Republicans to push for financial reforms

Although opposed on healthcare and finance, Republicans and Democrats have common ground, writes NIALL STANAGE, in New York

AS THE dust settles on what president Barack Obama admitted was the “shellacking” his party took in Tuesday’s midterm elections, a stark question presents itself: what next? The answer, from both a Democratic and Republican perspective, will be determined by how the message sent by the US electorate is interpreted.

During his dejected press conference on Wednesday, Obama insisted that the voters’ verdict was a complaint about the slow pace of economic improvement, rather than a specific repudiation of his administration’s policies.

“What they were expressing great frustration about is the fact that we haven’t made enough progress on the economy,” he said. “We’ve stabilised the economy. We’ve got job growth in the private sectors. But people all across America aren’t feeling that progress. They don’t see it.”

The picture that Obama sought to present – of slow but steady improvement – is not entirely borne out by the facts. Some experts claimed to see green shoots of recovery when the economy grew by about 5 per cent in the last quarter of 2009. But, one week ago, new statistics showed the growth rate in the third quarter of this year was only 2 per cent.

This is not nearly robust enough to make a serious dent in the effects of the Great Recession, the most marked of which is an unemployment rate of 9.6 per cent.

That being so, it is no surprise that the voters were in surly mood on Tuesday. Peter Morici, an economics professor at the University of Maryland, delivered his own grim verdict on Obama.

“What we see is a guy who doesn’t get it,” he said. “This election was a referendum on his economic policy, and he got beaten.”

Other observers are more generous to the White House. Bruce Wydick, an economics professor at the University of San Francisco, said there was widespread agreement that the recession would be much worse – including an unemployment rate which he estimated could have grown as high as 18 per cent – were it not for Obama’s economic stimulus. The president, he said, “was really stuck between a rock and a hard place” from the outset.

Obama’s room for manoeuvre has shrunk even further in the wake of Tuesday’s results.

The problem is not merely that Republicans have taken control of the House of Representatives. It is also the fact that many moderate voices in the Democratic ranks were defeated, while a number of Tea Party-backed candidates were elected. The resulting polarisation will reduce the possibilities of compromise and inflame the atmosphere of mutual suspicion. Capitol Hill was hardly a model of constructiveness and comity to begin with.

The incoming Republican majority will likely fix its crosshairs on Obama’s two signature domestic achievements: the reforms of healthcare and the financial industry. Party leaders continue to talk up the imperative of repealing the healthcare act – Congressman John Boehner, who is odds-on to become Speaker of the House, described it as a “monstrosity” this week.

In reality, this is little more than lip service to the grassroots. Though Republicans might well pass a repeal resolution in the House, it would have little effect. It would face almost certain death in the Senate and, even if it survived, Obama would veto it.

Republicans might be able to flex their muscles more effectively in the area of financial reform. The central battle is over the Dodd-Frank Bill signed into law by Obama during the summer.

The legislation is dizzyingly complex, but Republicans will hope to pare back two of its key provisions – one of which creates a powerful consumer-protection agency and the other of which greatly tightens the regulation of the derivatives market.

Big banks and other financial institutions have complained that both measures were too broadly drawn.

Republicans will seek greater oversight of the consumer agency and – by implication at least – will be more attentive to the financial industry’s concerns over derivatives.

There are some areas in which bipartisan co-operation is possible. Prime among them is free trade – agreements with South Korea, Panama and Colombia are awaiting ratification, and Republicans are generally in favour of such pacts. Obama also set up a bipartisan panel to report on ways to reduce the spiralling deficit – a goal which both parties support, at least in theory. The panel will report on December 1st.

There is also a huge question-mark over how the most newly elected Republican members of congress will deal with the realities of governing, especially on fiscal matters. Early next year, for instance, congress will have to either vote to authorise a raising of the national debt ceiling or risk a US default.

The vote will be a key early test, especially for those elected on a Tea Party-backed platform. Some, including Bruce Wydick, fear the Tea Partiers have a fundamentally shaky grasp of fundamentals.

“The Tea Party people say they are ‘for’ many things that are self-contradictory, at least in the short term,” he asserted. “They are in favour of lowering the deficit, in favour of lower taxes and in favour of job growth. But you just can’t have all those things right now.

“It’s like saying you would like something to be red, and then saying you would also like for it to be blue and for it to be yellow.”

Steny Hoyer, the veteran Maryland Democrat who is widely expected to replace Nancy Pelosi as the party’s head in the House, said last week that, while he held out some hope of genuine across-the-aisles efforts, “experience tells me . . . that there is little inclination on the part of the Republican Party to do that”.

In 1994, another first-term Democratic president, Bill Clinton, saw his party haemorrhage seats in Congress. Republicans in the House, led by speaker Newt Gingrich, later forced a temporary shutdown of the federal government – though the tactic was retrospectively judged to have hurt Gingrich more than Clinton.

Even in the current bitter political climate, Republican strategists are counselling against a return to strategies that are quite so extreme. Dan Judy, a vice-president at Republican consulting firm Ayres, McHenry and Associates, is starkly critical of Obama. But he nonetheless urged Republicans “to remember that they didn’t get elected because people are suddenly in love with the Republicans and their policies.

“There are dangers in pushing it too far, and I think a return to government shutdowns would be a mistake.”