The night after the mid-term elections, Republican Representative and presumed future Speaker of the House John Boehner said that the GOP electoral victory wasn't a time for Republicans to celebrate, rather a time to roll up their sleeves and "get to work". We found that comment strange: get to work doing what, exactly?

This election has been a bundle of contradictions and it has been difficult to dissect fact from fiction; figure out what voters really want; and try to read the tea leaves on the future of the nation. As such, this month's TheCommonSenseParty.org article delves in depth into the facts and fiction behind our latest mid-term elections.

Republicans didn't run on a platform or agenda. The GOP Pledge to America was intended to mimic the 1994 Contract with America by providing a blueprint for the GOP's priorities and positions. However, it was largely dismissed by most analysts and even most Republican candidates as being of little actually substance. Instead of running an agenda, the Republicans ran on the anti-agenda. They Republicans have repeatedly promised to "stop the most radical and socialist agenda in our nation's history". So they have promised to, well, make sure nothing gets done. Most Republicans have danced around this lack of purpose, stating they want to balance the budget without saying how. Unless they offer to scale back entitlements or stop paying interest on our debt, they only have $300 billion to work with, and that won't fund even half our military. They have stated they want to "repeal and replace" healthcare, without the mechanisms to repeal it or any plan on how to replace. They have stated people are tired of special interests and spending, yet, an estimated $4 billion was spent on this round of elections largely due to the Citizens United court case, which has unleashed a tsunami of money on politics. It would be naive to think that amount of money was donated without at least some expectation of exceptional access to the system, and at least a nominal return on investment. Republican Senator Minority Leader Mitch McConnell stated one of the Republican Party's goals rather bluntly in a speech to the Heritage Foundation: "our top political priority over the next two years should be to deny President Obama a second term in office." Of course it is to be expected that the Republicans would want to win the White House in 2012; however, this goal is usually officially subordinated to doing the work of people. Conservative radio talk show host Rush Limbaugh has been the most honest about Republican agenda for the next two years by openly advocating for a Republican legislative stalling tactic of "just say no" until the next Presidential election.

Even if they had an agenda, Republicans have repeatedly stated that they won't compromise. Rather bluntly Rep. Mike Pence (R-IN), the third-ranking Republican in the House, voiced the typical Republican position in a recent interview with right-wing radio host Hugh Hewitt: "Look, there will be no compromise on stopping runaway spending, deficits and debt. There will be no compromise on repealing Obamacare. There will be no compromise on stopping Democrats from growing government and raising taxes. And if I haven't been clear enough yet, let me say again: No compromise." We even heard one Republican already blaming the impending Congressional inaction on Obama, saying the President refuses to compromise on a total repeal of healthcare. Huh? According to this logic the Republicans won't compromise on "their principles", so unless Obama capitulates completely, he's the one that is refuses to compromise? The mood of the Republican Party has been to punish anyone (think McCain) that attempted to cross the aisle. We don't buy the argument that it's Democrats that refuse to compromise. During the healthcare debate, the Democrats were so desperate for bi-partisan support that Sen. Olympia Snowe (or any other Republican for that matter) could have virtually written the entire healthcare bill themselves and the Democrats would have passed it. During the entire healthcare debate, most Republican proposals nibbled around the edges, but failed to put forth serious and meaningful proposals to help fix healthcare - something that would be critical to containing Medicare and Medicaid costs and reducing the deficit. This got to the point that Republican political rhetoric seemed to be coming from some bizarre parallel universe. For example, the Republican "healthcare plan" as put forth by the Republican National Committee stated Medicare and Medicaid should not be touched and no savings could be found. Essentially, the Republicans were saying: don't touch the part of our system that actually is government run healthcare, and that Medicaid and Medicare is a large government run program that doesn't have waste and shouldn't be cut. Really?

Beyond individual anecdotes, this unwillingness to compromise is based on fact. A USA Today/Gallup¹ poll taken immediately following the mid-terms shows that Republicans are more than twice as likely as Democrats to say it's more important for political leaders to stick to their beliefs even if little gets done. Forty-one percent of Republicans put themselves at four or five on a scale in which five is the most unyielding whereas only 18% of Democrats feel that way. On the flip side of that statistic, Democrats are almost twice as likely as Republicans to say it's more important for political leaders to compromise in order to get things done: 59% of Democrats rate themselves at one or two on the five-point scale compared with 31% of Republicans.

