Past
Commentaries
Current Commentary,
Review and Outlook
November 6th, 2002
To
My Clients, Friends & Observers:
What Voters Want
The Federal Reserve Board met today and cut the Fed Funds rate another
half-point to 1.25%. It will do little other than further stimulate
a housing market that needs little stimulation. In fact, to the extent
it encourages a speculative bubble in housing prices, it could do
more harm than good. The Fed is not solely responsible for “getting
the economy going again” as the pundits like to put it. The
Fed is responsible for monetary policy and for maintaining a stable
banking system. Barring the wanton production of currency, the Fed
has exhausted its options for economic stimulus. It is the legislative
branch of the federal government that is liable for fiscal policy
and the legislative branch has shirked this responsibility for the
last two years.
Much has been written about similarities of the Japanese economic
malaise of the last dozen years and the U.S. economy and stock market.
If the symptoms in the U.S. appear familiar the disease is quite different.
The Japanese continue to do little to put real spending power in the
hands of their consumers. Their banking system is wholesale rather
than retail oriented. This is one of the fundamental distinctions
between our economic policies.
Yesterday the voters in America spoke convincingly to the two major
parties. The Democrats enjoy the biggest enrollment in the nation.
It would seem the majority were speaking to their own party. That
appearance is deceiving because the fastest growing “party,”
if you will, is the “unenrolled” party, to which I belong,
by the way. Looking at Massachusetts, where registered Democrats (1,460,881)
outnumber registered Republicans (546,333) by 2.7 to 1, unenrolleds
are the most significant block at 1,977,773 voters (all year 2000
figures). In the Massachusetts legislature Democrats outnumber Republicans
7 to 1. How and why, then, did Republican Romney (who was soundly
defeated in a Senate effort here four years ago) defeat Democrat O’Brien,
who appeared to have all the perfect characteristics to win –
female, bright, personable, young, well spoken, experienced and with
all the “right” constituencies. The answer is fear. Fear
not generated by threats or suspicions, but an actualized fear of
present, personal conditions. It is evident in the low Consumer Confidence
statistics. People may not be able to do much about job layoffs or
shrinking paychecks, but they can vote, and they are fed up. They
incurred an average $300 annual state tax hike recently and they are
afraid of more of the same.
Among Massachusetts ballot initiatives was the “Clean Elections
Law” which was enacted by the voters in 1998 by a two to one
margin. The question on the ballot yesterday was: “Do you approve
the use of public funds to support and enact the Clean Elections Law?”
The answer was a resounding “No,” 74% to 26%. . Do the
voters want “dirty elections?” I think not. The operative
words were “public funds” i.e. taxpayer dollars. The voters
don’t want to have to pay more for clean elections. Shouldn’t
they be entitled to clean elections in any case?
Another Massachusetts initiative would have banned the state income
tax entirely. It failed, but by a much narrower margin than was expected.
Over 45% voted to end state income taxes entirely.
An unusual ballot question was overwhelmingly approved in two suburban
Springfield area districts. These were initiatives to instruct the
districts’ representatives not to vote for Thomas Finneran as
Speaker of the House. Mr. Finneran runs the statehouse with an iron
fist and is perceived to be the leader of the Boston Democratic political
machine.
A little over a week ago I dined at a restaurant while watching the
last of the O’Brien-Romney debates. As it ended our waiter commented,
“Not one of them mentioned the Big Dig. Nobody talks about the
Big Dig.” Massachusetts’ state auditor, Joseph DeNucci,
in addressing this $15 billion project, has reported that hundreds
of millions of dollars are missing or unaccounted for. These funds
could have kept the state’s budget in balance. The Springfield
Union News headlined today that “Voter support in suburbs gives
win to Republican.” Is there voter resentment towards the Boston
concentration of political and financial power at the expense of the
rest of the Commonwealth? Without a doubt.
On the federal level Republicans have regained control of the Senate,
increased their margin in the House, and picked up additional governerships
as well. Both parties can learn from this and particularly from the
Massachusetts experience that the future lies in the suburbs, not
in the big cities, that the taxpayer funded costs of infrastructure
for big city development is unnecessary and unacceptable. They can
learn that average voters have become aware that almost 50% of their
earnings are spent on aggregate taxes. They can learn that, compared
to money and economic freedom, “a woman’s right to choose”
or “clean elections” pale in significance to the average
voter. Additionally the Republicans should learn that there is little
else the Federal Reserve can do to stimulate economic growth and realize
that they have a two year window in which to exercise their responsibility
for sound fiscal policies. They can start by letting voters keep more
of what they earn. They can finish by completely overhauling the oppressive,
arcane enigma that is the current Tax Code. Then government should
return to performing the first orders given it by “We the People”
in our Constitution: “…establish Justice, insure domestic
Tranquility, (and) provide for the common defence…”
