Why The Democrats Won't Destroy The Economy

As a supply side Republican, I'm going to don my heat shield and say something most readers of this blog won't like. Here goes: Even if the Democrats sweep in 2008--win the presidency and add to their majorities in the House and Senate--they won't kill the economy and stock market. At least not as much as many of us fear.

First, what are those fears:

1. Taxes go up, even if the ruling Dems do nothing and let the Bush tax cuts expire in 2010.
2. Regulations get worse, especially those governing health care and energy.
3. Trade slows down, because of higher tariffs.
4. Frivolous lawsuits proliferate, as Dems throw a bone to one of their favorite lobbies.

Listen to any Dem of stature today, and you can be forgiven for thinking Dems will quickly run the economy into the ground by mounting and riding the four-horseman above. But will they really do that?

--On taxes, this Michael Barone piece on the Alternative Minimum Tax shows the political trap that Dems have set for themselves. The AMT burden crushes mostly high-salary earners in high-tax states: blue states, in other words. Which means the Dems will soon face a tax revolt from their own highest-income supporters in states like New Jersey and California. These were once Republican states and could go Republican again, given enough tax pain.

--On regulations, wait until baby boomer liberals discover that onerous regulations on health care will reduce treatment choices. My choices? Wait until blue-collar Dems see fuel prices under Al Gore-like regulations.

--On trade, blue states like New York, Massachusetts and California are huge players in the global economy. Wait until those trendy, lefty citizens of Wall Street, Route 128 and Hollywood learn that "fair trade" (i.e., trade festooned with tariffs and restrictions) cuts both ways.

--On plaintiff lawyers, the action has moved to the states. One of the great unsung reasons for U.S. economic vitality is state by state competition over taxes, torts and regulations. Texas was once friendly to plaintiff lawyers and frivolous lawsuits. Not so much anymore, as Texas lawmakers have seen the economic damage to the state inflicted by the trial bar. At the state level, the trend is against the trial bar.

As a supply-sider, I'd prefer to see a determined tax cutter and free trader like Rudy Giuliani or Mitt Romney as president.

But as an investor, I'm not going to panic and bail if the Dems sweep. One thing I know about politicians: Regardless of what they say, their top priority is always to get re-elected. No American political party will be re-elected if it wrecks the economy and stock market.

A cynical view of politicians can lead to a bullish view of stocks.

What do you think? Will Democrats, if they sweep the 2008 elections, act as leftist as they talk?

Will you base your investment decisions on how you think the 2008 elections will go? Or are the 2008 elections irrelevant to you?

With my heat shield donned, I await your comments, which you can post below.