BUSINESS
04/09/2012 02:38 pm ET Updated Apr 09, 2012

Goldman Sachs Wouldn't Mind If Obama And House Republicans Fight Another Couple Of Years

Gridlock is good.

Maybe not as good as greed. But political gridlock in Washington is another, less-famous Wall Street favorite. And famous Wall Streeter Goldman Sachs is touting it again, this time about the 2012 elections.

In a recent research note, Goldman economists wrote that victories for both President Barack Obama and House Republicans this fall would be the most fiscally conservative outcome for the country.

A "status quo outcome that preserves a divided government... could lead to somewhat greater fiscal restraint in 2013," they wrote.

Here, let us oversimplify this complicated note for you: By the economists' thinking, a government controlled entirely by Republicans would wreck the budget by keeping the Bush tax cuts alive forever. On the other tentacle, Goldman thinks a government run entirely by Democrats would also wreck the budget by extending the payroll tax cut due to expire at the end of the year and going crazy with the stimulus and what-not.

A divided government, meanwhile, is more likely to come up with some kind of compromise that means more fiscal misery than less in 2013, by letting the payroll tax cut and some of the Bush tax cuts expire and by punting on further stimulus.

If all of the tax cuts and stimulus boosts expire as scheduled next year, then the worst-case scenario for fiscal pain is a belt-tightening of about $600 billion in 2013, Goldman estimates.

That amount, you may recall, would be only a little smaller than the $780 billion stimulus package Congress passed after Obama took office. This would be a big anti-stimulant -- a $600 billion depressant package, you might say.

Goldman doesn't think we'll see the full $600 billion in belt-tightening in 2013, but a divided government is more likely to bring us more of a hit of depressant than a government controlled by one party.

So should non-partisans or stimulus fans therefore pull for a complete takeover of government by one party or another? Only if you enjoy a market freakout, says Goldman.

Its economists figure that a full takeover by either party could result in a short-term enactment of all of the fiscal belt-tightening at once in the first quarter of 2013, for reasons of arcane political gamesmanship, which "would be a serious source of uncertainty for the market, businesses, and individual taxpayers."

So there you have it, folks: The political world according to Goldman Sachs, in which the choices are between bad outcomes and worse outcomes.

Of course, Goldman's note is narrowly focused on the short-term outlook for the budget and the interminable political wrestling match going on around said budget. It does not weigh in on whether this argument is even a good one to be having at all right now, with the recovery still shaky as it is.

(Hat tip: Ezra Klein)

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