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Economics Are Behind Brown Massachusetts Senate Win; Does It Matter For November?

Embedded is a report by Thomas Ferguson and Jie Chen of the Roosevelt Institute which sought to determine the likely cause of the epic Scott brown victory in Massachusetts Senate Race. Their analysis points to economics as the overriding factor.

This is the abstract:

Passage of the health care reform bill has convinced some analysts that the Massachusetts Senate election might be a fluke. In fact, polls taken after the legislation passed show Republicans widening their lead in fall congressional races. This paper takes a closer look at the Massachusetts earthquake. It reviews popular interpretations of the election, especially those highlighting the influence of the “Tea Party” movement, and examines the role political money played in the outcome. Its main contribution, though, is an analysis of voting patterns by towns. Using spatial regression techniques, it shows that unemployment and housing price declines contributed to the Republican swing, along with a proportionately heavier drop in voting turnout in poorer towns that usually provide many votes to Democratic candidates. All these factors are likely to remain important in the November congressional elections.

As we head into the mid-term election cycle in the United States, the political positioning will ramp up.

From the Democrats’ perspective, it, thus, makes sense to get out the propaganda machine to prove that the economy is indeed getting substantially better. It also makes sense to use this as cover for the bailouts of 2009, something I find troubling but that seems to already be happening (Recovery Triumphalism and the Committee to Save Wall Street).

From the Republicans’ perspective, it will be necessary to continue to focus on the perceived increase in government and juxtapose this to a still high rate of unemployment. The corollary of this contrast will be the message that the Democrats and their belief in big government is what is holding back economic recovery. It helps that the NBER has yet to call a recovery.

Financial reform will loom large in this debate. As I see it, the Republicans have no interest in seeing any substantive financial reform if only to prevent the Obama Administration from another legislative victory. See Mike Konczal’s take "Can the Real Economy Speak?: The Republican Response to Financial Reform."

On the other hand, Fannie and Freddie are the Democrats’ baby. And right now, they are taking all of the downside in the mortgage market, especially with the Fed out of the MBS market (see "Manipulating mortgages"). The guys at Cato want financial reform to include Fannie and Freddie, but Obama seems to be stalling here. Given worries about the mortgage market and foreclosures, it makes political sense to stall.

Long story, short: Don’t expect anything major on financial reform irrespective of the positioning and propaganda you here coming out of Washington’s media mouthpieces. With the economy in a cyclical upturn, reform is in neither party’s interest yet.

Of course, this is all kabuki theatre because the underlying problems which led to Scott Brown’s victory (unemployment and foreclosures) still remain. I seriously doubt the outcome of the mid-term elections will be instrumental in changing this.

Source

GOP leaders balk at financial reform bill, call for more bipartisan talks – Washington Post

A Closer Look at the 2010 Massachusetts Senate Race

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

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