Special Report:
The Congressional Races of 1978
Jude Wanniski
September 20, 1978

 

Executive Summary: With the Carter Administration standing as the chief impediment to a major bull market, the results of the November congressional elections will be of crucial importance to the future of the U.S. economy and the stock market. This is because the Republican Party, for the first time since the early 1950s, is keying on federal tax-rate reduction as a principal theme in addition to the standard free-market themes. In several dozen races, the Democrats have been willing to provide clear-cut divisions on these economic issues. The market, we assume, will read bullishness into major GOP gains, and vice versa. Where are the key races?

This is another in a series of special reports presenting the views of our consultant, Jude Wanniski, Until July 1st of this year, Mr. Wanniski was the Associate Editor of The Wall Street Journal, where for six years he provided the Journal's editorial page analyses of domestic and global political-economics. In addition, he authored the recently published book, The Way the World Works, which more fully explains the political model used in this report.
 the President.

Special Report:: The Congressional Races of 1978

The reason the political party that controls the White House normally loses 10-to-15 seats in the House of Representatives during a President's first term of office is that the President, and his party, invariably misread to some degree the original mandate that put them into power. The off-year elections offer the electorate an opportunity to send new instructions to the President and his party. In the usual second presidential term, the average loss of House seats has been 40-to-45. This reflects the understandable drift of the President's ability and/or willingness to interpret the desires of the electorate understandable in the sense that there is a natural human tendency among Presidents to impose their own tastes on the citizenry during their lame-duck years.

In the 1978 congressional races, one would expect greater than normal Republican gains, as the electorate's way of sending President Carter sharper instructions regarding his mandate. In September 1978, Carter's popularity has slumped to less than 40 per cent.

There are now 148 Republicans in the House, 287 Democrats, and 2 vacancies.  In the Senate: 38 Republicans, 6l Democrats, 1 Independent. The GOP should be unhappy over a gain of much less than 20 seats in the House and less than one in the Senate. They should be disconsolate over a gain of less than 12-15 seats in the House and a Senate standoff. The conventional view now is 'that the Republicans will be unhappy. The Gallup Poll, for example, shows the Democratic Party leading in nationwide popularity by 57-to-43 per cent. This is a slight gain for the GOP since October 1977 when the Democrats led by 6l-to-39 percent. The numbers reflect a GOP gain of few, if any seats, were elections held now. If this implicit forecast of the political market is to hold up in November, the impact on the financial markets would be most discouraging. This is because the Republicans, for the first time since 1953, have embraced lower federal tax rates as the sine qua non of economic growth. With few exceptions, GOP candidates are using the Kemp-Roth bill which would reduce personal rates by a third over three years as the cutting edge of their campaigns. On August 10, the issue was joined in the House when Kemp-Roth lost by 240-to-177, with 237 Democrats voting in opposition.

Because this economic issue has become central to the 1978 elections, the possibility exists of dramatic Republican gains: 35-to-40 seats in the House, 3 or 4 in the Senate.  The Democrats have willingly accepted the traditional, losing GOP role as the party of "fiscal responsibility."

Such broad GOP gains would be enormously encouraging to financial markets. In 1974, when the party positions were reversed, it was Democratic victories that ended the bear market. In 1974, remember, the newly installed President Ford led the GOP into the November elections with a tax-increase banner and a program of austerity to "Whip Inflation Now." The Democrats resisted, ridiculing the program, and gained 44 House seats in the elections. The stock market, which had been in a colossal dive in September, hit bottom in early October with a DJI below 600. It began its upward climb as soon as it was able to begin discounting dramatic gains in the November elections, foreseeing the coming reversal of the Ford economic program in the face of massive losses at the polls. Indeed, the 180-degree Ford turn on tax policy began soon after the stunning November elections results.

A similar scenario is possible in the weeks ahead.  The fact that Gallup shows scant hope for GOP fortunes in his early-September poll is not of great significance. The electorate will not seriously focus on the congressional campaigns until October, especially the last few weeks preceding Nov. 7. The "summer" electorate reflected in the Gallup Poll still views the two parties in their traditional roles. The importance of the party split over Kemp-Roth has not yet registered with voters.

