“An Enormously Difficult Task”: Why Republicans Will Lose The Coming Argument Over The Economy
There may be 21 months remaining between now and the 2016 presidential election, but both Republicans and Democrats have come to an agreement on what the election should be about. They may use different terms to describe it — Democrats will talk about “inequality,” while Republicans will tout “opportunity” — but they’re both going to focus on the ways the economy isn’t doing right by Americans who aren’t rich.
In the name of pundit courage, I offer a prediction: Republicans are going to lose the argument. They’ve practically lost it already.
Let’s take a look at what we’ve learned just in the past couple of days. We all know that both sides are looking for new policy ideas they can present that will demonstrate their commitment to lifting up middle class and poorer Americans, so what’s on offer? Chris Van Hollen, the ranking Democrat on the House Budget Committee, has released a plan that includes giving every working American who makes less than six figures a $1,000 tax credit, gives people further tax credits if they save money, limits corporate tax deductions for CEO compensation, and pays for it with a financial transactions tax (presented as a Wall Street “high roller” fee). Meanwhile, Republicans are trying to cut Social Security disability payments.
OK, so that’s not entirely fair — Republicans are, in fact, talking about what they can do for less affluent Americans. For instance, Politico reports today that even Mitt Romney has decided that the three pillars of his 2016 campaign will be a “muscular” foreign policy, helping the poor, and supporting the middle class. Which sounds interesting, but at this point it constitutes nothing more than talking about how this is an issue he’s going to be talking about. You have to look pretty hard to find an actual idea Republicans have.
And while they’re figuring that out, it looks like Democrats are going to keep rolling out one policy proposal after another, whether it’s Van Hollen’s tax credit (which other Democrats are also going to be advocating), President Obama’s plan to make community college free, or upcoming pushes on issues like paid family leave and more inclusive overtime rules.
Republicans start out at a significant disadvantage in this debate for a number of reasons. First, they tend to talk about the economy from a level far removed from that of ordinary people. Enact policies like low taxes and light regulation on corporations, they say, and the result will be growth that ends up benefiting everyone. But now they’re acknowledging that they have to talk about middle class and even poor people, and offer them something more specific. That runs into their second problem, that because they believe in small government, unlike Democrats they aren’t likely to support policies that offer direct, immediate benefits.
The policies they do support, furthermore, will immediately be characterized by their opponents as being one of two types: attacks on the poor being deceptively offered as efforts to help them (like devolving responsibility for safety net programs to the states) or moves to help rich people being deceptively offered as a boon to the middle class (like most Republican tax cuts).
Republicans will, of course, say that these criticisms are unfair. But the default assumption voters have is that the GOP is the party of the rich. That means that in order to persuade them, Republicans can’t just come up with some reasonable policy ideas, they have to offer something twice as compelling as what Democrats are proposing. And when Democrats are saying something straightforward, like “Our plan is to give you a thousand bucks and pay for it by taxing Wall Street,” while Republicans are trying to explain how block grants would bring a more efficient allocation of benefits, it isn’t hard to see who’s going to win the argument. Just try to imagine how much work someone like Mitt Romney — he of Bain Capital and the “47 percent” — is going to have to do to convince voters that he’s really the one who’s on the side of the middle class.
If we look back at the recent history of presidential campaigns, we see that Republicans win the argument on the economy under three conditions. The first is when there’s a Democrat in the White House and the economy is terrible, as it was in 1980. The second is when there’s a Republican in the White House and the economy is doing well, as it was in 1984 or 1988. And the third is when the economy is doing so-so, but the election turns on an entirely different set of issues, as in 2004 — in other words, when there really isn’t much of a discussion on the economy.
The 2016 election doesn’t look (at the moment anyway) like any of those three. Unless there’s a dramatic change, the economy will be doing well in broad terms like growth and job creation, but voters will want to hear what the parties are going to propose to improve wages, working conditions, and the fortunes of the middle class and those struggling to join it. Winning that argument will be an enormously difficult task for the GOP, and they aren’t off to a promising start.
