Sam fletcher
Senior Writer
Even before the Nov. 10 opening of the Group of 20 Summit in South Korea, President Barack Obama was slammed by foreign finance ministers for artificially lowering the value of the dollar through Federal Reserve Chairman Ben Bernanke's latest economic stimulation plan.
The proposed second round of quantitative easing (QE2) involves the Fed buying $600 billion of Treasuries over the next 8 months; it triggered a sharp drop in the US dollar when announced the day after the midterm elections. It's uncertain whether Keynesian financial theories or other political factors are driving this stimulus plan. But it doesn't seem to be working yet, with the US stuck in a quagmire of high unemployment despite billions of dollars already pumped by the government into the economy.
The idea of using federal funds to "spend to prosperity" in an economic downturn was advocated in the 1930s by British economist John Maynard Keynes, based on the broad and illogical assumption politicians and government bureaucrats know more about business than do people who own, manage, and work in the nation's shops and factories.
According to economic experts at the Cato Institute in Washington, DC, the dominance of Keynesianism ended in the 1970s. By the 1980s, old-fashioned Keynesianism was dead, at least among the new leaders of macroeconomics. Even if a government stimulus were a good idea, policymakers probably wouldn't implement it the way Keynesian theory suggests, said Cato experts. To halt a financial downturn, policymakers must recognize the problem early and react quickly and efficiently. But "early," "quickly," and "efficiently" are not in Congress' vocabulary. Previous stimulus programs were too ill-timed or ill-suited to succeed, and policymakers often don't live up to the Keynesian assumption they will diligently pursue the public's interest over their own.
'Central role for GOP'Despite Obama's preelection taunts that Republicans would have to "ride in the backseat" of national policies, SNR Denton, a law firm with operations in 32 countries, noted the Grand Old Party will again have a central role in legislative policy, having won a sizable majority in the House and increased the size of their minority in the Senate to the point where they can functionally block any objectionable legislation. For example, Democrats from Louisiana and other major oil-producing states generally have sided with Republicans and against Obama on energy issues.
Moreover, the drubbing dished out to many Democrat incumbents during the midterm elections will not be lost on those up for reelection in 2012 with Obama likely heading their ticket. Voter anger this year also flushed out state houses and governors' mansions, with Republicans gaining control of at least 19 state legislatures and winning gubernatorial contests in roughly the same number of states. Those legislators and governors will oversee the drawing up of new electoral districts for 2012, based on the latest census.
Still, the midterm election "looks to be a repudiation of the party in charge, not an embrace of the Republicans or their agenda," warned SNR Denton analysts. "The results could simply reflect the belief of many voters that the benefits of the 'checks and balances' that come with divided government outweigh whatever may be the risks of legislative gridlock during the next 2 years."
They said, "It is clear that comprehensive cap-and-trade legislation will no longer be an overarching issue" with the new Congress. Instead, the debate likely will shift from mandating fuel choice toward other issues. "The new Congress will also likely have an increased interest in oil and gas production and accelerating nuclear energy development," analysts said. "It is also expected that the House will increase regulatory oversight of not only the Environmental Protection Agency but the broader administration as well, including programs created by the stimulus and other programs initiated in the last 2 years."
But first, Republican leaders face their own internal challenges in managing a more ideologically diverse caucus, establishing an effective chain of command, and settling on priorities for the early days of the 112th Congress.
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