Back to Politics

Focused investors rightly try to tune out the political back-and-forth. But because of Tuesday’s lopsided defeat of U.S. House of Representatives majority leader Eric Cantor by a “nobody” in a primary, we now must turn our attention back to the odious machinations in our nation’s capital.

The challenge is to assess longer-term implications without giving in to short-term over-analysis. Cantor’s primary loss was the first ever for a House majority leader going back to that position’s 1899 creation. The victor is David Brat, a political novice and economics professor. I see three clear explanations/examples for Cantor’s defeat:

#1: Cantor’s Virginia Congressional district was redrawn in 2010. It was “gerrymandered.” This means manipulating voting districts to a political party’s advantage, and it’s increasingly common across the nation. In Cantor’s district, some heavily Democratic precincts in the Richmond area were exchanged for more rural, Republican areas. This was supposed to make Cantor’s seat even safer from Democrats than before. Surprise: The real threat would come from disgruntled Republicans.

#2: Cantor was clueless. On primary day itself, he started off at a Capitol Hill Starbucks, holding his monthly fund-raising coffee with lobbyists. In the late afternoon, he finally headed down to Richmond for his expected victory party. Cantor should have been back in his district, particularly considering numerous warning signs that had sprung up about his overconfident yet failing re-election campaign.

Cantor’s inadequate attention to the primary reflects the core reason he was defeated. It wasn’t because of a single issue, such as a possibly overly favorable stance towards immigration reform. He was spending too much time on the national front, furthering his political ambitions while taking money ! from Wall Street and Silicon Valley. Voters resented Cantor's national aspirations and felt he neglected his district.

"The Republican Party has been paying way too much attention to Wall Street and not enough attention to Main Street," Brat said after he defeated Cantor. Earlier this month, Brat promised to "fight to end crony capitalist programs that benefit the rich and powerful." 

#3: Cantor’s primary campaign gave his opponent much-needed name recognition. Cantor spent more than $5 million to lose a Congressional primary for a “safe seat.” Brat spent about $200,000.

Cantor is said to have spent almost that much, $168,637, at steakhouses alone since the beginning of last year. “I can’t think of any case in which the incumbent’s spending advantage was so huge and he still lost,” said one political scientist.

Plus, the money was poorly spent. Cantor blanketed his district with more than 1,000 television ads. Not only did Cantor not bother to talk directly to voters in many of them. Worse, the attack ads often mentioned Brat by name and showed his picture. This is how voters learned that Brat even existed and was a viable alternative. Free publicity that Brat himself couldn’t buy!

What It Means

Democrats may chortle at Cantor’s ouster, but it will only increase Republicans’  unwillingness to work with them. As of now, it looks like more – and worse – gridlock for at least the rest of this year and maybe the rest of Obama's presidency.

This doesn’t just mean his political agenda, such as immigration reform, is diminished even further. It also raises new doubts about Washington's ability to conduct even the most basic functions of government. These could prove difficult because of fear that any hint of bipartisan cooperation will encourage a primary challenge.

As of now, it also could mean another ugly battle over funding the government and a bruising federal debt-c! eiling fi! ght in March 2015, like the one that rattled financial markets in the summer of 2011. Fiscal restraint, lower deficits and rejecting anything that’s not paid for now is viewed as an increasingly important principle in the Republican-controlled House.

The Republican Party establishment was beginning to believe it had finally eliminated the tea party as a major threat. That is now not the case. "Republican members of the Senate and House are going to be extraordinarily skittish about taking risks," said one expert. "All it takes is one high-profile crash and nobody wants to fly on airplanes for a while, and that's what happened."

Yet this doesn’t signal a new anti-incumbent wave, at least not yet. So far this year, 26 states have held their primaries to determine the nominees for 257 House seats. Of the 229 incumbents running again, only Cantor and one other have lost.

The U.S. historically is a centrist nation, although the blue-red divide has increased dramatically in recent years. If Republicans move further to the right, it will make future political control more difficult for them to achieve. Of course, the same challenge could develop for Democrats if they move further to the left. The race to the bottom continues.

Some say Cantor could run for Congress as an independent. As a former major figure (he has resigned his majority leader post), the reasoning goes, he possibly could gain enough support from mainstream Republicans, independent voters and even some Democrats.

Meanwhile, the Democratic and Republican candidates for Cantor’s seat have a few things in common. Both have no previous political experience. And both are professors at Randolph-Macon College in Ashland, Va., where they are teammates on a faculty basketball team.