By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line, The Washington Post, January 13, 2015
“Still With Worrisome Fundamental Beliefs”: It Says A Lot That A Strong Economy Is Bad News For Mitt Romney in 2016
Nothing says democracy like a private-equity-manager-turned-governor whose dad ran for president facing off against a governor-turned-private-equity-manager whose dad was president over, you guessed it, the presidency.
That’s what we might get, though, if Mitt Romney, who’s “considering” a run in 2016, and Jeb Bush, who’s already formed a political action committee, end up duking it out over the Republican nomination. (Romney started out in private equity before becoming a governor, for those keeping score at home, while Bush was a governor before getting into private equity). But before we, well, get too far into the horserace, we should remember that Romney, at least, lost in no small way because he didn’t have anything approximating a policy agenda.
Think about that. Romney was a professional presidential candidate for almost five years by the time Election Day rolled around in 2012, and he still didn’t have a coherent strategy for the economy by then. His tax plan was a mathematical impossibility: he would have had to either abandon his tax cuts for the rich, raise taxes on the middle class, or run much bigger deficits to make it work.
And his economic plan, well, we’re still waiting for it. Romney told his donors that “if it looks like I’m going to win, the markets will be happy” and “we’ll see capital come back, and we’ll see—without actually doing anything—we’ll actually get a boost to the economy.” And that was it.
Romney really thought President Obama was scaring away a recovery, so all he had to do was win and then do nothing. Now, to be fair, doing nothing has actually worked out okay for Obama since he got re-elected, though not by choice, as the combination of more monetary stimulus, less fiscal austerity, and time have healed the economy enough that unemployment has started falling fast.
In fact, joblessness is already lower after two years, at 5.6 percent, than Romney said he’d get it in four. But, as you might have noticed, the recession put us in such a deep hole that there are still plenty of problems that need fixing. Romney, though, didn’t have a plan to take advantage of can’t-go-any-lower interest rates to rebuild our infrastructure. Or to help underwater homeowners refinance their mortgages. Or, more on this in a minute, to increase worker wages.
Romney, in other words, just ran against the economy, and hoped that would be enough. It wasn’t. And it shouldn’t even be an option in 2016, when unemployment could be as low as 4 percent. The question then won’t be how to get jobs, but rather how to get good ones with good pay.
Now, Romney is ideologically flexible. But he seems to have some worrisome fundamental beliefs that would hurt him if he runs in 2016.
After he lost the presidential race, Romney blamed his loss on Obama giving “gifts” to minorities and women, and warned that “this is really serious” since “we’re following the path of every other great nation, which is we’re following greater government, tax the rich people, promise more stuff to everybody, borrow until you go over a cliff.”
Does that sound like somebody who would try to boost stagnant wages—which should be the issue of 2016—by, say, expanding the Earned Income Tax Credit (and the ranks of the “47 43 percent“) like a lot of conservative wonks want to?
By: Matt O’Brien, The Wonk Blog, The Washington Post, January 12, 2015
“Presidents And The Economy”: Serious Analyses Of The Reagan-Era Business Cycle Place Very Little Weight On Reagan
Suddenly, or so it seems, the U.S. economy is looking better. Things have been looking up for a while, but at this point the signs of improvement — job gains, rapidly growing G.D.P., rising public confidence — are unmistakable.
The improving economy is surely one factor in President Obama’s rising approval rating. And there’s a palpable sense of panic among Republicans, despite their victory in the midterms. They expected to run in 2016 against a record of failure; what do they do if the economy is looking pretty good?
Well, that’s their problem. What I want to ask instead is whether any of this makes sense. How much influence does the occupant of the White House have on the economy, anyway? The standard answer among economists, at least when they aren’t being political hacks, is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents, let’s revisit a much-mythologized episode in U.S. economic history: the recession and recovery of the 1980s.
On the right, of course, the 1980s are remembered as an age of miracles wrought by the blessed Reagan, who cut taxes, conjured up the magic of the marketplace and led the nation to job gains never matched before or since. In reality, the 16 million jobs America added during the Reagan years were only slightly more than the 14 million added over the previous eight years. And a later president — Bill something-or-other — presided over the creation of 22 million jobs. But who’s counting?
