CNBC: It's not the economy, stupid

In 1992, James Carville coined the phrase “It’s the economy, stupid” as a way to focus the Bill Clinton campaign and keep it on message, and it worked; Clinton beat the incumbent George H. W. Bush in a three-way race by sticking with the issue closest to American voters at the time.  That phrase has made a big comeback in this midterm election cycle, but CNBC writer Jeff Cox objects.  This time, it’s not really the economy, which Cox says is just the symptom of the larger problem:

Despite all the worry about the sluggish US economy, businesses and investors are finding an even bigger reason to be cautious these days: the political mess in Washington.

“Businesses—especially smaller businesses, independent businesses—they don’t know what their cost structures are going to be because of government-imposed changes,” David Kotok, founder of Cumberland Advisors, said on CNBC this week. “Half the US economy’s holding back because of this great uncertainty that’s coming from Washington.” …

“Why are we stuck in this range? It’s not the (economic growth) issue,” says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. “It’s the issue of what’s going to happen in November with the election and what’s going to happen with the Bush tax cuts. You’ve got all this uncertainty and…when there’s more uncertainty, people get more uncomfortable with equities.”

Cox thinks he knows what will solve the problem, and it’s not Hope and Change, either:

Some pros, like Keith Springer, president of Capital Financial Advisory Services, think investors would be just fine with the kind of legislative gridlock that gripped Washington in the mid-1990s, when then-President Bill Clinton battled with a Republican-controlled Congress.

In fact, Springer predicts a strong rally if the Republicans manage to take control of at least one congressional chamber after the November election. …

Investors like gridlock in Washington partly because it removes the possibility of major changes being made that could rattle the landscape.

When nothing changes, it makes investing much easier as one can plan around a stable system of regulation and enforcement, as well as project costs with more reliability.  Gridlock delivers the antithesis to Hope and Change, which is stasis.  A division of power between Capitol Hill and the White House will force everyone to work only incrementally, at least until the next election, if even at that pace.

Unfortunately, though, that’s not a complete treatment for what ails this economy.  The Obama administration have built years of uncertainty into ObamaCare, with its open-ended regulatory structure and the unclear future of private health insurers under the new system.  In order to get to stasis, the Republicans have to figure a way to shut down the implementation of ObamaCare, most likely through defunding it and forcing HHS to postpone its milestones until after the next presidential election.

In a larger sense, though, Cox is right — and his essay explains the Tea Party movement and its appeal.  Voters have finally gotten fed up enough with Congress and the way it governs to contemplate a substantial change in direction, back towards smaller government and fiscal reform.  The people know of the economic crisis, but also understand that this crisis results from a political crisis decades in the making.  In order to repair the economy, we have to replace the usual suspects in the Beltway and demand responsible governance from their replacements — and be ready to replace the replacements if they don’t honor their promises and mandate for actual change.