If and when it does, I would expect two things to happen in the political market. First, voters who generally view the Democratic Party favorably will shift, on the margin, to Kemp-Roth candidates.  (As long as the GOP candidates do not offset the attractiveness of the tax issue with negative appeals on other issues, i.e., advocating major slashes in social spending, etc.) Second, voters attracted to Kemp-Roth who are not yet prepared to vote Republican out of deep-seated suspicions of GOP motives (especially blacks), will on the margin sit out the elections.

Small marginal shifts of this kind are sufficient to produce major Republican gains. Arthur Finkelstein, a pollster who works almost exclusively to GOP candidates and is not regarded as an optimist, has been polling in 30 separate races.  In mid-September he could see a potential dynamic scenario unfolding around the tax issue and dissatisfaction with Carter leading to a GOP gain of 40 seats.

His dynamic analysis is based on the broad-based appeal of Kemp-Roth, which shows up in every region at an approval rating in excess of 75 per cent. A Roper poll of late August showed even more positive results, with respondents agreeing by wide margins that personal tax-rate cuts would be expansionary and non-inflationary. Finkelstein observed in his polling that potential voters have not yet connected Kemp-Roth with the GOP. In greater or lesser degree, this connection would have to be made in the final weeks of the campaign when the undecided or narrowly decided turn their attention to politics.

The potential is there. It remains for the GOP and its candidates to effectively drive home the partisan connections. One drawback thusfar has been the hostility of traditional Republican economists to reductions in personal tax rates without simultaneous reductions in social spending. Candidates influenced by these arguments dilute their appeal to the marginal voters who would otherwise be content to sit back and watch instead of voting against the Republican in order to protect social-support programs.

The difference between small gains and a gain of 35-to-4 seats may be determined by the efforts of the national party. The Republican National Committee is sponsoring an 8-city "blitz" of jethopping party leaders in late September, to dramatize the GOP's embrace of Kemp-Roth. The RNC had also planned television programming in the campaign's final weeks to do the same. But it has badly miscalculated its finances this year, budgeting $12 million and raising only $8 million. In the budget squeeze the already filmed tax-cut spots have been shelved.  This will hurt.

The Senate Races

The Democrats appear almost certain to hold the following seats: Arkansas (Pryor); Delaware (Biden); Georgia (Nunn)5 Iowa (Clark); Kentucky (Huddleston); Louisiana (Johnston); Rhode Island (Pell). In addition, they seem highly likely to gain seats in Nebraska, where Curtis is retiring, and in Oklahoma, where Dewey Bartlett is retiring.

Republicans seem reasonably assured of holding the following: Alaska (Stevens); Idaho (McClure); Illinois (Percy); New Mexico (Domenici); North Carolina (Helms); Oregon (Hatfield); South Carolina (Thurmond); Tennessee (Baker); Wyoming (Simpson).  In addition, the GOP seems highly likely to gain seats in Minnesota (Boswitch over Anderson) and South Dakota (Pressler over Barnett for Abourezk's seat).

Assuming this net swap of two seats, leaving the Senate composition unchanged, the remaining uncertainties favor the GOP. Democrats have a chance of picking up a seat in Kansas, where Pearson is retiring, but Democrat Bill Roy is only even with Republican Nancy Landon Kassebaum in the polls. Republican Bob Griffin of Michigan has only a slight lead over Democrat Carl Levin and could fall. In Virginia, Democrat Andrew Miller has an edge over John Warner and could gain this GOP seat. Democrats have a longer shot in Texas where Senator Tower leads Democratic Rep. Bob Krueger. They believe they have a shot at Senator Brooke's seat in Massachusetts. And they are counting on gaining the GOP's seat in New Jersey with Bill Bradley. Republican Jeffrey Bell, who defeated incumbent Clifford Case in June, is the most ardent exponent of Kemp-Roth in any of the Senate races.

