Late for Halloween: The Horror.....a post on a pointless topic!

There are many things that Our Man tries to avoid talking about in this blog, mainly because they’re terribly dull.  However, some of these he does his best to avoid talking about at all (even with friends, down the pub).  These include topics as tedious as why don’t Arsenal have a good ‘keeper and why are the Mets terrible, but there’s one topic that Our Man avoids more than any other; politics!!  It’s not that Our Man doesn’t like politics (he does), it’s just that talking about it isn’t all that interesting; it’s largely ideological (on both sides), and who cares about the facts!

So why force you to read a post on politics?  Well, as a politician would say, “It’s their fault” (cue: Our Man pointing in the direction of various friends who’ve attempted to get him to discuss politics over the last 2 weeks.  You know who you are).  I can’t blame you for turning away now, but if you can stomach it, here are Our Man’s thoughts on some political topics:

Does a Republican House suit President Obama?
Firstly, I’d note that the biggest impact on Obama’s presidency (2011-2012 edition) probably won’t be the election results tonight!  It was likely Peter Rouse replacing Rahm, on at least an interim basis, as Chief of Staff.

While most, especially the market, are assuming that a Republican House means gridlock and that’s a good thing, I’d instead ask if a Republican House suits the President?  Doesn’t it allow him to do what he does well – sit above the fray, and broker consensus building agreements between the Senate and the House?  And given Republicans control the House, doesn’t it make it harder to characterize the President as a Socialist when you’re writing the bills and sending them to him?  And if you’re in power, and control the House (which writes the legislation) it’s probably somewhat harder to be the party of “No”…without taking a hit from the public for it.

The most important post-election story for the markets
Won’t be an extension of the Bush Tax Cuts (more on that below), but will be the chairmanship of a sub-committee of the US House of Representatives Financial Services Committee.   Yes, you read that right.  Why?  As among the roles of the Domestic Monetary Policy & Technology sub-committee are the Oversight of Emergency Authority and the Audit of the Federal Reserve.   Oh, and the ranking minority member (and thus presumably favourite to become Chairman of the sub-committee) is a certain Ron Paul.  Yes, the Ron Paul who published a book in the last 18months called “End the Fed”.

Bush Tax Cuts and Wealth
While there is much debate as to whether the Bush Tax Cuts will be extended, and for whom, the debate is likely moot.  In all reality, the current Congress will let them expire and the new Congress will pass something with even the President willing to extend them for those making up to $500K/$1million.  Given that, according to the IRS, less than 2% of US households make even $250/year the debate about whether the tax cuts should be extended for those over $500K or $1mn will have little impact on the majority of society.  Thus Our Man's view of how far up the tax-cuts are extended is, in Snoopy-style, to go Bleah!

Before I venture off further into contentious ground, let me end this blog post with a Rawls-ian thought experiment.  Imagine splitting the US into wealth quintiles (or fifths, as I personally like to call them) from the wealthiest (top 20%) to the least wealthy (bottom 20%), and ask yourself: i). To estimate how much wealth do each of these quintiles currently represent as a % of the total? (i.e. Top 20% currently represent A%, Second 20% represent B%, etc) and ii). To construct a distribution of wealth, that in an ideal world, you think would be fair (i.e. Top 20% should have X% of the wealth, Second 20% should have Y%, etc)

Thankfully, I’m not crowdsourcing, but a recent paper by Michael Norton (Harvard Business School) and Dan Ariely (Duke University) actually asked these kind of questions in a nationally representative sample and their results are below.  You’ll note the irony that people’s estimates were almost (identical irrespective of sub-group) and their ideals were also broadly similar, but neither was a good reflection of reality.