Election season tends to bring out the worst kind of economic forecasting.
One side wins, the other side loses, and suddenly everyone is predicting either a boom or complete disaster.
I think the more useful question is simpler:
What can Washington actually change after the election?
If Democrats take control of Congress while Trump remains in the White House, history suggests the answer may be surprisingly little. Thin majorities, an uncertain Senate and deep disagreements inside both parties could leave Washington stuck in gridlock.
And from an investor’s perspective, that may be exactly what the economy needs.
Click the video below for the full story:
Video Transcript
I’m Andrew Zatlin, and this is Moneyball Economics.
Let’s talk about the day after.
Let’s talk about what happens to the economy, and by extension, the stock and bond markets when the Democrat party takes over Congress, because quite frankly, that looks like the likely scenario. Well, historically speaking, when Congress is in the hands of one political party and the White House is in the hands of the other, it’s been good for the economy, which may sound strange, but think about it. That situation, it’s a setup for gridlock.
And when you’ve got political gridlock, it’s really hard to put forward new rules and regulations and legislation. And when you’ve got gridlock, it’s really hard to change existing rules and legislation and regulations. That’s one reason why we tend to see when we have gridlock, the White House policies carry forward.
So in this case, Trump’s pro-business policies, well, they’ll likely carry forward, which means you’ll continue to see a lot of business investment in the economy.
But that’s the general framework.
There’s some specific reasons why I think Trump is actually acting from a position of strength going forward…
Let’s start off with Democratic control of Congress going forward. It’s going to be razor thin, if that. The House might go to the Dems, 10, 15 vote majority. That’s not a super majority. It’s strong. It’s not a super majority though. And the Senate, still up for grabs. If that stays Republican, boom, Congress is in gridlock. If it goes to the Dems, well, you’re talking what, one or two votes, not enough to drive legislation forward. It’s going to be really hard for the Democrats to create a unified Congress because they just don’t have the votes.
Meanwhile, that assumes that they’ve got some kind of party uniformity. Data centers, for example, that’s one of the agenda items where you see a lot of Democrat party members rallying.
We don’t want them. Well, tell that to the super powerful Dem legislators coming out of California. They definitely want them. No unified Democrat party platforms, no unified Congress to go up against the White House. That’s what I’m predicting.
Meanwhile, the Democrat party has some agenda items that they want to attack that are Trump’s policies that affect the economy, and they’re going to be ineffective. I’m talking about what’s going on in Iran and how oil prices are up because of it. I’m talking about tariffs. I’m talking about taxes. Let’s start with the war in Iran.
Now, in theory, Congress has a lot of power when it comes to war. And so if the Democrats take over Congress, they’re going to try to assert control over using the War Powers Act. However, practically speaking, they’re going to go nowhere.
Between the midterms and in January when the Democrats take over, Trump is going to ramp up the war against Iran.
You’re going to have a very kinetic battle going on. You’re going to have American lives at risk. The last thing the Democrats are going to want to do is propose something that affects our troops. It’s going to make them look really, really bad. Meanwhile, we’ve got the next one, which is tariffs.
If Congress controls the war powers, the White House controls trade and the Supreme Court has already validated that Trump can do whatever he wants with the tariffs. Again, Congress is not going to be able to change that policy, which leaves taxes. This is one that’s… Trump came in and he cut taxes.
What are the Democrats going to do? Raise them? Well, yeah, they’d like to, but in order to change tax policy, you’re going to need 60 senators. You’re not going to get that. It’s going to be really hard to convince any kind of collaboration to raise taxes, which means the Democrats really can’t affect the economy in any meaningful way.
And so that’s good news for the stock and bond markets. Having said that, the Democrats won’t take the situation lying down.
They’re going to try to do something and that something can contribute to some lag of impact, negative impact on the economy. For example, they might go after impeachment against Trump, hobble the man, hobble his abilities to move forward with his policies. We’ve already heard Democrat mainstays like John Stewart begging them not to waste time doing that. It would certainly be something I could see them doing in an act of desperation.
More likely they’re going to focus on the last agenda item that they have coming into the election, and that is more social welfare spending. And again, that’s going to require a lot of Republican collaboration. They may get it simply because there may be a quid pro quo on the table, but right now I see less collaboration, especially since last year we saw willingness to shut down the government.
I see government shutdowns going on and on and on, but in this case, it’s not a problem. I do see every year the budget being a problem and so on and so forth.
So we’ll have some temporary hiccups, but by and large, the private sector’s going to have a lot of faith in continuing what they’re doing because there’s going to be policy certainty. Things really won’t change that much.
As a result, there will be fits and starts, but overall the stock and bond markets are going to continue to be in a bull run next year.
We’re in it to win it folks,
Zatlin out.
