Monday, November 24, 2014

America’s Political Recession

BERKELEY – The odds are now about 36% that the United States will be in a recession next year. The reason is entirely political: partisan polarization has reached levels never before seen, threatening to send the US economy tumbling over the “fiscal cliff” – the automatic tax increases and spending cuts that will take effect at the beginning of 2013 unless Democrats and Republicans agree otherwise.

More than a century ago, during the first Gilded Age, American politics was sharply polarized as well. In 1896, future President Theodore Roosevelt was a Republican attack dog. He denounced Democratic presidential candidate William Jennings Bryan as a mere puppet of the sinister governor of Illinois, John Peter Altgeld.

Bryan, Roosevelt said, “would be as clay in the hands of the potter under the astute control of the ambitious and unscrupulous Illinois communist.” The “free coinage of silver” would be “but a step towards the general socialism which is the fundamental doctrine of his political belief.” He and Altgeld “seek to overturn the...essential policies which have controlled the government since its foundation.”

Such language is as extreme as any we hear today – and from a man who was shortly to become Vice President (and later President, following the assassination of William McKinley). We have heard Texas Governor Rick Perry call obliquely for the lynching of his fellow Republican, Federal Reserve Chairman Ben Bernanke, should he come to the Lone Star State. And we have seen Kansas Secretary of State Kris Kobach explore the possibility of removing President Barack Obama from the ballot in Kansas, because, Kobach suggested, Obama is “not a natural-born citizen.”

But neither Perry nor Kobach is likely ever to be a US president, whereas Theodore Roosevelt was more than a partisan. He was happy to make deals with Democrats – to put himself at the head not just of the Republican Party but of the bipartisan Progressive coalition, trying either to yoke the two forces together or to tack back and forth between them to achieve legislative and policy goals.

Obama broadly follows Ronald Reagan’s (second-term) security policy, George H.W. Bush’s spending policy, Bill Clinton’s tax policy, the bipartisan Squam Lake Group’s financial-regulatory policy, Perry’s immigration policy, John McCain’s climate-change policy, and Mitt Romney’s health-care policy (at least when Romney was governor of Massachusetts). And yet he has gotten next to no Republicans to support their own policies.

Indeed, like Clinton before him, Obama has been unable to get Republican senators like Susan Collins to vote for her own campaign-finance policies, McCain to vote for his own climate-change policy, and – most laughably – Romney to support his own health-care plan. Likewise, he has been unable to get Republican Vice-Presidential candidate Paul Ryan to endorse his own Medicare cost-control proposals.

There are obvious reasons for this. A large chunk of the Republican base, including many of the party’s largest donors, believes that any Democratic president is an illegitimate enemy of America, so that whatever such an incumbent proposes must be wrong and thus should be thwarted. And the Republican cadres believe this of Obama even more than they believed it of Clinton.

This view clearly influences Republican office-holders, who fear the partisan beast that mans their campaigns’ phone banks and holds the purse strings. Moreover, ever since Clinton’s election in 1992, those at the head of the Republican Party have believed that creating gridlock whenever a Democrat is in the White House, and thus demonstrating the government’s incapacity to act, is their best path to electoral success.

That was the Republicans’ calculation in 2011-2012. And November’s election did not change the balance of power anywhere in the American government: Obama remains President, the Republicans remain in control of the House of Representatives, and the Democrats control the Senate.

Now, it is possible that Republican legislators may rebel against their leaders, arguing that they ran for office to govern, not to paralyze the government in the hope that doing so will give the party power to reign as it wishes after the next election. It is possible that Republican leaders like Representatives John Boehner and Eric Cantor and Senator Mitch McConnell will conclude that their policy of obstruction has been a failure. They might note that, although the economy remains deeply troubled and depressed in the aftermath of a financial crisis for which they set the stage, Obama’s policies have been by far the most successful of those in any major advanced country, and conclude that he has been a relatively good president, and one worth supporting.

But don’t count on it. Right now, every senior politician in America is telling their favorites in the press that they are confident that compromise on the “fiscal cliff” will be reached before the end of December. But they are telling their favorites this because they think that pessimism now will lead to their being blamed for gridlock later.

It seems to me that the odds are around 60% that real negotiation will not begin until tax rates go up on January 1. And it seems to me that, if gridlock continues into 2013, the odds are 60% that it will tip the US back into recession. Let us hope that it will be short and shallow.

Read more from our "Fiscal Cliff Notes" Focal Point.

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    1. CommentedPaulo Sérgio

      There will be costs for the kind of divisive politics the United States has been entertaining for a decade now. But, it's the same leadership on display across the Atlantic.

      I think, this displays some myopia with regards the period for which slow and zero growth economies will remain influential. But for leading export-led emerging giants, this is a sort of "it's our fiscal cliff, but your problem."

    2. CommentedVan Poppel charles

      sir, thank you for your speedy answer; but you should formulate an efficient strategy and defend it and not blame the other man for not being able to do that;

    3. CommentedVan Poppel charles

      after reading this comment I arrived at the conclusion that even the most sophisticated american economics professors at the most sophisticated US universities do not know anymore to formulate an efficient policy strategy to overcome the actual " big recession" in the biggest economy of the world; that's dreadful for economic science as also Nobel price economists.

