The Independent Market Observer

12/28/12 - The Anti-Incumbent Party

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Dec 28, 2012 12:30:54 PM

and tagged Fiscal Cliff, Politics and the Economy

Leave a comment

The stories today are all around the fiscal cliff, of course, and the woeful inability of Congress to accomplish anything other than trying to shift the blame. One of the most annoying memes is how annoyed the representatives are to be stuck in Washington over the holidays.

I find this to be absolutely indicative of the absence of a sense of responsibility. Whose fault is it that they are stuck there? Many sources say that the differences between the two sides are trivial at this point, so why hasn’t a deal been cut? There is absolutely no excuse for the absolute abdication of responsibility—on both sides—that has taken place.

The other incredibly annoying meme has been the constant effort to shift blame. John Boehner has gone first, for the Republicans, but Harry Reid weighed in yesterday for the Democrats and also interjected a Senate/House shot. The problem is that it is both sides’ fault.

Scott Adams, author of the Dilbert comic strip and a very interesting thinker, has a blog that I look at occasionally for both laughs and good ideas. He has come up with the notion of an “Anti-Incumbent” party. The idea is that, if some percentage of the population—he estimates that 10 percent would be sufficient—commits to voting against all incumbents anytime that there is a manifest failure of government—now, for example—that could create an incentive for politicians to get the job done. At other times, when the government is working at a typical level, party members would vote as they would normally do. There are certainly problems, but I think that he is on to something.

Nate Silver, in today’s New York Times, points out that, in many cases, our politicians are actually rationally following their individual incentives in ensuring their own re-election. With most districts less competitive than ever, the challenge to an incumbent would not be from the other side but from a more doctrinaire member of his or her own party. An incumbent therefore has a personal incentive not to compromise, leading to the present situation. An Anti-Incumbent party, per Scott Adams’s idea, could change that incentive to making systemic results more relevant to incumbents than they are right now.

Something has to be done because the stakes are increasing. I mentioned that holiday spending increased much less than had been expected, probably because of decreased consumer confidence, and the papers are now on to that, with articles in both the Wall Street Journal and NYT today on how consumer confidence is eroding as the fiscal cliff nears. The economic effect of the fiscal cliff could be quite bad on its own. Couple that with another debt ceiling debacle, consumers pulling back even more than the fiscal cliff would justify, and something—anything—going wrong in the rest of the world, and the consequences could make the politicians regret all the squabbling.

I know at this point that I would be willing to sign up as a charter member of the Anti-Incumbent party. Anyone want to join me?


Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®