Why The Markets Like Political Gridlock
November 8, 2000
Political "gridlock" is virtually inevitable, says Bruce Bartlett, with power divided among three branches and 50 states, and the likelihood different parties will control the presidency and at least one house of Congress.
Pundits blame gridlock for partisan bickering, and think one party should control both Congress and the presidency. However, political scientists are split:
- John Coleman of the University of Wisconsin (American Political Science Review, December 1999), believes unified government is much more conducive to "significant" legislation.
- On the other hand, Sarah Binder of the Brookings Institution (Brookings Review, Winter 2000), found divided government doesn't stop passage of major legislation, while unified government offers no assurance critical national priorities will be addressed.
Investors appear to like one party having "veto power" over the other's potential excesses.
- A Wall Street Journal study found that since 1896, the highest two-year stock market returns occurred under a Democratic president and Republican control of at least one house -- 18.3 percent.
- The second highest return --17.4 percent -- came when Congress and the White House were all under Republican control, and complete Democratic control yielded 15.7 percent.
- Worst was a Republican president with Democrats controlling at least one house, with an average gain of just 10.5 percent over two years.
Voters like divided government too. Since 1986, the Hart-Teeter Poll has found a fairly consistent three-fifths of people support divided government, with about a third favoring unified government.
Presidents must build public support for their initiatives when they contend with a Congress under the other party's control, whereas they take support for granted when their party is in control, and are more likely to be blindsided by opposition. This was certainly true for Carter's energy program in 1977 and Clinton's health care proposal in 1993.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 8, 2000.
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