What Does the Election Mean for the Economy?

Republicans Win House, Democrats Keep Senate – Gridlock?

Traditionally, Wall Street and big business have favored gridlock in Washington D.C. The idea is that when Republicans and Democrats are busy fighting each other, they can’t be changing the laws and regulations that businesses already know. Theoretically, any currently successful business already knows how to earn money and make a profit under the current laws, but that may not be the case under new legislation that gets passed. The devil you know, is better than the one you don’t — so to speak.

But, is political gridlock good for American business this time? Is partisan fighting a good thing or a bad thing for the U.S. economy right now?

Is Gridlock Good for The Economy?

With the 2010 U.S. economy in a fragile state, and major changes in the form of ending stimulus funds coming in 2011, the difficult question is whether the Republican takeover of the House of Representatives a bad thing for the economy, or is it good for the economy that Democrats have lost the House.

The major concern to look for in 2011 is the end of stimulus spending and other U.S. Government spending to bolster the states and the economy coming to an end. In fact, every legitimate economist is doing their best to both warn investors that the end of stimulus spending is going to have a big impact. Many of economists compare the end of the economic stimulus to the economy running off of a cliff.

There is little argument that any economic recovery is on shaky ground. There is also little argument that should the economy roll back over into a double-dip recession that something should be done. The is, however, a very big argument over WHAT should be done.

What If The Economy Needs Help?

As is usually the case, Republicans favor lower taxes and Democrats favor additional spending. Recently, however, Democrats seem willing to move a little on the tax cuts thing, as long as they are “targeted” tax cuts. So far, the Republicans refuse to play ball on that concept.

What remains to be seen is how much Republican opposition to any economic proposals from the White House and the Obama administration was due to political posturing for the 2010 mid-term elections, and how much was legitimate ideological opposition.

In other words, now that the elections are over and there is nothing to be gained from standing firm “against big government liberal spending,” or at least nothing to be gained from labeling everything as such, will the Republican controlled House be willing to pass helpful economic legislation?

Consider the recently proposed plan by President Obama to help small businesses. Much of that package contained things that Republicans would normally say, “Yes!” to. However, they all said no during the run-up to the election, because more was to be gained from opposing anything Obama than from helping small businesses. Now, will Republicans be willing to negotiate with Democrats on passing at least some of those kinds of things, or will Washington degenerate into a two kids sitting in their own sandboxes shouting, “No,” at the other?

Hopefully, the two parties can find some common ground, or 2011 might get real ugly, real fast.

The hard truth is that there is a better than even chance that the economy will need some help in 2011. If the two parties only argue about how that help should be implemented, then no help will arrive, and things could nasty, both in and out of Washington.

Tags: Business, economic recovery, Economic Stimulus, economy, government spending, laws, legislation, Markets, politics, republicans and democrats