Apr 13th 2016

Horses for Courses? The Candidates and the Economy

by David Coates

David Coates holds the Worrell Chair in Anglo-American Studies

It may be difficult to believe right now, but eventually the nightmare will be over. The race for the presidency will end, and we will be free of the daily media diet of who is ahead, who is behind, and who might get ahead as others falter. Time and again right now, the bulk of the media – across the entirety of the political spectrum – focus entirely on the race, in the process distracting us from the course over which the race is being run. But when the race is over, reconstructing/improving that course will be the over-riding task facing whoever wins. So can we please start talking now, in a systematic way, less about the candidates and more about their programs?

When we do, a very early item will need to be the state of the US economy. For as the world economy slows down, and (as the IMF says[1]) prospects for global economic growth dim, it is all the more essential that the US economy grows as quickly as possible and as effectively as it can. Economic growth eases all the resource constraints on public policy; whereas its absence erodes the capacity of individuals to prosper and social reform to flourish. So the strength of the US economy matters – it matters to all of us regardless of our politics – and currently that economy is not strong, certainly not as strong as it needs to be if full-scale economic recovery is to be both substantial and prolonged

There are many signs of present and future underperformance in the relevant data sets. The data on growth and trade record current net investment levels some 25% down on pre-crisis trends, labor productivity rising at only 0.3% per year, the trade deficit with China at a record high, and net infrastructure spending at currently zero. The portents in the data on employment and job creation are likewise troubling. Even after 74 months of unbroken job growth, the ratio of job seekers to job openings is still 1.5:1; the jobs being created are more heavily low-paid than the ones being lost; and the number of those wanting full-time work but only getting involuntary part-time work remains around six million. For most workers, real wages remain stuck at little more than 2004 levels, and more than four workers in ten currently earn less than $15 an hour. Ethnic inequalities in wages and unemployment remain frozen; unemployment among young workers, workers over 55, and the long-term unemployed remains intractable; and the new time-bomb of student debt is currently running at the daunting total of $1.3 trillion and rising.[2] There is anger in the land, and much of that anger has its roots here – in the large numbers of hardworking Americans who see troubled economic times ahead, and precious little economic improvement in their immediate conditions.

I

What political lessons should be drawn from these economic times? These three at least.

1.       The fault does not lie primarily with the policies and practices of the Obama Administration, no matter how often that linkage is asserted by Republican presidential candidates as they campaign. On the contrary, if it is legitimate at all to attribute possession of a recession to a sitting president, the one from which we are still struggling to recover actually belongs to George W. Bush. It began on his watch, not on Obama’s. The recession started in January 2008. The credit crisis occurred the following September. The President in both months was a Republican, not a Democrat; and the recession left to the incoming Democratic Administration by the outgoing Republican one was truly horrendous. The recession of 2008-9 was not a minor affair. On the contrary, it threw a huge shadow forward, constraining the Obama Administration as it did so. The US economy shed a million jobs in November and December 2008 alone, as the official rate of unemployment began its steep rise to 10% by the middle of 2009, and as many as one in six American workers experienced unemployment either side of the presidential handover of power. As the Obama Administration took office, there was one January day when more than 72,000 American workers were laid off in just 24 hours, with every likelihood of similar days to follow. Far from blaming the Obama Administration by making it responsible for the crisis, it is more appropriate to congratulate the incoming Obama team on eventually stopping the bleeding. Levels of economic growth and rates of job creation are significantly higher now than they were in 2009. Levels of unemployment and even poverty are lower. The Obama Administration can be faulted – on an honest day it might even fault itself – for not doing enough to lift the economy out of recession as quickly as it could have done. But it cannot, and should not, be blamed for putting the US economy into recession in the first place. Responsibility there lies on the other side of the aisle.

