San Diego Union-Tribune (Sunday)
A DIVIDED GOVERNMENT
It appears the federal government will be split, which some investors say is a good thing. Our panel weighs in.
ECONOMISTS NO
With a divided government, a second COVID-19 stimulus package will be more modest than if the Democrats had taken control of the Senate. The Biden administration’s plans for spending on clean energy technologies, infrastructure and other priorities will also likely be scaled back to gain support from a Republican-controlled Senate. The larger fiscal stimulus under an undivided government might be expected to provide a greater boost to GDP growth over the next several years.
NO
When the economy is doing well, it might be the case that a divided government is good to prevent one party from going to excesses. But the country is now facing big problems with the coronavirus and the economy, which are linked to each other. Quick action needs to be taken to provide relief to millions of people. A divided government will at the very least delay action and may prevent it in important areas such as aid to state and local governments.
YES
Political disagreements are tearing America apart. Having the Senate controlled by Republicans and the White House by Democrats will force our leaders (and hopefully America as well) to find a consensus somewhere in the middle on which we can build and move forward. A divided government will rack up less debt and proceed with more caution and better judgment on taxes and spending than either party would choose if left to itself.
YES
A Covid Urgent Recovery of the Economy Plan (CURE) will be the most immediate and important legislation necessary to restore economic health. With Trump out of the way, this will be a legislative priority, regardless of party. While we can expect continued gridlock in the Senate, especially on health care and environmental legislation, President Biden understands the art of compromise, which is the byproduct of divided government. This can actually lead to good legislation, however meek and tentative.
EXECUTIVES YES
A divided government allows for much better checks and balances, which is what our country’s founders always had in mind. I don’t think it is beneficial to have any political party in control of all three houses of government. A split allows, and in fact encourages a healthy discussion of issues, approaches and spending levels. I think the business community, and therefore the stock market is most comfortable with this ongoing dialogue between our government leaders. But it is essential to come to a conclusion and take action when needed.
YES
Having one party control everything isn’t beneficial to its citizens or our economy. We need checks and balances. This recent election has shown that the country is split and that a singular voice would only represent half of the country. Investors typically like a divided government as larger economic issues and policies championed by one party usually don’t come to fruition. Regardless, our elected representatives should learn how to cross aisles and work together for legislation and policies that will benefit, and not hinder the greater economic good.
NO
A divided government means minimal legislation, which boosts stocks as public corporations believe they will retain their low taxes, minimal regulations, subsidies, etc. However, this is narrow-minded and shortsighted. “The economy” is more than the stock market, but all production and consumption (your jobs, purchases, etc.). A dysfunctional government is unable to keep pace with technology and a changing world. We will slowly be left to bicker internally as countries embrace and invest in the future.
YES
If we look back over previous eras, when we have had a Democratic president and a split Congress, markets have done quite well. In this case, it would mean no major tax hikes, no progressive green agenda, no public option for health care, and not much in the way of major changes. Wall Street likes this gridlock and I believe it will work this time as well. Long live a divided Congress!