Friday, February 26, 2016

Thinking About a Recession Election in the US for 2016

There has been a lot of skittishness recently about the prospects for a recession, US or global, this year.  No need to link—the discussion is everywhere.  Some say we are already in the initial downturn, others that we’re on the brink, and a third camp says it’s still blue skies to the horizon.  I have no expertise at all to weigh in on this; for me it’s just a spectator sport.  I do think, however, that prudence requires thinking about what such a recession would mean.  This applies to all levels, individual, institutional and society-wide.

Here I’d like to consider what it would mean if the election in November were held in the midst of a recession.  Standard political science formulas would give Republicans a much greater chance of winning the presidency if unemployment were rising during the runup to the vote, but of course this is not determinate in itself; the candidates and the campaign still matter.

So think about the candidates we actually see in the primaries, and imagine that the economy is sinking as the moment of decision draws near.  How would it affect the kinds of messages they deliver?  Assume also massive, unprecedented spending on advertising of all sorts—not only on TV but every other media type that allows it.  And think about the way the candidates and parties are framed, the overall narratives they try to tell about themselves that influence the interpretation of specific facts and events.

Of course, such a recession, fairly or not, would be blamed on Obama.  Given that, Democrats would either have to run against him or stick to happy talk about turning the corner and green shoots.  But this is not a choice that can be made freely; if Democratic candidates are tied closely in the public mind to Obama, and if they wait until the last minute to pivot, such a shift would not be credible.  In fact, it would look more like opportunism and disloyalty.  My sense is that this would be a much bigger problem for Clinton than Sanders.

Meanwhile, on the Republican side, nearly every candidate would benefit, because one of their chief memes all along is that the economy is doing a lot worse than the official numbers indicate.  Fairly or not, they would be seen as vindicated if the economy were plunging.  It might be enough for them to campaign as anti-Obamas, as the straightforward Obama = failure would resonate under the circumstances.  And what about Trump?  His calling card is that he is “tough”, and that what America needs now is a tough leader like him.  His ability to exploit a recession depends on whether he can convince voters that economic hard times are due to “soft” leadership for which he’s the remedy.  That’s not beyond the realm of possibility, as I see it.

All of this is purely speculative.  We don’t know where the economy’s going, or how public attitudes will evolve, or which messages candidates will attach themselves to.  Of course, the competence—and luck—they have going for them will be important as well.  At this point, the main thing is to begin to think through scenarios when we apply “realism” to political decision-making, and an election year recession is one of the scenarios that needs to be considered.


Lord said...

How does the Fed know when to stop raising rates? When we enter recession. The intelligent thing to do is to attack Congress and the Fed.

ProGrowthLiberal said...

Lord is right. Peter gets the politics right (as in that old Ray Fair model) but it is the Republicans pushing austerity whereas both Democrats are pushing for fiscal stimulus in the form of infrastructure investment.

George H. Blackford said...

When economists contemplate the end of the Great Depression they think of charts and graphs that are mostly irrelevant. What actually happened was the New Deal and the government took over the system during WWII: wage and price controls, 8.5 million drafted into the Army, government expenditures 40% of GDP, a top tax rate of 94%, and rationing as private debt fell from 141% to 67% of GDP. The income share of the bottom 90% increased over 20% during the war and didn’t fall until the 1980s. Social insurance came to be; government’s share of GDP more than doubled, and the financial system was strictly regulated after the war.

The economic system that emerged from the New Deal and WWII was not the system that led us into the 1930s. It was a system of higher taxes, more government, strict regulation, and less inequality. This was what pulled us out of the Great Depression and into the economic prosperity that followed WWII, not the magical workings of free markets or the monetary and fiscal policies of Keynesian economics. And neither free markets nor monetary or fiscal policies are going to get us out of the Great Recession we face today or allow us to avoid another worldwide catastrophe comparable to WWII.

Policies that do not reduce the trade deficit and concentration of income will simply prop up a failed system that makes the rich richer and poor poorer as the federal debt grows.

It is essential that we use the legislative, tax, and spending powers of the government to reduce the trade deficit, expand government services, and increase the economic and political power of those at the bottom to achieve full employment through a more equitable, efficient, and productive distribution of income if we are to deal effectively with the fundamental problems we face today.

What is needed is the kind of overhaul of the system offered by Sanders. Neither the Republicans nor Clinton are up to the task.