IN January victorious congressional Democrats will swarm into the offices from which they have evicted their Republican foes. Republicans who have lost their seats will find work as Washington lobbyists rather than return to the home towns they always profess to love so much. Republicans who have retained their seats will be moving to the smaller offices to which they had consigned the Democrats when they controlled office assignments — and be made to make do with fewer staff. I was about to say, “And now on to the serious business of governing”, but that would diminish the importance that congressmen attach to office and staff size.
Still, after unpacking, Congress will turn to legislating as a frightened business community braces itself for a flood of hostile legislation and nerve-jangling investigations.
The president has already announced his support for an increase in the federal minimum wage from $5.15 an hour (£2.63 an hour, compared with Britain’s £5.35), the level set a decade ago, to $7.25 by spring 2009. Congress wants to catch up with the many states that have put in place a minimum that exceeds the federal level.
Democrats also want to catch the populist wave rising in America. Voters feel that the middle class, or the average worker, or Joe Sixpack, or what you call the Man on the Clapham Omnibus, has not shared in the economic growth of recent years. Wages have not risen as fast as profits, and the recent spate of multi-million-dollar Wall Street bonuses has caused many workers to figure that some financial high-flyers make as much in an hour as they make in a year. Throw in tales of rigged corporate compensation through backdating of options, and you have a political atmosphere in which a rise from $5.15 an hour to $7.25 over almost two years doesn’t sound particularly generous.
Diana Furchtgott-Roth, a labour-market expert and colleague of mine at the Hudson Institute, reckons the rise will directly affect 8% of America’s 152m workers: the 2m who now earn the $5.15 hourly minimum, and another 11m earning between $5.15 and $7.25 an hour. Add in fringe benefits, and the effective minimum cost to employers will come to about $8, meaning, says Furchtgott-Roth, that “those who produce under $8 just won’t get hired”. Since 60% of workers now earning the minimum are employed in the restaurant industry, I asked a leading operator of food franchises what the effect of the rise might be. He said that he planned to speed up the introduction of new labour- displacing technology. Not good news for the many students he would otherwise employ.
The Democrats will next turn to the voters’ annoyance with rising healthcare costs, more of which are being passed from employers to employees. Never mind that the prescription-drug bill pushed through by the president subsidises purchases to the tune of billions of dollars; voters think drug costs are too high and the Democrats think they know what to do about it. They will pass a bill giving the federal government the power to negotiate with the pharmaceutical companies to buy drugs in large volumes at knock-down prices. “Goodbye profits and goodbye research on new cures,” say lobbyists for Big Pharma. But they seem less certain than they once were that they can kill the bill in the Senate or, failing that, persuade the president to veto it.
Then there is what the president won’t get. He won’t get an extension of his tax cuts, which expire in 2010. Democrats see those as gifts to the rich, and a vote to renew them would ignore the new populist groundswell. They are unimpressed with the argument that business and individuals need to plan investments now based on the tax code as it will be in 2010 and beyond, and want to go to the country as opponents of the super-rich who are providing grist for the mill of the leftish press by snapping up multi-million-dollar flats and the modern art with which to decorate them, and by splashing out for the expensive cars, clothes and bling that have sent luxury retailers’ profits soaring this Christmas season.
Proponents of free trade will also find life less pleasant. Treasury secretary Hank Paulson might think it progress to get the Chinese engaged in a long-term “dialogue” but he doesn’t have to stand for election in 2008. Congressmen facing pressure from trade unions will demand that any new trade agreements require our trading partners to adopt American-style labour and environmental standards. Never mind that such a requirement will reduce the advantages of trade and slow the phenomenal improvements in overall living standards that have been associated with it. Congressmen are more concerned with short-term political gain than longer-term advances in living standards.
Not all the action will be on the legislative front. Congress is lining up a series of investigations into alleged abuses by big business. Lord Browne will be hauled in to explain the fatal fire at BP’s Texas refinery and the condition of the company’s Alaska pipeline. That testimony will be under oath, creating the danger of perjury indictments if the BP chief executive’s memory slips on some minor detail.
There is more. Drug companies will be called on to defend the prices that the Democrats hope to reduce if they can get their legislation past the president. Oil companies will have to explain why they need tax breaks to swell their already swollen coffers even more. Contractors will have to confront tales of misuse of federal funds, from Iraq to New Orleans.
Not exactly a prescription for a Happy New Year for the business community, reaping the harvest it sowed by increasing its financial support for Democratic candidates.
Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute.
