama. As the chief executive, he can still pursue his goals through administration policies and executive orders. He will be prominently visible as the commander-in-chief and as the first among equals when dealing with foreign leaders. There remain plenty of problems and threats, foreign and domestic, that will give him frequent opportunities to look Presidential.

Congress will continue to look like a bunch of squabbling idiots, only with a Republican hue. It will become easier for the Democrats to take shots at the Republicans, since legislative control also means accountability. The Republican Party, a morass today with a controversial RNC chairman, no organized leadership structure, and lots of insurgents who each may take their own tacks whenever they feel like it, will struggle. Political advantage will shift toward the Democrats. Barack Obama may well be re-elected in 2012.

It's happened before. Ronald Reagan didn't do well in the 1982 mid-term elections but he was a two-term President. The Clintonian Democratic Party got clobbered in the 1994 mid-term elections, losing control of the House. But Bill Clinton was re-elected in 1996. The Republicans are about to get what they wish for. And they had better beware.

Will Wall Street Go Democrat?

Wall Street political contributions are going more to Republicans today than Democrats. That's hardly surprising, considering the bashing the big banks have taken from the Obama administration and the inevitability of greater regulation. This trend, however, may not last. Wall Street has strong reasons to go Democrat in the fall.

The Republican Party has been ambushed by Tea Partiers and is making a hard right turn. Only in California, it would seem, could a billionaire moderate Republican, Meg Whitman, survive a Tea Party onslaught--and that required spending tens of millions of her own dollars. The distinctly populist tone forced on the Republicans will compel them to keep Wall Street at arms length, while clamoring for sharp cutbacks in the deficit spending that may be the primary reason the economy keeps growing. In other words, the Republican policies of "No" and "Hell No" could push the stock market down.

The Obama administration and some Congressional Democrats, however, still see the virtue of big federal budgets. The latest measure is a relief package for overly leveraged states and muncipalities. Some members of Congress, with the administration's support, are maneuvering to extend unemployment benefits and health insurance subsidies for the unemployed. Although not necessarily destined for passage, these measures will if enacted help prop up the economy and the stock market. Of course, the Dems have taken up the populist mantel as well. Financial services regulatory reform is almost a certainty this summer, and BP, which should consider more often taking its point of aim off its own feet, makes an easy target for an administration that needs someone to castigate. But Democratic fiscal proclivities may better serve Wall Street's needs than bug-eyed bashing from blame-casting Tea Partiers.

The Dow Jones Industrial Average jumped 213 points today, on a mix of mostly positive, but some negative, news. A lot of the jump seems due to technically driven trading by market pros. Mom and Pop in Sioux City are still sitting on the sidelines. The market pros and the rest of Wall Street need the big budgets of the Democrats to keep today's liquidity fueled stock market propped up, lest the leverage implosion in Europe and wackos in Iran and North Korea unleash bears. The fall campaigns won't begin in earnest until after Labor Day. At that point, the increasingly populist rhetoric from the right may well lead ever pragmatic Wall Streeters to apply some of their trading strategies to politics and hedge their bets with generous contributions to the Dems.

Politics on the Potomac in 2010

Congressional elections will be held this fall. The campaigning has begun already, as some incumbents announce their retirements and would-be replacements jockey for position. In a time when the economy is all government, all the time, the upcoming elections will be the driving force behind federal economic policy. Here's what the new year is likely to bring.

Continued Stimulus. The Obama administration has to combat unemployment in a big way, and federal spending is the only measure that can be implemented quickly enough to have an impact before the elections. If the Fed curtails some of its accommodative measures, look for Obama administration replacements--the recent lifting of the cap on assistance for Fannie Mae and Freddie Mac (see http://blogger.uncleleosden.com/2009/12/revival-of-bank-of-united-states.html) could pinch hit for the Fed's announced curtailment of mortgage-backed securities purchases in March 2010. Don't be surprised if there is one form or another of federal assistance to the states. State employees are often unionized, and the Democratic Party will be under pressure to protect its most loyal constituencies. Although the Dems will need the independents to hold onto their majorities in the House and the Senate, you don't win if your base stays home (John McCain's 2008 presidential candidacy serves as Exhibit A in this regard).

Health Insurance Reform. The Democrats have enough control of Congress this term to pass legislation reforming health insurance. They will, because they need bragging rights for the fall. They won't pass a perfect bill, and the Republicans will turn up the whining about principles and costs. But the Republicans underestimate how grateful numerous ordinary Americans will be for progress on the health insurance problem. Medicare Part D, which has one of the most obtuse structures imaginable, is now popular and regarded as a success. When the Democratic bill is passed, the score will become advantage, Dems.

The Fed Will Stay the Course. For better or for worse, the Fed has locked itself into a policy of easy money and overtime pay for its printing press staff. The Governors have made explicit their priority of alleviating unemployment, essentially promising to keep rates ultra low until the bread lines dwindle. Nothing in the annals of mission creep--not even fiction like Joseph Heller's Catch-22--approaches the never ending expansion of the Fed's activities. It's grown from being a lender of last resort to failing banks, to knight errant in the fight against inflation, to promoter-in-chief of economic growth, to banker for an asset-bubble beset international financial system, and now to grand poobah of employment opportunity. Next, perhaps, the Fed will provide borrowing facilities to distressed states and countries. Why not? The sovereign debt market is looking uglier by the day--perhaps the UK might circle the drain--and the Fed lends to just about everyone else.

Inquisition on the Right. A major confounding factor for the Republicans will be their internecine struggle between the zealots of ideological purity and the devotees of inclusiveness. The Republican Party has been shrinking, and now may encompass only its hard core of faithful. The Democrats can do little to win these people over. But they can do much among themselves to damage the party. The Savanarolas of the far right are stoking the flames, but the outcome may have been recently presaged in upstate New York, where the true believers won the Republican primary only to see the Democrats win the general election. The Republicans will be shrilly communicating with us a lot in the days leading up to the elections. But their impact on policy will be minor.

No changes in the cast until late November. The same faces will appear on the Washington reality-potboiler through the election season. The Obama administration will probably keep its current cabinet in place, lest the President appear to be a poor judge of people. After the election, Team Obama will surely check out the list of free agents. With the 2012 elections just around the corner in Washington time, cabinet members who have accumulated baggage can expect to take an express train out of town.