 

2.       Which also means that the economic policies currently being advocated by leading Republican presidential candidates are more likely to return us to recession than to generate further economic growth. Those candidates tell us, on a very regular basis, that the economy is stalling because tax levels are too high (particularly on the rich[3]) and because the business community is overburdened with regulations and controls. Yet it was precisely that mixture of trickle-down economics and business deregulation that the Bush Administration pursued between 2001 and 2007: a mixture that generated fewer jobs in the upturn of the US business cycle than any upturn since 1945: remember the widespread talk then of a “jobless recovery” under George W. Bush.[4] It was also a policy-mix that the Bush Administration entirely abandoned in 2008: giving a tax break to low-income earners in early 2008 in an attempt to retrigger economic growth (that is, replacing trickle-down economics with trickle-up[5]) and by the fall of that year abandoning light-touch regulation in favor of a bevy of stimuli packages, bank controls and bailouts. It was Henry Paulson, not Tim Geitner, who first introduced the Temporary Asset Relief Program (TARP). It was the Administration of George W. Bush, not that of Barack Obama, which effectively nationalized Fannie Mae and Freddie Mac (in September 2008) and introduced an emergency $700 billion rescue package a month later[6] When Republican candidates these days criticize Obama’s economic policies, and advocate a return to pre-Obama ones, they forget that the Obama Administration simply picked up, and carried on, from where Bush/Paulson had left off. They also choose to ignore that what they are advocating as an alternative economics to that of the current Administration spectacularly failed on the last occasion that it was attempted.

 

3.       This much then follows: that the only public policies likely to lift the US economy onto a higher growth path are policies that directly tackle each of its weaknesses in turn: and that the two Democratic candidates are the only ones even attempting that type of agenda. The Republicans are not. They have a blunt “tax cuts solve all problems” approach to this issue. It is the Democrats who have the more nuanced policies. And for all that Bernie Sanders and Hillary Clinton disagree with each other, and are starting to clash sharply, the truth is that they share many similar policies and objectives. Indeed, their similarities here exceed their differences. Both argue that the best way to trigger sustained economic growth is to make the distribution of economic gains fairer and more equal. Both support equal pay for women, and the ending of gender and racial inequality. Both are advocating a substantial stimulus package based on infrastructure spending financed by closing corporate tax loopholes – one geared to the creation of a clean-energy future. Both are proposing the raising of the minimum wage, the curtailing of CEO pay, and a redistribution of income downwards: to simultaneously reinvigorate the American middle class[7] and stimulate consumer demand at the bottom of the income ladder.[8] Both are in favor of strengthening trade union rights and extending collective bargaining.[9] Both want to bring manufacturing jobs back to the United States, and both for the moment oppose the signing of the TPP as it is presently constituted. These are vital, necessary policies. There is sharp disagreement between them, of course: on whether the US banking system is best disciplined by making banks smaller or by regulating big banks more tightly; on how to handle issues of student debt and the expansion of health coverage; and on whether the export of manufacturing jobs is best solved by a fundamental break with free trade or with its careful extension. The debate on those should help settle which Democratic candidate is making the sharpest break with established neo-liberal orthodoxies, and so is best placed to deliver growth and prosperity in 2017. But it should not settle whether the next president needs to be a Democrat or not. The weakness of the Republican economic alternative should already have settled that in the minds but all but the most intransigent and myopic of undecided voters.

II

It is remarkable how issues that consumed the Republican Party when the Obama Administration was in its heyday now consume them not at all. Once the talk in Republican circles was all about the desperate impact of public debt on economic recovery, and of the vital need to prune that debt before all else. But not anymore: now leading Republican candidates outdo each other with their commitments to tax cutting, leaving the debt to sort itself out as the accidental bye-product of the growth and employment they claim that trickle-down economics will automatically and rapidly deliver. This is a sensible shift of focus, because the debt problem was always a false one.[10] The rise in public debt was caused by the recession, not the other way round, and by public policy made necessary in response to it; and debt totals were always going to settle back to manageable levels just as soon as growth and prosperity returned – as indeed we have seen.

The Republican problem – on the economic agenda at least – is that instead of learning the proper lessons of the last 12 months of the George W. Bush presidency, its leading candidates have instead merely replaced one set of nonsense with another. Ted Cruz talks of the need to return to the gold standard – the one that in the 1930s helped trigger the Great Depression.[11] Donald Trump brags of an ability – unique to himself – to eliminate the federal debt entirely in eight years, while simultaneously cutting taxation.[12] But to do that would require an even more brutal version of the slash-and-burn approach to discretionary spending of the kind we have just seen from the Conservatives in London since 2015, with the same dismal impact on poverty and growth: increasing the first and lowering the second.  The tragedy for the Republican Party is that their primary contests have already weeded out any Republican with a serious understanding of how modern economies work, and of the vital role of targeted public spending in generating sustain growth and competitiveness.