In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral.
Then the Fed decided that America had suffered enough. It loosened the reins, sending interest rates plummeting and housing starts soaring. And the economy bounced back. Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom.
The point is that normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
Not quite.
For one thing, the Fed has had a hard time gaining traction in the wake of the 2008 financial crisis, because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office; at the same point in the Reagan years, it was up more than 20 percent. So much, then, for fiscal policy.
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives, who have accused it again and again of “debasing the dollar” and setting the stage for runaway inflation. Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least, even if you think Mr. Obama deserves little or no credit for good economic news, the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest, now and then, that some bankers have behaved badly — is somehow responsible for the economy’s weakness. Now that he’s presiding over unexpected economic strength, they can’t just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we’re doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that’s because they are.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 4, 2015
“The Obama Recovery”: You Shouldn’t Conclude That Hitting Yourself In The Head Is Smart Because It Feels So Good When You Stop
Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?
It certainly wouldn’t imply that hitting yourself in the head was a good idea. It would, however, be an indication that the pain you were experiencing wasn’t a reflection of anything fundamentally wrong with your health. Your head wasn’t hurting because you were sick; it was hurting because you kept hitting it with that baseball bat.
And now you understand the basics of what has been happening to several major economies, including the United States, over the past few years. In fact, you understand these basics better than many politicians and commentators.
Let’s start with a tale from overseas: austerity policy in Britain. As you may know, back in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified?
No, not at all. What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. So they stopped hitting Britain in the head with that baseball bat. And sure enough, the nation started feeling better.
To claim that this bounceback vindicated austerity is silly. As Simon Wren-Lewis of Oxford University likes to point out, if rapid growth after a gratuitous slump counts as success, the government should just close down half the economy for a year; the next year’s growth would be fantastic. Or as I’d put it, you shouldn’t conclude that hitting yourself in the head is smart because it feels so good when you stop. Unfortunately, the silliness of the claim hasn’t prevented its widespread acceptance by what Mr. Wren-Lewis calls “mediamacro.”
Meanwhile, back in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. We are finally starting to see the kind of growth, in employment and G.D.P., that we should have been seeing all along — and the public’s mood is rapidly improving.
What’s the important lesson from this late Obama bounce? Mainly, I’d suggest, that everything you’ve heard about President Obama’s economic policies is wrong.
You know the spiel: that the U.S. economy is ailing because Obamacare is a job-killer and the president is a redistributionist, that Mr. Obama’s anti-business speeches (he hasn’t actually made any, but never mind) have hurt entrepreneurs’ feelings, inducing them to take their marbles and go home.
This story line never made much sense. The truth is that the private sector has done surprisingly well under Mr. Obama, adding 6.7 million jobs since he took office, compared with just 3.1 million at this point under President George W. Bush. Corporate profits have soared, as have stock prices. What held us back was unprecedented public-sector austerity: At this point in the Bush years, government employment was up by 1.2 million, but under Mr. Obama it’s down by 600,000. Sure enough, now that this de facto austerity is easing, the economy is perking up.
And what this bounce tells you is that the alleged faults of Obamanomics had nothing to do with the pain we were feeling. We weren’t hurting because we were sick; we were hurting because we kept hitting ourselves with that baseball bat, and we’re feeling a lot better now that we’ve stopped.
Will this improvement in our condition continue? Britain’s government has declared its intention to pick up the baseball bat again — to engage in further austerity, which does not bode well. But here the picture looks brighter. Households are in much better financial shape than they were a few years ago; there’s probably still a lot of pent-up demand, especially for housing. And falling oil prices will be good for most of the country, although some regions — especially Texas — may take a hit.
So I’m fairly optimistic about 2015, and probably beyond, as long as we avoid any more self-inflicted damage. Let’s just leave that baseball bat lying on the ground, O.K.?
