U.S. Markets open in 5 hrs
  • S&P Futures

    -15.75 (-0.39%)
  • Dow Futures

    -117.00 (-0.34%)
  • Nasdaq Futures

    -34.25 (-0.29%)
  • Russell 2000 Futures

    -6.70 (-0.35%)
  • Crude Oil

    +1.17 (+1.46%)
  • Gold

    +2.00 (+0.11%)
  • Silver

    +0.02 (+0.11%)

    +0.0030 (+0.2851%)
  • 10-Yr Bond

    0.0000 (0.00%)
  • Vix

    +0.45 (+2.27%)

    -0.0015 (-0.1228%)

    +0.9640 (+0.7180%)

    +283.96 (+1.67%)
  • CMC Crypto 200

    +9.28 (+2.31%)
  • FTSE 100

    +5.18 (+0.07%)
  • Nikkei 225

    +42.50 (+0.15%)

3 crucial lessons for Democrats

It wasn’t the shellacking many forecasters expected.

Republicans seem likely to take control of the House of Representative from Democrats, once outstanding votes are counted. But the red wave Republicans hoped for didn’t materialize. If they do take control, Republicans’ majority may only amount to a few votes. Control of the Senate remains undetermined and could come down to a Dec. 5 runoff election between the two Senate candidates in Georgia.

Democrats may feel vindicated. In midterm elections from 1934 through 2018, the president’s party lost an average of 28 House seats and four Senate seats. So Democrats outperformed in 2022. But they also blew a couple of rare opportunities. The conservative Supreme Court’s overturn of the Roe v. Wade abortion protections this summer gave Dems a powerful new way to win moderate and independent voters who often determine close elections. And Donald Trump’s endorsement of many extreme candidates in Republican primaries gave Democrats some easy general election wins. Yet Democrats couldn’t convert those gifts into another two years of majority rule.

High inflation may have been the single-biggest factor working against Democrats. But voters sent other important signals that Democrats should pay attention to if they want to be competitive in the 2024 presidential and Congressional races. Here are three midterm lessons for Democrats:

Get a coherent energy policy. As a party, Democrats have completely incompatible energy goals. They want cheap fossil fuels today, so voters don’t revolt as energy costs soar. Yet they want to drive oil and gas producers out of business and replace them with green-energy purveyors. You can’t do both! Policies that punish fossil-fuel producers severely depress new investment, since nobody wants to finance projects in an industry the government is targeting for extinction. That limits supply, pushes up prices and steams voters.

President Biden struggled mightily with these Democratic contradictions, as gas prices soared earlier this year, and his approval rating began to sink. Biden released nearly 200 million barrels of oil from the US reserve, which might have been enough to marginally lower prices. But he also turned off a lot of voters by asking undemocratic oil producers in the Middle East to drill more oil, instead of appealing to American drillers. Rather than proposing government policies that might incentivize more US production, Biden told oil companies they should violate their fiduciary obligation to shareholders and investors and use profits to subsidize oil prices for consumers. It’s all nonsense. The United States is a capitalist democracy and private-sector companies don’t divert profit for public policy goals. If they did, shareholders would sue and probably win.

[Follow Rick Newman on Twitter, sign up for his newsletter or sound off.]

Democrats can improve on this in some fairly simple ways. There’s nothing wrong with subsidizing green energy, as the Inflation Reduction Act Biden signed in August generously does. At the same time, Democrats should acknowledge we will need oil and natural gas for decades, and take steps to make sure there’s enough of it to prevent consumers from going broke. They can stop bashing the industry, find ways to speed permitting and infrastructure build-outs, and maybe explore novel ways the government can lower the risk of energy investors losing money on “stranded assets.” There could be fossil-fuel shortfalls, and high prices, for a long time, and for now, Democrats have brought the blame for that onto themselves.

End the giveaways. Since Biden took office in 2021, Democrats have backed two big economic aid programs that turned out less popular than they probably expected. The first was an extended and expanded child-tax credit that was included in the 2021 American Rescue Plan, on a temporary basis through the end of 2021. This benefit provided thousands of dollars in tax benefits to millions of families and mostly helped middle- and lower-income people. It reduced childhood poverty. Democrats thought it would be so popular that voters would demand Congress extend it for another year, or even permanently. But at the end of 2021 there was no clamor for more, and the benefit expired.

U.S. President Joe Biden is flanked by U.S. Secretary of Education Miguel Cardona as he speaks about administration plans to forgive federal student loan debt during remarks in the Roosevelt Room at the White House in Washington, U.S., August 24, 2022. REUTERS/Leah Millis
U.S. President Joe Biden is flanked by U.S. Secretary of Education Miguel Cardona as he speaks about administration plans to forgive federal student loan debt during remarks in the Roosevelt Room at the White House in Washington, U.S., August 24, 2022. REUTERS/Leah Millis

The other big aid program was Biden’s executive action this summer forgiving up to $20,000 in student debt for many borrowers. Biden wanted Congress to do that by passing a law, and he hemmed and hawed about doing it unilaterally. But Biden may have felt it was necessary to keep a campaign pledge to younger voters as they were deciding whether to vote for Democrats, or to vote at all, as the midterms approached.

It's not clear if either of those moves motivated voters in 2022. But these types of priorities tend to damage the Democrats’ brand among moderates and independents they need to win future elections. A recent study by the Third Way think tank found that 56% of voters oppose Biden’s debt relief plan while only 43% favor it. Among swing voters, it's worse: 38% approve and 60% oppose. The survey didn’t ask about the child tax credit, but it did find that only 43% of voters think the Democratic Party values hard work, while 54% think it doesn’t. Among swing voters, 26% say the party values hard work while 62% say it doesn’t. That's a large gap and a poor image for the party. “There is no way for Democrats to build and maintain winning coalitions without repairing their damaged brand,” the study concluded.

There’s room for more industrial policy. Biden signed the CHIPS+ Act in August, which was notable because it was a bipartisan endorsement of government policy meant to give the US semiconductor industry a boost against foreign competitors. This could augur a broader shift toward industrial policy in a nation that has largely left private-sector firms to manage themselves for the last 50 years, regardless of the consequences.

At the time, there was some kvetching about “corporate welfare,” but Todd Tucker of the Roosevelt Institute notes that several Democrats who supported bills like the CHIPS Act won tight midterm races, suffering no apparent political damage for their votes. This could signal broader acceptance of a government role in key industries, given that China’s communist government aggressively promotes key domestic industries and many other nations are beginning to do the same. Singling out certain sectors for government assistance could be one way in the future for Democrats to support jobs, including unionized ones, in a way that looks tough on China and legitimately protects national-security interests. They’ll need that type of edge, and others.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

Click here for politics news related to business and money

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube