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Lotterman: National economic policy not clear yet

Can divided power yield coherent policy?

What effects the 2006 landmark election will have on economic policy or the economy are not clear yet. Clearly, however, we are going to have a divided government in Washington, D.C. A Republican heads the executive branch while Democrats control both legislative houses.

Economists typically pay very little attention to the performance of divided government or the effects of different national constitutions. They tend to leave these topics to political scientists and don't worry about the results of their scholarship.

That is a pity. The ability of government to develop coherent economic policies often is more important than the specific content of those policies. The question is whether we are more likely to get coherent economic policies with one party controlling both branches or with divided power during the next two years. Outcomes can vary.

Divided government usually slows change. That might be bad, when the need for change is urgent. But checks on how rapidly and drastically change occurs can avoid policy excesses.

That is what the framers of the U.S. Constitution had in mind in creating the system of checks and balances. They were skeptical about government in general, having witnessed the damage caused by governments that were too powerful or those that acted too hastily in England and elsewhere.

They would not have been surprised by the policy ping pong in England between 1945 and 1979, when socialist governments nationalized industries and created social services only to see these changes reversed when a conservative government took power. The cycle started anew when the conservatives in turn lost an election.

That is why our Constitutional Convention established a structure with separate executive and legislative branches and a two-house Congress. Change would usually require deliberation and compromise. The minority would have a say on any issue. Change would be slow and not easily reversed.

The design is a two-edged sword. Deliberation and a voice for minorities are good, but structures that impose deliberation can foster stalemate.

Moreover, divided government can create muddled responsibility. When nothing happens and persistent budget deficits or unfunded Social Security entitlements go unaddressed, for example, it is not clear who is to blame. Each side points fingers at the other.

Much depends on the willingness of both sides to cooperate and compromise. History shows cases where fruitful cooperation occurred and where it did not.

The Johnson administration got Medicare and the Voting Rights Act passed with bipartisan support. Republican support on civil rights legislation was key since the Democratic Party still included many Southern segregationists.

The first two years after the Republican victory in 1994 are a counter-example. The Clinton White House and Newt Gingrich's House traded cheap shots but didn't get much done. Still, the climate improved after 1996.

The relative power of the two sides is important. Democrats have majorities in both House and Senate, but not large enough to easily override presidential vetoes.

Our nation needs prudent action on the budget deficit, Social Security and climate change. A lot is riding on cooperation, but what will happen truly is up in the air.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com

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