The Republicans have long shots in Alabama at two seats, with the death of Senator Allen and retirement of Senator Sparkman. The better chance is with Republican Jim Martin who is running at the Sparkman seat, the Democrats having engaged in a bloody primary. Republicans can win a seat in Colorado, with Rep. Bill Armstrong over incumbent Sen. Floyd Haskell, and in Maine, with Rep. Bill Cohen over incumbent Sen. Wm. Hathaway, although a right-wing, third-party candidate could eat away the Cohen lead in the polls. In the GOP tide that seems to be running in Minnesota, Republican Dornberger may close fast enough to overtake Democrat Short, a surprise winner over Rep. Don Fraser in the Sept. 12 primary.

In Mississippi, the third-party candidacy of James Evers gives Rep. Thad Cochran a solid chance of beating Democrat Maurice Danton for the seat being vacated by Senator Eastland. In Montana, Republican Williams has been gaining steadily on Democrat Baucus and could win that Democratic seat. Senator Mclntyre is vulnerable in New Hampshire, as is Senator Jennings Randolph in West Virginia, where Republican Arch Moore leads in the polls.

With 15 Senate races that could conceivably go either way, there is a clear potential for Republican gains at a time when the electorate seems very unhappy with the Democratic President. A GOP pickup of four seats is not out of the question. But more important than a shift in party labels, at least to the economy and stock market, is the potential ideological swing in the Senate.

The likely loss of the Oklahoma seat by the GOP, for example, would not cause such a swing if Governor Boren is the Democratic nominee, Boren being a Kemp-Roth supporter who also favors free markets and energy deregulation. The GOP losses that could occur in Massachusetts and New Jersey would also cause no ideological swings, Senators Brooke and Case both being opponents of Kemp-Roth and advocates of government market regulation.

Republican victories that would be bullish, in terms of the market's discounting of favorable political forces, would be in those states where free-marketeer tax cutters oppose Democratic candidates whose economics coincide with President Carter's. These races, in Colorado, Maine, Minnesota, Montana, New Hampshire, South Dakota and West Virginia, are the seats the Republicans have the best chances of winning away from the Democrats.

The classic Senate race this year is in New Jersey between Jeffrey Bell and Bill Bradley, the former basketball star. The contest is being waged between competing economic textbooks, with Bell almost wholly emphasizing income growth via tax-rate reductions, and price stability via a return to a monetary standard. Bradley, a Rhodes scholar, articulates mainstream liberal worries about resource scarcity. He favors government energy and economic controls opposes Kemp-Roth as "irresponsible" and "inflationary," and favors government subsidy of solar energy as a means of ending inflation (on the argument that less foreign oil would be needed).

Conventional wisdom gives this seat to Bradley. But a Finkelstein poll indicates 78 per cent of New Jerseyans favor Kemp-Roth. The Bell problem, which is the GOP's nationally, is that voters do not yet connect his candidacy with the issues they Favor. If the connection can be made in the final, intense weeks of campaigning, a Bell victory is possible. Such an upset in this northern, blue-collar industrial state with economic theory dominating the campaign would be a favorable signal to the economy and financial markets.  A Bell victory would also presage campaign trends in the 1980 presidential race, especially if supported by Republican successes along similar lines in the 1978 House races.

The House Races

As in the Senate races, there is unusual potential for ideological change in the races for the House of the 96th Congress. Fifty of the 435 seats are "open," an unusually high number: 20 members are running for higher offices; 30 have simply retired. More than 50 seats are uncontested this year, though, most of these in the South where there are small ideological differences between the parties.

The significance to the economy and stock market of the House races will be determined in large degree by the extent of Republican numerical gains. Even more telling, though, will be the fate of those GOP candidates who are engaged in Classic ideological contests along the lines of the Bell-Bradley Senate race in New Jersey. In mid-September there is no way of forecasting these races, with campaigns only now beginning in earnest. It is not difficult to identify the contests that would make a difference, however.

In the table that follows, I identify more than 40 House contests divided fairly clearly along these lines. About 60 per cent enter the list through the screen of the Independent Petroleum Association of America (IPAA), the lobby that represents 5,000 "wildcatters." IPAA explicitly selects roughly 30 contests where candidates divide on the issue of energy deregulation, which is an appropriate proxy for separating free-marketeers and interventionists on the range of economic issues. Thus, the candidates IPAA targets for support almost without exception are Kemp-Roth tax cutters as well as energy deregulators. In the same way, the Consumer Federation of America targets pro-regulation candidates for support, and these generally oppose increased tax incentives to production and growth. The more free-market, pro-growth candidates are elected in November, the greater will be the intensity of the economic signals to the President as well as to the stock market.

