Are the Dems Already Wimping Out?

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It's a truism that there's often a big bipartisan gap between campaign rhetoric and governing reality. So it was with a little surprise that I read this analysis of the new Democratic majority in Congress, courtesy of the political analysis team at Prudential Financial:

Our early readings in post-election D.C. meetings have pointed to the Dems already moderating their campaign proposals – and also showing intent to allow the Bush administration's Iraq funding and troop requests to flow through relatively uncontested (so as to keep "ownership" of the war squarely in GOP hands). The net of these and other factors has led us to believe that the Democrats might be compelled to lower their legislative sights in 2007, perhaps leading to more "headline risk" than substantive or material risk for energy, student loan, and other key "Dem shock" industries.

By "headline risk," the analysis refers to the often temporary effect on a stock or sector from, say, a congressman badmouthing an industry or a Senate committee grilling a group of CEOs. It makes a lot of news but doesn't really affect sales or earnings. But one exception to this analysis is potential changes in Medicare:

We are hearing reports that the House Democrats are considering taking a hard line position out of the box on their Medicare drug pricing proposal that Speaker-elect Nancy Pelosi (D-CA) has promised to move within the first 100 hours. Democrats are reportedly considering striking the "non-interference clause" and replacing it with a mandate on [the government] to negotiate drug prices directly with pharmaceutical manufacturers.

The "non-interference clause" refers to a law that bars the secretary of health and human services from interfering with the negotiations between drug manufacturers and pharmacies and sponsors of prescription drug plans. Democrats seem to think that Uncle Sam can make health care more affordable and lower Medicare spending by allowing the feds to negotiate for lower prescription drug prices. But not according to the nonpartisan Congressional Budget Office. In a 2004 analysis of such a proposal, the CBO concluded that striking the non-interference clause "would have a negligible effect on federal spending." The CBO's director later explained that "we think there is the potential for savings in some drugs. ... But given bottom lines, to the extent that you move down the prices on one drug, you probably move up the prices on the preferred drugs, and on balance, you could raise costs."

Maybe this is an example of one campaign promise better left unfulfilled.

Any questions or comments can be E-mailed to me at jpethokoukis@usnews.com.