Political Small Ball And Its Impact On Municipal Bonds

January 10, 2013

Given the agreement recently forged over the New Year, has enough uncertainty been removed to allow all economic players to get on with their economic lives? 
-Tom Dalpiaz, senior vice president, asset management, Advisors Asset Management


In baseball, the term “small ball” is used to describe a method of scoring runs by doing a combination of little things successfully. Runners are moved along one base at a time by having their teammates hit singles, walk, bunt, steal bases, and make sacrifice flies. You could say small ball is the opposite of the “big inning” where home runs dominate.

In politics, making a grand bargain might be compared to the big inning where big things are accomplished in a big way. Given the serious issues we currently face regarding government spending, deficits, and the need for entitlement and tax code reform, it is not surprising many investors and the public generally have been feeling the need for a big inning or grand bargain from our political players.

But has the possibility of a grand bargain been a grand illusion all along?  The popular vote in the past four presidential elections has been fairly close by historical standards and recent studies and polls have highlighted the increasing polarization of our politics. Nate Silver, political analyst, recently noted the sharp decrease in Congressional districts that could be considered swing districts. These reasonably contested districts, where votes for Republican and Democratic candidates are fairly tight, have declined by two-thirds over the past 20 years (from 105 districts to just 35 currently). Incentives for compromise dwindle when a growing number of Congressional representatives are unlikely to face close election contests from an opposing party. In the past 18 months, we have had three failed attempts by our executive and legislative branches of government to arrive at a true grand bargain: the debt ceiling negotiations of July 2011, the supercommittee deliberations of fall 2011, and the November/December 2012 battle to avoid the fiscal cliff. In light of the political realities of the past few election cycles, it is no wonder a true grand bargain has been so elusive.

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