I woke Wednesday to CNBC’s Bob Pisani telling the world that traders that almost never talk politics are talking electoral politics – that is somewhat a distorted view because traders rarely discuss elections because elections are rare and like most people, traders usually only pay attention a few days in and around the election. Being I grew up in politics it is something I pay closer attention to than most on Wall Street year round, and I think a lot of the media take is off the mark. We saw HMO stocks rally both on statements from Senate Majority Harry Reid that the Senate might not vote on healthcare reform this year and many people believing you can never do something that major in an election year – though I should point out the 1986 Tax Reform Act which was a major piece of legislation that I never thought would get done in any year actually passed during the year of a mid-term election, in spite of negatively impacting politically important groups as real estate investors and states and local governments by sharply reducing the ability to use municipal bonds. Generally, it always good to bet against any major legislation passing that has too many waring political constituencies because it easier to kill a bill than pass a bill, as there a dozen spots in the process where the bill can get killed, opponents need to win only 1 out of 12 battles, proponents need to win a clean sweep – this is why almost nothing ever happens in Washington. But some are also suggesting that the elections yesterday will impact the vote on healthcare in Congress and I don’t think so. It might influence a few votes in the House from freshman Democrats who won traditionally Republican seats last year, but that would not impact the outcome in the House and this thesis will be put to the test this weekend, because in the House, you can do things with a single vote majority and the House Rules Committee strictly limits debate time. While it seems the House is having troube rounding up enough votes it is not just because of apprehension of conservative Democrats or Democrats who got elected from Republican districts, there is also a group of Hispanic legislators from solidly Democratic districts threathening to withhold their votes unless ilegals are also covered and the issue of covering illegals will most likely be the divide the cannot be bridged in the House more so than anything to do with the elections.
What people forget about the Senate, is that by brilliant design from our founders it is structured to be less influenced by political flashpoints like this week’s off year election. That is why Senators have six year terms and House member two year terms and more importantly, only 1/3 of the Senate stands for election every two years, as opposed to 100% of the House that is constantly up for re-election. There is also no chance a health care bill covering illegals can pass the Senate and the Baucus bill does not cover illegals and the President does not want illegals covered in the bill, because he knows it will doom it.
Former Speaker Tip O’Neill had a famous saying “that all politics is local” – that is what happened here. There were two gubernatorial elections in New Jersey and Virgina respectively and a special election in upstate New York to fill a House seat whose Republican Congressman was appointed by President Obama to be Army Secretary. There was also an election for NYC Mayor, that nobody is drawing national implications for because everyone knows New York City is never reflective of the country as a whole and Mike Bloomberg is a political anomaly with no strong party identification. Also though not the case in New York City, many municipal elections in the country are held on a non-partisan basis and though New York City is overwhelmingly Democratic in registration is has elected Republican mayors several times (remember some guy named Giuliani?), though it never votes Republican in a Presidential election.
One of the reasons why it is clear that the gubernatorial elections were not a vote on health care is because the one thing that has indisputably happened is that how to manage and regulate healthcare has permanently moved to Washington and away from the states and because the outcome is going to be decided in Washington, it is not going to be a big issue in any Governor’s race unless one of the candidates served in Congress and voted on it. The Democratic nominee in Virgina was so weak that even former Democratic Governor Wilder refused to endorse him despite a plea from the President to do so. That the Republican candidate won a crushing victory speaks more to the weakness of his opponent than anything related to national politics.
In New Jersey, neither candidate was that popular, it was just that the incumbent who was a Democrat was more unpopular – how could he not be? – New Jersey has one of worst fiscal problems of the 50 states and just raised its income tax to the highest the country. Now New Jersey did not get into this financial predicament because of Jon Corzine, he inherited it and the problem was caused by a multi decade succession of decisions by Governors and legislators from both parties – but this is lost on most people. Then there were the issues that were uniquely Corzine, such as supported giving in-state tuition to illegal aliens at a time when taxpayers are having trouble paying for their own kids’ college – and his affair and cash payments to a public employee union president which union represented half the state workers. Therefore also a fear that he would sharply raise tolls – in New Jersey unlike in California, freeways are not free and nobody wants to pay anymore than they already do, not to mention having to pay to cross the bridges and tunnels into New York. Now someone could say these two issues, taxes and illegal immigration show a movement to the Republicans, but that is because most of the world mistakenly counts New Jersey as a solid Democratic state – they don’t understand New Jersey. Democrats outnumber Republicans 1.76 million to about 1.06 million, but the number of unaffiliated or independent voters is 2.4 million – New Jersey is a swing state, always has been – it tilts more Democratic than it did 30 years ago, but it is a state that is more moderate and less partisan than most people realize, it is even has an open primary system. A CNN poll found that 60% of independents in NJ voted for the Republican (Christie) over the Democrat (Corzine).
Much has been made that New Jersey has not elected a Republican to the US Senate since 1972 (Cliff Case) although two of the Democratic Senators elected had vast fortunes to spend allowing them to go from political obscurity to front runners irrespective of idealogy (Lautenberg and Corzine who was first a Senator). More telling is the trend in Presidential elections where New Jersey which was more likely than not to vote Republican since the 19th century has voted Democratic in the last five Presidential elections. But if you parse that a little, and accept the premise that New Jersey is in the middle, realize that three of those five elections were Clinton-Gore who were much more centrist than previous Democratic nominees and Kerry though more liberal was also from the Northeast. There is no question that New Jersey is more Democratic than it was years ago, but is it really a blue state? New Jersey has had ten Governors since its modern day Constitution of 1947 including Jon Corzine; six have been Democrats and four were Republicans including two term Christie Whitman who serve das Governor mostly overlapping when Bill Clinton was President, so why is electing a Republican Governor in New Jersey so shocking?
I think the most interesting election actually was the election to fill a vacant House seat in upstate NY that went to the Democrat and the election was to fill a Republican seat from an area that had elected a Republican ever since the Civil War. Again I don’t think that speaks to national politics other than the split in the Republican party between moderates and conservatives, whose infighting arguably made it is easier for the Democrat to win. But it was not healthcare that was an issue, but national Republicans all taking sides on who the Republican nominee should be, with many supporting the Conservative Party candidate (in NY there are Conservative and Liberal parties that normally cross endorse the Republican and Democratic nominee respectively, but when they don’t it often leads to a split vote, where the candidate backed by two parties wins). Many people who lived there resented the outside interference, Russ Limbaugh pushed voters who were on the fence into the Democrat camp by an ugly attack on the Republican nominee who dropped out to support the Democratic candidate. That is what happened here – it was not about healthcare or about Obama.