Elections: First Thoughts
Jude Wanniski
November 3, 1982


The reason the stock market almost always advances in the year following midterm congressional elections most likely has to do with the electorate's ability to alter the course of White House economic policy by denying the President's ability to blunder.  The 1938 elections forced FDR to backtrack on his attempt to balance the budget with a big tax increase.  The 1966 outcome halted the Great Society orgy.  The 1974 Democratic win forced Jerry Ford's about-face on tax policy.  Yesterday's results will prevent Reagan from "staying the course," which has been the Baker-Stockman-Old Guard austerity course that invited the recession.  At the same time that GOP losses in the House point to higher public works spending and lower defense outlays, GOP retention of the Senate prevents liberals from trying a resumed egalitarian tax policy.  And the third year of the tax cut is safe. Jim Baker still insists that the "stay the course" theme helped the GOP, but that's pride of authorship.  The House losses stung and Baker will never be as strong with RR.  A growth-oriented monetary policy is also assured by the GOP setbacks.  Senate Minority Leader Byrd this a.m. is already touting his bill to force the Fed to target interest rates.  Little noticed:  RR on his 10/31 TV appeal for the first time as Pres blamed the recession and high interest rates on the Fed, and did not mention the deficit.  Volcker doesn't have to worry (nor do we) that a smug White House will pressure him back into the M1 straitjacket.  Lehrman's sensational showing in NY, assuring him a continuing national GOP leadership role, also bodes well for monetary reform.  In the coming administration shakeout, there will be enormous pressure by the populist GOP wing for a major Lehrman voice in moving all the way to a new Bretton Woods.  In any case, he and his views will have high visibility, with a ready access to Baker/Meese and the Oval Office that he never before enjoyed.

What is absolutely certain, I believe, is the end of Stockman's numbers-crunching, bookkeeping game.  The White House will no longer focus on budget resolutions, etc., as the driving force of domestic policy.  Some other vehicle will emerge to fill this vacuum, and the chances are high that it will be monetary reform, but at least the Stockman game is up.  The nuclear freeze referenda only adds to the pressure to look to the Pentagon for savings, and at the same time the referenda will lead RR to think about Soviet summitry as a means of killing several birds with one stone and preparing for a 1984 re-election bid (along the Kissinger-Ford lines of 1976).

The Democratic charge that the GOP was about to go into a lame-duck session to slash Social Security benefits was absolutely correct.  But that's now out of the question.  The Dems are now in a position to dictate the SS reforms in a way that sticks the GOP with any blame for higher taxes/lower benefits in any combination.

On the whole, it was a wonderful election.  The secular bull market is reinforced. Once again, the electorate has checked a President's ability to make a major blunder.