No Red Wave: Biden May Have Saved His Legacy and the Democratic Party

Midterm elections refer to a ballot held during the midpoint of a President’s four-year term in office. All 435 seats in the United States House of Representatives and 33 or 34 of the 100 seats in the United States Senate go up for election.

What Is It, and What Happened?
The midterm elections are for a two-part parliament, the House of Representatives and the Senate. These votes are held every two years and are called midterm elections during the middle of the president’s four-year term. Midterm elections often serve as a verdict on the president's course, and the party that controls the White House tends to lose seats. It is a concern of President Biden, whose voter approval rating has been running below 50% since August of last year. Prior to the election, Biden admitted at a press conference that his party would not hold on to the House, mentioning that the toss-up races were leaned towards the Republican Party. However, the results of it were unexpected, one that perhaps only the most optimistic Democrat could have imagined.

In sum, the battle between the democrats and republicans came far closer than many analysts have previously predicted. For Congress–which includes the House of Representatives and the Senate, Democrats saw a victory with 50 seats won over 49 in the Senate, while the Republicans are poised to win the House with 220 seats over 213.

The Republicans’ success in gaining control of the House of Representatives is a first, at least since 2018, under Donald Trump’s presidency.

Impacts & Responses
President Biden, however, was in fact expecting the Republicans to appear likely to control the House of Representatives following the election and hence, claimed that he is “prepared to work with [his] Republican colleagues,” the day after the election. Biden even announced his plans to discuss how leaders from both parties would work together and yet, it still remains unclear which areas of policies he is open to compromise with. However, what Biden did make clear is the areas that he will not. He strongly emphasized that he will veto any creation of a federal abortion ban and the repeal of the Inflation Reduction Act. Moreover, he made it clear that he won’t pass any significant cuts to Social Security or Medicare.

From a business perspective, despite the midterms being seemingly a short-term event, investors assume that the impact of it may play a more vast role in the long term. The decisions made by a political party may drastically affect the stock markets. They can raise or decrease corporation tax, which can ultimately affect a business's profits. They could also introduce new laws such as employment rights, which could affect business methods of running and could potentially increase or decrease business costs. Therefore businesses would usually be attentive to these political parties as their resolutions may affect them.

Yet, the effects of midterms already seem to surface. U.S. stocks dropped on Wednesday, after expectations of a “red wave” from pollsters and as investors looked ahead to a closely watched inflation update on Thursday. Wall Street's S&P 500 fell 2.1%, while the Nasdaq Composite fell 2.5%. As mentioned, many pollsters predicted a "red wave" of Republican victories before Tuesday's vote, but the initial results showed Democrats performing better than expected, with Congress' control still in the balance. Some investors were cautioned of reading too much into the early stock moves, with Republicans still expected to weaken Democrats' control. Brad McMillan, the chief investment officer at Commonwealth Financial Network, said, “I think the immediate sell-off can probably be attributed more to reflexive selling of the news rather than something worse."

Not only that, following the midterm elections, The Federal Reserve last three weeks lifted its main interest rate by 0.75 percentage points and chair Jay Powell warned the U.S. central bank still needs efforts to bring down inflation. The consumer price index’s core measure of inflation, which strips out volatile energy and food costs, remains close to its highest level in four decades. The dollar index strengthened 0.8 percent on November 16, 2022. In government bond markets, the yield on the 10-year Treasury slipped 0.03 percentage points to 4.10 percent. The yields fall when prices rise. These will make loans more expensive for businesses and consumers, and everyone will spend more on interest payments.

U.S. Political Spectrum & 2024 Prospects

The phrase “culture wars” generally refers to the conflict between sociopolitical groups in gaining dominance of their values, beliefs, or priorities. In the context of the U.S., the two groups at the forefront of the ongoing “culture war” would be the left and the right-wing–the left often is interchangeably referred to as democrats, while the right as republicans. Leftists typically advocate for progressive views that promote personal freedom, support workers and define freedom as one that is without inequality. In contrast, right-wing beliefs are generally reactionary; advocating for traditional ideas and values with a heavy emphasis on the individual over the collective society, defining freedom as being given the chance to succeed or fail. While both parties hold strikingly contradictory views, they are close competitors when it comes to the support of the American people, often sparking a nationwide debate on how both parties choose to approach social issues.

The Economics of Political Spectrum
In the U.S. there seems to be a belief that a red wave would be beneficial to the overall health of the economy; a belief that is based on the perception of intrinsic characteristics held by the Republican party, such as the fact that they make better economic decisions. Albeit, Trump’s mandate disproved this with his incurrence of 7.8 trillion dollars of the national debt as well as with his mismanagement of finances, which gashed the economy. Moreover, economists have shown that the response to the current economic decline is fundamentally the same when it comes to the Republican and Democratic parties. Both seek to cut spending, expand oil production and relieve supply chain blockages, yet voters seem to still hold firm with the aforementioned belief.

There seems to be a lack of understanding of the government’s role in a nation’s economy, however. Yes, the government should seek to decrease inflation, but inflation crises are ultimately influenced by the Federal Reserve. When it comes to government intervention, it speaks more to ensuring that effective resource allocation isn’t infringing on a particular group’s welfare. For instance, rent control–in enforcing it, the government seeks to decrease homelessness and ipso facto increase the number of workers and consumers present in the market, which can aid the overall health of the national economy. However, republicans have historically shown apathy towards economic implications for marginalized groups, leaning towards a decrease in government intervention, contrastingly to the Democratic party.

Changes in the U.S. political climate are heavily affected by which party has effectively calmed the current needs of the population. If the spiral toward a recession becomes an even bigger concern than it is now, it is possible that we see the American diaspora lean toward wanting more Republicans in the House due to the opinion that they attack economic issues more adequately. However, if voters see greater importance in improving social issues, there could be a lean towards a Democrat majority.

What We Know About 2024, So Far
November 15th of 2022, Trump announced to America that he will be running for president under the Republican party. “In order to make America great and glorious again, I am tonight announcing my candidacy for president of the United States,” were his exact words. Similarly, Joe Biden seems to indicate his enthusiasm for running again. Therefore, it seems that 2024 will open yet another Trump vs. Biden presidential election after 4 years. Albeit, Biden’s candidacy is uncertain as of now, there are several significant advantages the democratic party will face if his reelection is satisfied. A known president-predictor and a history professor Alan Lichtman notably states that “With the sitting president running again, you’re not going to have a big internal party fight, [...] and you’re unlikely to have a big third-party movement. It's also worth noting that Biden will probably achieve major policy changes from the Trump administration,” Overall, we are able to derive the conclusion that Litchman leans towards democratic victory, as the republicans fail to put out a compelling, ‘once-in-a-generation’ candidate for 2024. We are yet to find out how the current controversy surrounding Trump will affect his candidacy.