The economic conversation between the eventual Democratic presidential candidate and a Marco Rubio, a Jeb Bush or even a John Kasich might have been one held on a level playing field. But combine any mixture of Sanders/Clinton on the one side and Cruz/Trump on the other, and the evidence is clear. All the economic intelligence is on one side: which is why the one true way to send the economy into a tailspin will be to vote Republican in November.

 

 



[2] For these data sets, see David Coates, Flawed Capitalism: The Anglo-American Condition and Its Resolution. Newcastle UK: Agenda Publishing, forthcoming. Details at http://agendapub.com/index.php/flawed-capitalism

 

[3] Jim Tankersley, “The huge divide in the presidential race that no one is talking about,” The Washington Post, March 3, 2016: available at https://www.washingtonpost.com/news/wonk/wp/2016/03/03/the-huge-divide-in-the-presidential-race-that-no-ones-talking-about/

 

[5] Details in David Coates, Answering Back: Liberal Responses to Conservative Arguments. New York: Continuum Books, 2010, p. 43. Available at http://www.amazon.com/Answering-Back-Responses-Conservative-Arguments-ebook/dp/B0050BKON2/ref=sr_1_5?s=books&ie=UTF8&qid=1460489363&sr=1-5

 

[6] Details in Making the Progressive case: Towards a Stronger U.S. economy. New York: Continuum Books, 2011, p. 14. Available at http://www.amazon.com/Making-Progressive-Case-Towards-Stronger/dp/1441186506/ref=sr_1_6?s=books&ie=UTF8&qid=1460489363&sr=1-6

 

[7] Ben Casselman and Andrew Flowers, “The Numbers Behind Hillary Clinton’s Economic Vision,” posted at FiveThirtyEight, July 13, 2015: available at http://fivethirtyeight.com/features/the-numbers-behind-hillary-clintons-economic-vision/

 

[8] TPC, An Analysis of Hillary Clinton’s Tax Returns. March 3, 2016: available at http://taxfoundation.org/article/details-and-analysis-hillary-clinton-s-tax-proposals

 

[9] Joe Davidson, “Clinton, Sanders respond to union questions ignored by GOP hopefuls,” The Washington Post, March 29, 2016: available at https://www.washingtonpost.com/news/powerpost/wp/2016/03/29/clinton-sanders-respond-to-union-questions-ignored-by-gop-hopefuls/

 

[11] Paul Krugman, “Crazy About Money,” The New York Times, March 25, 2016: available at http://www.nytimes.com/2016/03/25/opinion/crazy-about-money.html

 

[12] For details, see Fact Checker, “Trump’s nonsensical claim he can eliminate $19 trillion in debt in eight years,” Washington Post, April 3, 2016: available at https://www.washingtonpost.com/news/fact-checker/wp/2016/04/02/trumps-nonsensical-claim-he-can-eliminate-19-trillion-in-debt-in-eight-years/