We at ThePartyofCommonSense.org believe the data shows that the Stimulus was warranted and saved our economy, that the time has come to address the cost, coverage, and care of healthcare, and that there have been a number of success in the areas of homeland security and foreign relations (for example, where the sanctions on Iran are starting to show real effect; a withdraw from Iraq, and others) which have gone largely unnoticed by the American people. Certainly, President Obama and Democrats have had their bumps (an oil spill only 20 days after Obama announced opening the Gulf to more deep water drilling) and weaknesses (the car company bailouts do actually boarder on socialism), in the name of bipartisanship they have steered clear of some of more radical and controversial issues such as Gay Marriage, Card Check, and the closing of Guantanamo. In the face of screaming from the most radical and vocal on the Right, the Democrats, for the most, have tried to distance themselves from these accomplishments. This mistake has left them without a platform or clear direction for the near future as well. Rather than running on future goals, such as Cap and Trade, they ran on "me too" issues such as dealing with the debt. It is no surprise that this "middle of the road" approach failed to convince independents and conservatives, nor rally moderates and liberals - rather it left the energy and electoral victories in the hands of the Republicans. It is interesting to note that with an election that was nearly devoid of substance and platforms, it is hardly a surprise that the politicians fell back on negative campaigning.

Regardless of the party affiliation and how one feels about the election, there was clearly a new energy in the electorate, as best exemplified by the Tea Party. As best as we can tell, this is pent up frustration at both parties for the constant infighting and bickering that results in run-away spending and a failure to get the right things done right. To examine this phenomenon more deeply, let's look at the data.

An October 28, 2010 ABC/Washington Post poll² provides us some insight into the state of the voter electorate. Asked of voter about the direction of the country, 71% thought the country is going in the wrong direction, while only 27% thought it was going in the right direction. Obama's overall approval rating is approximately split, but 20% strongly disapprove of his performance, while only 5% strong approve of the President’s performance. Congress is worse off, with slightly greater overall disapproval rating, but polarizing 56% strongly disapprove rating and a 29% strongly approve rating. From this data, we can determine that overwhelmingly people aren’t feeling good. Specifically, there is a minority contingent that feels passionately that Obama is part of the problem, while most people blame Congress.

The ABC/Washington Post Poll respondents ranked the most important issues facing the country as: the economy (38%), health care (17%), taxes (13%), the federal budget/deficit (7%), immigration (4%), Afghanistan (4%), and other/no opinion (17%). As we can see, by far and away the most important issue is the economy. Clearly the current economic situation has people on edge. Looking at the US Bureau of Labor Statistics³, the last time productivity increases reached over 4% was during the uncertainty during layoffs following the .COM bust of 2001-2002. Once again, we see these high productivity increases as people work harder, fearful of their jobs.

US Productivity Increases 2001-2010; US Bureau of Labor Statistics

In addition, people are not only feeling economically depressed, they actually are economically depressed. Total net worth of Americans (in aggregate) has fallen since the peaks of the housing bubble. And these numbers don't even account for the growing disparity between the rich and middle class.

Personal Net Worth

It would appear that voter frustration is being taken out on the government, specifically Congress and the President. Ironically, if having an abundance of jobs, a strong economy, and economic security is the primary concern on voters, the Stimulus and TARP have been shown (see ThePartyofCommonSense.org article here) be the most effective method of the government to achieve these goals. Yet, the majority of voters seem to have rejected the very medicine that is helping them. We at ThePartyofCommonSense.org believe there are no quick fixes. The economic rebound will take time and politicians will continue to receive much greater credit and/or blame for the current state of the economy than is warranted. With economic rebound, regardless of other policies, will come an increase in people's belief in the direction of the country and faith in their leaders.

Which brings us to the next biggest issue. Based on the ABC/Washington Post poll, combining the debt/budget and taxes categories, at 20% voters have placed this as the second largest issue for the election. The electorate which had for years maxed out credit cards and home equity lines suddenly find themselves in a position where they have to cut back. Looking at historical savings rates, we see a general trend towards a slow erosion of savings and the growth of a consumer society, perhaps due to a generational difference between those that experienced two World Wars and a Cold War, and the current generation of Americans that is largely physically secure as the sole remaining World's superpower. At the micro trend level, we see that that people tend to save when they are feeling economically weak, and spend when they are feeling economically secure. So, during the boom times they spend a greater portion of their income and it wasn't until the mist of the housing boom that we reached rock bottom, with a very small saving rate. People spent as never before, and now with economic insecurity they are saving again.

US Personal Savings Rate; St. Louis Federal Reserve

Although savings in general is good for the country, increasing savings in tough economic times only makes a bad situation worse. Just when the economy needs consumer spending to provide it the much needed boost, consumers cut back. But the real problem is that government debt is ballooning, at the exact same time people's real income is falling and the average American on the street is feeling economically insecure. Just like watching a neighbor or colleague flush while you're struggling economically, there is resentment. If the average American is on economic edge, how can the government go on a spending bender? Of course, this is precisely the medicine that Keynesian economics proscribe. Just as saying it is easy to make money in the stock market - buy low and sell high - doing so is very tough. It is completely counter-intuitive: you need to buy when the rest of the world is selling, and need to sell when everyone else is buying. One can imagine the reaction of your fellow traders, friends and relatives who may think you've lost your mind: "Of course, you should be buying [take your pick of Stock X, tulips, or houses] now since they price is only going up; or how can you buy [take you pick] now, the market's cratered?" You can make money precisely because you are in the minority and doing what is counter-intuitive. Likewise, it is contrarian to know that the economy has three great drivers: the consumer, businesses, and the government. When the consumer and businesses stop spending, then the government needs to spend to get the other two drivers moving again. Of course, when times are good the government should be saving and paying off debt to prepare for economic downturns, not providing tax cuts to the rich - but that's another story that we'll leave for another day.

So, even thought we can empirically prove the Stimulus helped proved a deeper recession, if not worse (see ThePartyofCommonSense.org article here), and that TARP will practically pay for itself, skeptics abound. The alternative appears to be tax cuts, which also can be empirically proven not to be as effective in growing our nation's economy or creating jobs (see ThePartyofCommonSense.org article here). So people look with horror on the rising debt and have been convinced that lowering taxes is the answer, the facts and economics behind this issue shows the opposite. Once again, voter emotion has trumped reason. Should they get voters get their way, they may make things worse, not better. Take the situation in Michigan, where Governor-Elect Rick Snyder has promised $1.5 billion cut in business taxes. This is on top of a projected budget deficit of another $1.5 billion. And the top three budget line items are Prisons and Public Safety, Medicare/Medicaid, and Education. Clearly, the Republican governor has his work cut out for himself.

We'll move on to the next highest issue: healthcare. It is no surprise that the bruising battle of healthcare has lingering effects. Oddly, although many voters publically state they are against the Healthcare reform package, many are for many of the individual mandates within the law. For example, according to a Kaiser Family Foundation poll⁴ taken immediately after the midterm elections, 78% are for tax credits for small business to offer coverage; 72% are in favor of closing the prescription drug "doughnut hole"; 71% like the provisions that allow people to obtain coverage outside their job; and 71% like the idea of preventing insurance companies from denying applications for pre-existing conditions. Once again, rhetoric has taken the place of fact. Voter schizophrenia is on display, have been talked into wanting to "reverse the government takeover of healthcare", while privately applauding some of the main initiatives of the Bill. Hence the Republican position of "repeal and replace". Although it's unclear what would be repealed and what would be replaced, even if the Republicans were in a position to get something past Senate and onto President Obama's desk.

Immigration takes the next slot on voter's minds and continues to be a heated issue, with no real compromise in site. Once again we see some voter schizophrenia, on one hand voters are for protectionism, claiming immigrants are willing to work harder for less money and therefore stealing US jobs; while conveniently ignoring free market principles this competition in the workplace represents. Simultaneous to this claim that immigrants are taking our jobs (thereby increasing our GDP output), is the claim that immigrants are a drain on our system - free loaders that use our services without paying for them. Republican efforts to crack down on immigration will hurt their chances in 2012 and beyond, with the Hispanic population is the largest young and growing demographics in America. This demographic shift is critical to Republican political chances, to replenishing the Social Security coffers for future generations, and to providing the new intellectual capital the nation needs to remain an innovative economic world leader. Xenophobic attacks without providing real paths to citizenship and immigration reform are short sighted and counterproductive to the well being of country. We seem to have fallen into a stalemate. President Bush recognized the need for immigration reform, but was stopped by more xenophobic and radical elements of the Republican Party, while the very vocal Tea Party has scared Democrats from taking action that might fix the situation.

Finally, we tackle Afghanistan and foreign relations in general. It would appear the American people have grown weary of our on-going War on Terrorism. They seem to intuitively understand that staying engaged is necessary and there have been some victories on this front (the recently incepted airline packages, the Christmas day bomber, the killing of more Al Qaeda operatives, and the like), but are tired of the cost in terms of blood and treasure. This will continue to be a long hard slog with no real winners. President Obama has gotten neither credit from the Left or the Right on his deft steering of international policy.

