A Silver Lining... Gridlock!

In my view, the second most important role of the federal government is to promote commerce among the states - e.g., create conditions that permit a fluid and prosperous national economy. Despite what the NY Times says, the economy these days is doing terrific. (Try to prove to me otherwise without stating that some loosely defined group of people "are being left behind.")

The view from the business community appears to be that, when it comes to the economy, the government that regulates least, regulates best. Thus, while the Democrats may want to raise taxes and further regulate business, Bush's veto stamp should prevent them from doing so. For the next two years at least.

So, the market reaction to the election results? Stocks go up! Why? Gridlock!

From the LA Times:

Yet many analysts said they had little fear of a rash of anti-business measures — or tax increases — given President Bush's veto power."It's not like the Democrats now are going to sweep through their legislation," said Milton Ezrati, economic strategist at money management firm Lord, Abbett & Co. in Jersey City, N.J.

The idea of legislative gridlock appeals to some investors who believe that the economy fares best without government interference. That theme helped to underpin the market's strong rally since late July, as it became clearer that a power shift could occur in the House, analysts say.

One congressional move that Wall Street wanted — an extension of the 2003 tax cuts on capital gains and dividend income — was approved in May. The cuts won't expire until 2010."The extension of those tax cuts took the single biggest danger out of this election," said David Kelly, economic advisor at Putnam Investments in Boston.

Amen.