08/11/2006 9:15:40 am
Implications of the Democrat Victory. Despite efforts from John Kerry, the Democrats won the House, as predicted, though the Senate remains uncertain. It is more of a loss for the Republicans than a real victory for the Democrats.

The common explanations for the discontent are the situation in Iraq - which has not been handled the way it should - and the scandals. Personally, I think one should not underestimate the importance of the criticism against the Republicans from their own people about abandoning policies for small government. The expansion of the federal government with George W Bush has been criticised as a betrayal of core conservative values. This is likely to have discuraged many Republicans from voting.

What will happen? Well, normally in a system of checks and balances like the US federation, this is a situation which leads to less government intervention in society. Spending increases have historically been smaller when there have been different majorities. This is simply due to the fact that it is harder for the politicians to agree.

In this case, however, it might, at least initially, have the opposite effects. First, the tax decreases by George W Bush - foolishly made temporary from the start - will probably not be prolonged. Second, there will be no social security reform that will avoid a spending increase for pensions. Third, if anything, there will be more restrictions on foreign trade.