Blog Post

The Dangers of Gridlock

What’s at stake: Just four years after surrendering power, Republicans recaptured control of the House and made gains in the Senate in a major rebuff of President Obama and the Democrats by an electorate worried about the economy and the size of the government. With control of the House in the hands of Republicans, and […]

By: Date: November 12, 2010 Topic: Global economy and trade

What’s at stake: Just four years after surrendering power, Republicans recaptured control of the House and made gains in the Senate in a major rebuff of President Obama and the Democrats by an electorate worried about the economy and the size of the government. With control of the House in the hands of Republicans, and the Senate and executive branch in the hands of Democrats, legislation will be stalled unless it somehow manages to please all sides.

Bad for the US and the world economy?

Mohamed A. El-Erian says the economy can’t afford political gridlock right now. With the two chambers of Congress split between Democrats and Republicans, the conventional wisdom likely to be repeated over the next few weeks is that political gridlock is good for the economy. While often true, that is not the case today. Such thinking is based on the view that political gridlock inhibits or paralyzes economically unproductive government actions. With government out of the way, it follows that the private sector can allocate capital to the most productive uses. But this view is most applicable to a private sector that is in good shape – businesses and households with robust balance sheets, positive cash flow and access to credit. In such a world, the path of least resistance translates into higher economic growth and jobs.

Michael Schuman argues that the US mid-term elections are bad for the world economy. With an emboldened GOP, we can’t imagine a new, bipartisan spirit emerging out of this election, and that means continued uncertainty in U.S. economic policy – and the U.S. recovery. And the fact is, we can’t have a true global recovery from the Great Recession without a sustainable revival in the American economy, however strong the rebound in China and its emerging-market cousins might be. Confusion in Washington could translate into confusion in global economic policy. A weakened president facing grave opposition back home may be on unstable ground when trying to forge international commitments that place the good of the world over the narrow interests of each nation.

Barry Eichengreen
argues that the history of the “British disease” is all to pertinent to American’s fate today. Britain’s was a political, not an economic, failure. Britain failed to develop a coherent policy response to the financial crisis of the 1930’s. Its political parties, rather than working together to address pressing economic problems, remained at each other’s throats. The country turned inward. Its politics grew fractious, its policies erratic, and its finances increasingly unstable.

The next political agenda

Mark Thoma writes that last week’s elections marked a stunning repudiation of Obama’s agenda – and an unmistakable rejection of the government’s more muscular economic and regulatory policies. The Obama administration’s failed fiscal stimulus threatens the entire idea that the government has a role to play in smoothing economic shocks and protecting the vulnerable from the vagaries of unconstrained capitalism: Thoma believes we are headed for a continuation of the trend toward less activist government that began in the 1970s. The Obama administration had a chance to change that trend, but failed to do so, and may have helped to reinforce the movement in the other direction.

Megan McArdle of the Atlantic writes that Republicans should aim at modest goals. The one thing their victories have not given them is much power to advance a coherent agenda. And while voters clearly intended to send a strong message to Democrats, it’s less clear that they meant to endorse Republican priorities. One can think of Tuesday night’s results as the voters saying to Congress “We sent you to Washington to take care of our most pressing economic problems, not to pursue your historic dreams.” They were saying that as much to the G.O.P. as to the Democrats. The Republicans ought to heed that message, looking for compromises on the deficit and the economy. But with the Tea Party at their backs, and two years ahead of them, it’s far from clear that they’re capable of that sort of moderation.

Arnold Kling notes that exit polls show that 52% of those who voted have an unfavourable opinion of the Democratic Party and 53% have an unfavourable opinion of the Republican Party. Arnold comes up with this conclusion: People with an unfavourable view of Democrats went 88-10 for Republicans, but people with an unfavourable view of Republicans only went 76-22 Democrat. That was the difference in the election. The "unfavourable" on net broke Republican. The way I would spin it is that there is a large block of voters who are negative on both parties, the Republicans captured a larger share of that block, and that block swung the election.

Bruegel Economic Blogs Review is an information service that surveys external blogs. It does not survey Bruegel’s own publications, nor does it include comments by Bruegel authors.


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