        Portrait of J. Bradford DeLong

        CommentedJ. Bradford DeLong

        Interesting. Why did you conclude that? From where I sit, we know very well how to overcome the big recession--but there are a lot of bad and underbriefed actors sending fake messages and confusing people, and assembling the political coalition is very hard.

    4. CommentedPaul A. Myers

      What Washington does has consequences out in the country. But the country does not seem to believe it. So I suspect the country has to "feel it" and then push back on Washington.

      Tens of millions of people are going to need more than just Social Security and Medicare and Medicaid. I suspect the Republicans know this and simply don't want to pay for it. So they work to lock in ceilings now.

      So the Republicans have two goals: lock in low tax rates for the wealthy and spending ceilings on the lower half of the income distribution. These positions will only be overcome by brute political power, not by sweet reason.

      The Republican goal is actually recession, which is a form of austerity. Let's see if their big business allies really want to go down this road!

    5. CommentedCarol Maczinsky

      In short: how to unwreck the right wing of the US political spectrum, how to promote decent conservative policies.

    6. CommentedCarol Maczinsky

      You mix two crisis: First an inevitable economic downturn and the political turmoil that would emerge from it, second a republican policy crisis which promotes extremism. You have a government which supports terrorism, torture and assinations abroad and an insane opposition which makes it look the lesser evil. Where is "conservative" conservatism in the US?

    7. CommentedProcyon Mukherjee

      Betwixt a market that already believes that the fiscal derangement has been avoided and the rising tide of reports that show that compromise is mired by a dithering polity that flourishes on the hopes of an economic revival that is not based on equity and responsibility, but in a recurring rent seeking at the back of far less modest monetary policy that pushes products and services in the expectation of a demand, which falters time and again to actually happen.

      Why call it recessive politics, this is the process that gets the majority to select the best amongst the worst, while the divide is orchestrated over gigabytes of media space and funded by a transparence? Continuation of the divide whether for better or worse is a part of democracy through discussion, as long as it is under the aegis of a public scrutiny.

      Procyon Mukherjee

    8. CommentedCher Calusa

      "let us hope that it will be short and shallow"... I heartily disagree to this notion of "hoping". This is what got everybody into this financial mess. We have consistently closed our eyes tightly and have hoped that all the imbalance in our economic system would somehow go away. Now let's consider that we don't have an economic system separate from any other on this planet. All countries sink or swim together in today's interconnected climate. The problems has always been exploitation and excess. This activity has spread across the entire globe and now we are at the natural end to this system. The more third world economies grow, the less they will tolerate exploitation and this is actually progress. We're ready for something totally new, a world in which balance and cooperation is more important than profits and exploitation. It is destined to happen either by our global creative effort or after a natural collapse. In the wake of this economic configuration we humans have also created imbalance socially and environmentally. May we open our eyes bravely and face the facts!

    9. CommentedZsolt Hermann

      The way things work is that usually there is an objective, absolute state, and than there is the perception of it.
      For example somebody can be very sick, even terminally sick which is obvious to others, but the person himself still thinks he is healthy or maybe a little sick but everything is going to be better by itself as time goes by.
      It is the same with the US and humanity in general.
      We have been talking about climate change, how it will change the weather, our life, and suddenly now we realize it is not going to happen in some faraway future, we are already living through it, hammered by it in a very unpredictable manner.
      We are talking about peak oil, depleted natural resources sometime in the future, the truth is those changes are already upon us, and very significant lack of resources, including water and food resource shortages will hit us very soon, very much within the lifetime of this generation.
      We are talking about financial and economical crisis, political recession happening soon, the truth is we are already in it, simply more and more layers of makeup, cosmetic surgery is holding the rotten body together, but in many very real countries the life of the public is affected by it very severely day to day, and this is spreading fast all over the globe.
      The great American soap opera, highlighted by the more than year long election campaign is finished, the reality starts biting, and very soon a much worse reality will dawn on this country, and to China, and to the whole of Europe than people would like to imagine.
      We have been cheating the global, natural, interconnected and interdependent system for too long and there is no more place or resource to cheat any longer.
      We cannot ignore that the whole socio-economic system we are stubbornly pushing is false, and is built on a fantasy.
      We will wake up very soon, either by conscious examination of ourselves and the system around us, or by a very rude awakening through unpredictable and volatile events hitting us from all sides.

    10. CommentedMark Pitts

      Is this supposed to be political analysis? It reads more like partisan advocacy.
      In any case, we should add to the author's list of extreme political speech the repeated accusation that any one who voted against Obama is a racist.

        Portrait of J. Bradford DeLong

        CommentedJ. Bradford DeLong

        Why? Do you object to the observation that: "Obama broadly follows Ronald Reagan’s (second-term) security policy, George H.W. Bush’s spending policy, Bill Clinton’s tax policy, the bipartisan Squam Lake Group’s financial-regulatory policy, Perry’s immigration policy, John McCain’s climate-change policy, and Mitt Romney’s health-care policy (at least when Romney was governor of Massachusetts). And yet he has gotten next to no Republicans to support their own policies"? If you object to it, what is wrong with it? Simply stating what has happened is analysis, after all...