State
and                                                                                        Republican                                                                           Democrat
District
Ariz. 2                                                                                   Tom Richey                                                                      Morris Udall* N
Calif. 14                                                                           Norman Shumway#                                                            John McFall* N
Calif. 16                                                                              Eric Seastrand#                                                                Leon Panetta* N
Colo. 2                                                                                    Ed Scott                                                                           Tim Wirth* N @
Colo. 3                                                                             Harold McCormick                                                               Ray Kogovsek
Conn. 3                                                                              John Pucciano#                                                               Robert Giamo* N
Fla. 1                                                                                    Warren Briggs                                                                        Earl Hutto
Fla. 9                                                                                        Ed Gurney                                                                           Bill Nelson
Fla. 14                                                                               Alberto Cardenas                                                              Claude Pepper* N @
Georgia 6                                                                             Newt Gingrich                                                                 Virginia Shapard
Idaho 2                                                                                George Hansen*                                                                      Dan Kress
Illinois 3                                                                               Robert Dunne#                                                                     Martin Russo*
Illinois 10                                                                              John Porter#                                                                        Abner Mikva* N @
Illinois 22                                                                             Daniel Crane#                                                                         Terry Bruce @
Indiana 8                                                                              Joel Deckard                                                                       David Cornwell* N
Indiana 10                                                                          William Frazier#                                                                      Philip Sharp* N
Iowa 2                                                                                    Tom Tauke#                                                                         Michael Blouin* N
Kansas 2                                                                               Jim Jeffries                                                                            Martha Keys* N
Kentucky 6                                                                         Larry Hopkins#                                                                      Tom Easterly
Michigan 6                                                                          Michael Conlin#                                                                        Bob Carr* @
Michigan 11                                                                         Robert Davis#                                                                       John McLeod @
Minnesota 2                                                                          Arlen Erdahl                                                                          Gerry Sikorski
Montana 1                                                                           Jim Waltemire#                                                                          Pat Williams
Nebraska 2                                                                             Hal Daub#                                                                         John Cavanaugh* N
N.J. 7                                                                                   Marge Roukema#                                                                 Andrew McGuire* N
N.J. 13                                                                                   Jim Courter#                                                                        Helen Meyner* N @
N.Y. 3                                                                                   Gregory Carman                                                                    Jerome Ambro*
N.Y. 9                                                                                       Al Dellibovi                                                                          Geraldine Ferraro
N.Y. 23                                                                                 Angelo Martinelli                                                                        Peter Peyser
N.Y. 24                                                                                 Michael Edelman#                                                                Richard Ottinger* N
N.Y. 29                                                                                  Jerry Solomon#                                                                       Ned Pattison* N
N.Y. 32                                                                                   Pete Del Giorno#                                                                   James Hanley* N
N.Y. 33                                                                                        Gary Lee                                                                               Roy Bernardi
Ohio 3                                                                                     Dudley Kircher                                                                          Tony Hall @
Ohio 12                                                                                    Sam Devine*                                                                        James Baumann
Ohio 19                                                                                  Lyle Williams#                                                                       Charles Carney* N
Oregon 1                                                                                Nick Bunick#                                                                          Les AuCoin* N
Oregon 4                                                                             Jerry Lausmann                                                                      James Weaver* N
Pa. 7                                                                                Eugene "Sonny" Kane#                                                          Robert Edgar* N @
Pa. 17                                                                                   Thomas Rippon                                                                          Allen Ertel* N
Pa. 23                                                                                    William Clinger#                                                             Joseph Ammerman* N
S.C. 4                                                                                   Carroll Campbell                                                                            Max Heller
Va. 8                                                                                          Jack Herrity                                                                         Herbert Harris* N
Va. 10                                                                                         Frank Wolf                                                                          Joseph Fisher* N
Wyoming AL                                                                       Richard Cheney                                                                           Bill Bagley

* Incumbent
N Voted No on Kemp-Roth
# Supported by the Independent Petroleum Assn. Of America
@ Supported by the Consumer Federation of America

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