Rejected consensus?

US elections: The Republican surge in America’s November 3 off-off-year elections may re-open the economic policy debate. The party’s victories in the state houses of Virginia and New Jersey will bring no quick change at the national level. But a bipartisan economic policy consensus since 2007 has favoured government spending and state bailouts. The results suggest a popular distrust of both that may force policy modifications.

Virginia has had a pattern since the 1980s of electing Governors from the opposing party to the President, so a narrow victory for Republican Bob McDonnell would have been no great surprise in isolation. However in spite of the state’s gentle leftward demographic trend and Barack Obama’s success there last year, McDonnell won by around 18 per cent, the biggest landslide since 1961 and the biggest Republican win ever.

In New Jersey, incumbent Governor Jon Corzine had raised taxes, failed to control government spending and attempted to impose tolls on hitherto free highways. His background as former head of Goldman Sachs won’t have made him more popular either, though it provided him with ample campaign funds. In the event, Republican Chris Christie appears to have won narrowly in a state Obama carried by a hefty 15 points.

The results do not repudiate Obama, who remains generally popular and admired.

However there is considerable public discontent with the economic policy followed by both parties since the recession began in 2007, which involved massive increases in the federal budget deficit together with bailouts of unpopular banks, Fannie Mae, Freddie Mac and Detroit automakers General Motors and Chrysler.

The Democrat congressional healthcare proposal, which expands public spending without much attempt to control, and account for, costs; and the House of Representatives’ “cap and trade” carbon emissions proposal, which increases state control over the energy sector, have both met with considerable grassroots opposition.

The American public is wary of the massive increase in the public sector implied by the present budget deficit of around 10 per cent of GDP. If further analysis demonstrates this carried into the polling booth Tuesday, then the Obama administration’s economic policy may shift sharply towards control of public spending, as midterm elections in November 2010 could otherwise cost Democrats their hard-won control of Congress.