The stock market is soaring. The Wall Street Journal reports, “The Dow rose 137 points, or 1%, to 14265 in midafternoon trading, after notching an all-time intraday high. Blue chips were on pace to exceed their record closing level, October 2007′s 14164.53, after more than doubling from a low of 6547.05 in March 2009.”
The mainstream political media (“God love ‘em!” as VP Joe Biden would say) say this is “in spite of” or “even with” the sequester. But could it be because of it?
After all, by standing firm, the GOP fought off the prospect of a new tax hike. And by caving, namely agreeing to sign a continuing resolution that will incorporate the sequestration cuts, the president removed the threat of a government shutdown and gave encouragement to those looking to bring down the debt. Larry Kudlow argues:
If Keynesian spending was going to work, it would have already worked.
So maybe we should try something new. Let’s lower spending and free up resources for the innovative private sector, and then let’s see if the results are better. . . .
No, I’m not making the case that the spending-cut sequester is going to immediately launch an economic boom. But I do believe it will help economic recovery over time. (Congress could help, too, by passing pro-growth corporate tax reform that lowers marginal rates and eliminates cronyist tax loopholes for both large and small businesses. That would be a real economic booster shot.)
Now we shouldn’t over-interpret the stock market nor attribute every positive sign to the sequester. With the Fed’s quantitative easing policy and the ensuing low interest rates and state of the bond market, investors have to put their money somewhere. But it is one of many signs that the president is going to be hard pressed to come up with evidence of economic ruin to justify his sequester hysteria. (Nevertheless, the administration appears to be warning at least some bureaucrats to make good on the promises of pain.)
Then there is the political fallout. Republicans are all-too ready to point out the president’s tumble in the polls. Republicans are enjoying a rare batch of good media (or rather, negative coverage of the president) and brief spell on the high ground. House Majority Leader Eric Cantor (R-Va.) beamed at today’s press conference, “I think clearly from the evidence of the Gallup poll that was out lately about the president’s approval rating, people are tired of the political games in this town and they want to see some resolution of some problems.”
But then again, they should not overstate the case. The president has been on a steady decline since the inauguration, which was part of a post-election bubble. We’ll have to see if he goes lower than his preelection norm. And the GOP should avoid sequester euphoria, just as we have noted that the president should have steered clear of silly sequester hysteria. Republicans have a long way to go in making the case for a conservative agenda, presenting a reasonable budget and addressing issues like immigration reform. But it does help when the sky doesn’t fall and the president’s Chicken Little routine is widely derided.