Fisher Investments Editorial Staff
US Economy, Politics

The Congress of Our Discontent

By, 06/17/2013

Are our elected officials hard at work (?) Source: Getty Images

Friday, poll publisher Gallup released new results showing confidence in Congress hit 10% this week, marking its fourth year in dead last among US societal institutions. (For a complete list, go here.) Actually, 10% is the lowest level seen for any institution, ever! Many claiming the low confidence is due to Congress’s virtually even partisan divide are likely right. Without one party’s controlling Congress, gridlock occurs, preventing much legislation from easily passing (if at all). A Congress that can’t pass laws is widely accepted as ineffective.

In our view, though, a deadlocked Congress is actually a good thing. When legislation’s harder to pass (especially extreme legislation), there’s overall less uncertainty for markets—and fewer surprises. Look at the majority of legislation from the last four years. Almost all was widely discussed (and materially changed) prior to passing, giving markets plenty of time to digest and move on.      

Low confidence in Congress probably won’t move markets, either. We actually see it as a sign politicians likely moderate some more in advance of the 2014 midterms. As long as their electorates are unhappy with their job performance, politicians risk re-election. So to please the most people, and up their job stability, politicians probably—gradually—put partisanship aside to regain popularity. (For more on political moderating, see this video.) And that can be a powerful unexpected positive for stocks.

Congress Rounds up The Farm … Bill

Many believe gridlock means nothing will get done, to the economy’s and market’s detriment. Yet that’s an overstatement, in our view, exemplified again Monday when the US Senate approved much-ballyhooed new farming legislation.

The bill has the distinction of being dubbed, “The Farm Bill,” though not all aspects are very agriculture-related. In fact, many cite the most important purpose of the bill is to provide a budget for the Federal food stamps and other nutrition programs. (Food comes from farms—is that the connection?) Projected to cost $955 billion over the next ten years, it replaces the previous bill which expired last year. The Senate tried to pass a replacement bill at the time, but it died in the House with strong Republican opposition, likely due to budgetary quibbles—ah, politics.

The House still has to pass their own bill and both sides will have to approve each other’s. House Speaker John Boehner announced he would support the legislation, noting “Doing nothing means that we get no changes in the farm program, no changes in the nutrition program.” Gridlock doesn’t mean nothing happens. It means big, sweeping changes—like some of 2010’s laws—don’t get done, to the benefit of stocks.

The Always Changing ACA

Speaking of those 2010 changes, here’s one that seems to be ever-changing.

We wrote recently that the Affordable Care Act (ACA) may not be so affordable. Here’s another angle many likely hadn’t considered before that we stumbled on. Unless otherwise exempt, employers with over 50 employees must offer an “affordable” health insurance option. But what does affordable mean? The employer can choose a plan with lots of bells and whistles. Maybe that plan is affordable based on the level of coverage, but it might price out many of their employees. The employer doesn’t have to pay for plans employees choose not to accept. But the employee must still have coverage or pay a fine! In that case, they must go out to the exchanges or private market (if one exists in their state), where plans may still be fairly expensive.

The good news here may be, if you feared increased costs would damage corporate profit margins, some employers may yet find creative ways, legally, to avoid or mitigate some of those costs. The bad news is, if you believed the ACA would provide increased coverage at cheaper rates, that may well turn out not to be true. The reality is: Major legislation often has a way of not having the impact—for good or bad—most expect. Too much can change, politicians are too mercurial, firms are too motivated to protect profits, and individuals are too motivated to make decisions in their own best interest that often don’t line up with how politicians wish they’d act.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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