Well, I had fun watching the VP debate last night. But let's say--just for the sake of discussion--that the Bluegrass Rumble did not fundamentally transform the electoral landscape. Where does that leave us? Specifically, where does that leave the prospect of a major deal on the bundle of fiscal decisions known as the "fiscal cliff"?
Yesterday (about noon) I took the election odds from Intrade for the White House, control of the Senate, and control of the House (see details below). For the Democrats, this yields these % chances of Democratic success (Republican odds are the remainder):
|Dems control Senate||69.5%|
|Dems win House||11.6%|
The striking implication is that the 2012 elections are highly unlikely to grant either party unified power to implement its preferred policy. There is about a 5% chance of Democratic control, 10% chance of GOP control.
There is about a 39% chance that the 113th Congress will repeat the current political alignment, and 46% chance there will be some other form of divided government. This last estimate is probably inflated since I assume these events are independent, whereas in real life a GOP surge to win the White House would probably be accompanied by increased GOP success in House and Senate races (for example).
I just want to make two quick points about this estimate.
Worst. Congress. Ever. During a time when the U.S. has faced immense challenges, the Congress has been essentially paralyzed on major policy problems. Someone ought to pay a retrospective price for the failure. Maybe voters want to blame the Republicans, maybe they want to blame the Democrats, but one party or the other ought to pay for this failure. Prospectively, a continuance of divided government threatens to mean more of the same. If the same players are reelected, that's a mandate for more of the same.
2) If elections won't break the partisan logjam, Congress should think about Plan B: compromise. When I first took a game theory class, I was relieved to learn that when it is costly for actors to procrastinate, they will avoid those costs by cutting a deal as quickly as possible. Hah! There are more sophisticated models that explain why we actually observe wars, strikes, and gridlock, but the 112th Congress could learn a bit from the simple models. If elections aren't going to change the identity or preferences of the main players, there's no point in procrastination. If Rs & Ds just struck the deal they have been flirting with for two years--a blend of tax increases and spending cuts--it would cut the unemployment rate by .5%, which is .5% better than voting to repeal Obamacare again.
There doesn't seem to be any Congressional effort to work on a fiscal cliff bargain. After a five-week August break, Congress returned, agreed to punt the fiscal year 2013 appropriations bills into the 113rd Congress, and got back onto the campaign trail. Nor it is likely that there will be a lame-duck deal because Speaker Boehner is waiting for, well, nothing.
* I used the likelihood of Democratic victories and, instead of using the markets for Republican victories (since total odds can sum to more than 100%), I assumed the Republican odds for the White House and House were (100% - Democratic odds). For the Senate, there was a 15% chance of a tie. In the event of a tie, the VP decides the majority control, so I divided up this "tie" prediction between the two parties based on the White House prediction: +9.5% for the Democratic % chance to control the Senate, +5.5% for the GOP.