To summarize, at ThePartyofCommonSense.org, we are concerned that voters have been driven primarily by emotional issues (primarily economic fears) and reach illogical conclusions (tax cuts and a balance budget are possible), without accepting the reality of the situation (a balanced budget will require the cuts in the government services constituents receive). The ideology of the Tea Party has put Republicans in a tough position. They voters are unwilling to let them compromise, but achieving all their goals is impossible, especially without enough levers in government to make a change happen. Democrats have run from their initial principals, and the "shellacking" the Democrats received has given them reason to endorse some of the Tea Party ideas, which could easily be construed as momentum to compromise. We believe the expiring tax cuts will likely be a prototypical issue facing the government in the next two years. You will see Democrats willing to compromise, providing some but not all tax cuts. Republicans will be forced to either stand their ground and veto all tax cuts or compromise and accept something less than perfect. Either way Republicans face danger: independents voters will punish Republicans for their gridlock or the Tea Party will punish Republicans for their compromises. This does provide a real opportunity for the Democrats. They can come out as being the party of reason, while painting Republicans as the party of "no". Since the House of Representatives controls the origination of all legislative bills that involve the expenditure of money, it's going to be the Republicans that have the opportunity to drive the Congressional agenda. Any agenda that actually passes the Tea Party purity tests will likely be rejected by the Democrat controlled Senate, thereby saving Obama from having to veto unacceptable legislation. This could work in President Obama's, by making him appear like Clinton, a genuine and reasonable statesman to the voter public in 2012. Furthermore, not all legislation has built in timeframe, such as the expiring tax cuts. With tax cuts or passing a budget, either inaction or action will cause something to happen and blame (or credit) to be cast. For those other issues, such as global warming, we predict that President Obama can kick back and put his signing pens away (perhaps they'll agree to rename a couple of post offices, but even that’s iffy). We'll see lots of grandstanding and speechifying, but very little will get done.

The biggest wildcard in 2012 will be the state of economy. It is on the mend, and additional time will help. The government is currently doing what it can, and barring Republican speed bumps, it could improve dramatically by 2012. For example, the Fed has just unleashed a $600 billion quantitative easing initiative (the so-called QE2). In this QE2, the Federal Reserve will buy back Treasury bonds, putting more money into the economy. This has three main effects: First, as institutions and people replace their Treasury bonds with money, they will use that money to invest elsewhere. That means more money chasing fewer opportunities, which should put a floor on asset prices (stocks, bonds, and houses for example). We've already seen the stock market have a nice run after the announcement of this program. In theory, if people feel secure their house price isn't going to fall and that their 401(k) is safe, they should spend more - with increased consumer spending providing a multiplier effect on the QE2 and boosting our economy. Secondly, with more money in the system chasing the same number of investment opportunities, banks will have to compete when lending money. This means lower interest rates and a better opportunity for business owners and individuals to borrow for infrastructure projects (or buying a new home). Third, the increased number of dollars means the exchange rate with other nations will fall. With a decreased exchange rate, we will see a more balanced foreign exchange rate (as the German sport car becomes more expensive and less desirable for US citizens, American beef become cheaper for the German consumer). There are the twin risks that the medicine is too strong with the increased money supply causing inflation and the risk that a lower dollar could cause a trade war.

Certainly, this election has been about a bundle of contradictions, with no real clear cut answers or direction. At ThePartyofCommonSense.org, we will be closely watching a real test of the fortitude of the Tea Party movement which should occur next spring. The country currently has about $13.7 trillion dollars in debt, and sometime in the first half of next year the country should reach the $14.3 trillion dollar debt ceiling imposed by Congress. Failure to raise that would put the US government in technical default, and could shut down the government. The Tea Party will either be forced to "abandon" its principles and raise the debt ceiling, or face the wrath of the population as critical government functions are shut down. Although the last time this happened a Republican Congress lost the battle of public perception to then President Clinton, some Republicans feel they have a stronger mandate this time around. Other Top Republicans advisors are suggesting that they use the threat of a government shutdown to hold the Democrats hostage to passing critical Republican wish list items. However, this would represent a quid-pro-quo compromise, something the Tea Party has vowed never to do. Will Congress choose principles and chaos, or reason and rationality? Only time will tell.

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Sources

¹ USA Today/Gallup Poll
² ABC/Washington Post Poll
³ BLS Productivity Statistics
⁴ Kaiser Family Foundation Poll