Monday, November 8, 2010

The Recent US Mid-term Elections Analyzed - Alpha

The mid-term elections were a big deal for two reasons. First, it’s the first time since the 1940s that the voters removed the party in control of the House for three consecutive elections (the GOP lost both houses in 2006 and the Presidency in 2008, only to win the House back in 2010). Second, it was the largest change in House seats since 1948. The GOP’s strategy of gridlock and non-cooperation worked.


The election results fell in line with consensus expectations. Basically, with unemployment stuck at 9.6%, voters kicked the Dems out of the House early due to the lack of JOBS.


The irony was that while the House was passing many bills, the Senate is where the bills went to die, thanks to the self-imposed filibuster, 60-vote Senate rule used by the GOP mostly (and some wavering Dems). However, voters left control of the Senate to the Dems, with 53 Senators and so a 3 vote margin.


While NBER dated the recession’s end to mid-2009, the flatlining jobs situation (and so stagnating income and skills) has made voters furious.


Jobs are a big deal. A landmark study in the Economic Journal followed 130,000 people for a few decades, allowing researchers to look at major life events, like marriages, divorces, births, deaths, and so on. It found that unemployment for over one year might be the only major life event from which people (esp. men) do not recover within five years. People were more likely to recover from the death of a spouse than from prolonged unemployment. See Clark, A.E. et al. Lags and leads in life satisfaction: A test of the baseline hypothesis. Economic Journal, 118(529), 2008, F222-F243.

By that measure, the US has a crisis on its hands. Politicians may say “Jobs!” while not actually doing anything, such as providing leadership, enacting pro-stimulus or pro-business policies, or reducing political risk and uncertainty for businesses to expand and hire.





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