The effects of the Democratic controlled congress will be minimal.
Lacking enough of a majority to override vetos, and having only a small majority in the Senate, the only significant changes they will be able to create will be those with significant public support. At present, I see those as decreased military presence in Iraq, increased minimum wage, and increased scrutiny of Big Pharma.
Generally, divided governments are good for the economy. Almost perversely they encourage fiscal responsibility, as both tax cuts and spending increases will be limited. Decreased military spending will help the economy, a lot. I don’t believe in trickle down economics, nor do I believe in trickle up. A minimum wage increase will have a small effect in redistributing wealth from the very richest americans to the very poorest. In states like California and others, the minimum or market minimum wage are higher than any potential increase.
As for housing, there may be less scrutiny on Freddie Mac and Fannie Mae and their lenient lending policies. This may lead to more of a slow release than popping of the housing bubble. Or, it could artificially prop it up, leading to a sudden collapse. Or, market forces may just overwhelm any small efforts.
In short, don’t expect major changes in the next two years, as Bush still has veto power, and moderate Democrats like Casey and Lieberman in the Senate would have to be willing to support any legislation even to get it on Bush’s desk.