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 28, 2014
“The Inflation Cult”: The Broad Appeal Of Prophets Whose Prophecies Keep Failing
Wish I’d said that! Earlier this week, Jesse Eisinger of ProPublica, writing on The Times’s DealBook blog, compared people who keep predicting runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.” Indeed.
Economic forecasters are often wrong. Me, too! If an economist never makes an incorrect prediction, he or she isn’t taking enough risks. But it’s less common for supposed experts to keep making the same wrong prediction year after year, never admitting or trying to explain their past errors. And the remarkable thing is that these always-wrong, never-in-doubt pundits continue to have large public and political influence.
There’s something happening here. What it is ain’t exactly clear. But as regular readers know, I’ve been trying to figure it out, because I think it’s important to understand the persistence and power of the inflation cult.
Whom are we talking about? Not just the shouting heads on CNBC, although they’re certainly part of it. Rick Santelli, famous for his 2009 Tea Party rant, also spent much of that year yelling that runaway inflation was coming. It wasn’t, but his line never changed. Just two months ago, he told viewers that the Federal Reserve is “preparing for hyperinflation.”
You might dismiss the likes of Mr. Santelli, saying that they’re basically in the entertainment business. But many investors didn’t get that memo. I’ve had money managers — that is, professional investors — tell me that the quiescence of inflation surprised them, because “all the experts” predicted that it would surge.
And it’s not as easy to dismiss the phenomenon of obsessive attachment to a failed economic doctrine when you see it in major political figures. In 2009, Representative Paul Ryan warned about “inflation’s looming shadow.” Did he reconsider when inflation stayed low? No, he kept warning, year after year, about the coming “debasement” of the dollar.
Wait, there’s more: You find the same Groundhog Day story when you look at the pronouncements of seemingly reputable economists. In May 2009, Allan Meltzer, a well-known monetary economist and historian of the Federal Reserve, had an Op-Ed article published in The Times warning that a sharp rise in inflation was imminent unless the Fed changed course. Over the next five years, Mr. Meltzer’s preferred measure of prices rose at an annual rate of only 1.6 percent, and his response was published in another op-ed article, this time in The Wall Street Journal. The title? “How the Fed Fuels the Coming Inflation.”
So what’s going on here?
I’ve written before about how the wealthy tend to oppose easy money, perceiving it as being against their interests. But that doesn’t explain the broad appeal of prophets whose prophecies keep failing.
Part of that appeal is clearly political; there’s a reason why Mr. Santelli yells about both inflation and how President Obama is giving money away to “losers,” why Mr. Ryan warns about both a debased currency and a government that redistributes from “makers” to “takers.” Inflation cultists almost always link the Fed’s policies to complaints about government spending. They’re completely wrong about the details — no, the Fed isn’t printing money to cover the budget deficit — but it’s true that governments whose debt is denominated in a currency they can issue have more fiscal flexibility, and hence more ability to maintain aid to those in need, than governments that don’t.
And anger against “takers” — anger that is very much tied up with ethnic and cultural divisions — runs deep. Many people, therefore, feel an affinity with those who rant about looming inflation; Mr. Santelli is their kind of guy. In an important sense, I’d argue, the persistence of the inflation cult is an example of the “affinity fraud” crucial to many swindles, in which investors trust a con man because he seems to be part of their tribe. In this case, the con men may be conning themselves as well as their followers, but that hardly matters.
This tribal interpretation of the inflation cult helps explain the sheer rage you encounter when pointing out that the promised hyperinflation is nowhere to be seen. It’s comparable to the reaction you get when pointing out that Obamacare seems to be working, and probably has the same roots.
But what about the economists who go along with the cult? They’re all conservatives, but aren’t they also professionals who put evidence above political convenience? Apparently not.
The persistence of the inflation cult is, therefore, an indicator of just how polarized our society has become, of how everything is political, even among those who are supposed to rise above such things. And that reality, unlike the supposed risk of runaway inflation, is something that should scare you.
By: Paul Krugman, Op-Ed Columnist, The New York Times, September 12, 2014
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