Browse articles by author

More Current Affairs

Dec 14th 2019
EXTRACT: "Conspiracy theories about sinister Jewish power have a long history. The Protocols of the Elders of Zion, a Russian forgery published in 1903, popularized the notion that Jewish bankers and financiers were secretly pulling the strings to dominate the world. Henry Ford was one of the more prominent people who believed this nonsense."
Dec 13th 2019
EXTRACT: "In previous British elections, to say that trust was the main issue would have meant simply that trust is the trump card – whichever leader or party could secure most trust would win. Now, the emerging question about trust is whether it even matters anymore."
Dec 5th 2019
EXTRACT: "Europe must fend for itself for the first time since the end of World War II. Yet after so many years of strategic dependence the US, Europe is unprepared – not just materially but psychologically – for today’s harsh geopolitical realities. Nowhere is this truer than in Germany."
Nov 23rd 2019
Extdact: "The kind of gratitude expressed by Vindman and my grandfather is not something that would naturally occur to a person who can take his or her nationality for granted, or whose nationality is beyond questioning by others. Some who have never felt the sharp end of discrimination might even find it mildly offensive. Why should anyone be grateful for belonging to a particular nation? Pride, perhaps, but gratitude? In fact, patriotism based on gratitude might be the strongest form there is."
Nov 20th 2019
Extract: "Moody’s, one of the big three credit rating agencies, is not upbeat about the prospects for the world’s debt in 2020 – to put it mildly. If we were to try to capture the agency’s view of where we are heading on a palette of colours, we would be pointing at black – pitch black."
Nov 17th 2019
Extract: "Digital money is already a key battleground in finance, with technology firms, payment processing companies, and banks all vying to become the gateway into the burgeoning platform-based economy. The prizes that await the winners could be huge. In China, Alipay and WeChat Pay already control more than 90% of all mobile payments. And in the last three years, the four largest listed payment firms – Visa, Mastercard, Amex, and PayPal – have increased in value by more than the FAANGs (Facebook, Apple, Amazon, Netflix, and Google)."
Nov 14th 2019
Extract: "Trump, who understands almost nothing about governing, made a major mistake in attacking career public officials from the outset of his presidency. He underestimated – or just couldn’t fathom – the honor of people who could earn more in the private sector but believe in public service. And he made matters worse for himself as well as for the government by creating a shadow group – headed by the strangely out-of-control Rudy Giuliani, once a much-admired mayor of New York City, and now a freelance troublemaker serving as Trump’s personal attorney – to impose the president’s Ukraine policy over that of “the bureaucrats.” "
Nov 4th 2019
Extract: "Trump displays repeated and persistent behaviours consistent with narcissistic personality disorder and antisocial personality disorder. These behaviours include craving for adulation, lack of empathy, aggression and vindictiveness towards opponents, addiction to lying, and blatant disregard for rules and conventions, among others." The concern is that leaders with these two disorders may be incapable of putting the interests of the country ahead of their own personal interests. Their compulsive lying may make rational action impossible and their impulsiveness may make them incapable of the forethought and planning necessary to lead the country. They lack empathy and are often motivated by rage and revenge, and could make quick decisions that could have profoundly dangerous consequences for democracy.
Oct 31st 2019
EXTRACT: "......let’s see what happens when we have less money for all the things we want to do as a country and as individuals. Promises and predictions regarding Brexit will soon be tested against reality. When they are, I wouldn’t want to be one of Johnson’s Brexiteers."
Oct 21st 2019
EXTRACT: "Were Israel to be attacked with the same precision and sophistication as the strike on Saudi Arabia, the Middle East would be plunged into war on a scale beyond anything it has experienced so far. Sadly (but happily for Russian President Vladimir Putin), that is the reality of a world in which the US has abandoned any pretense of global leadership."
Oct 20th 2019
EXTRACT: "Europe also stands to lose from Trump’s abandonment of the Kurds. If, in the ongoing chaos, the thousands of ISIS prisoners held by the Kurdish-led Syrian Democratic Forces escape – as some already have – America’s estranged European allies will suffer. Yet Trump is unconcerned. “Well, they are going to be escaping to Europe, that’s where they want to go,” he remarked casually at a press conference. “They want to go back to their homes." "
Oct 15th 2019
EXTRACT: "Assuming the House ultimately votes to impeach Trump, the fact remains that there are far fewer votes in the Senate than will be needed to convict him and remove him from office. But the willingness of Congress – including the Senate – to continue tolerating his dangerous conduct in office, including threats to US national security, is now truly in question."
Oct 7th 2019
EXTRACT: "The problem didn't start with the election of Donald Trump. Nor did it begin with the Democrats launching an impeachment inquiry against Trump. This is a developing crisis that has been growing like a cancer within our polity for at least the past 25 years. Its main symptoms are a lack of civility in our political discourse, a "take no prisoners" mindset, and a denial of the very legitimacy of "the other side." Trump didn't create this crisis; he was the result of it.   When Newt Gingrich took the helm of Congress in 1995, unlike previous Republican leaders, he embarked on a campaign not only to obstruct the efforts of then President Clinton, but to destroy him. Congress launched a series of investigations accusing Clinton of everything from corruption to obstruction of justice – with hints of even more nefarious plots to assassinate those who might pose a problem to his presidency.  "
Oct 4th 2019
EXTRACT: "As the story spreads, it grows darker. Meanwhile, Trump is trying to learn the identity of the whistleblower (who is protected by law), which could expose that person to great danger. And he is accusing some people – including Adam Schiff, the chair of the House Intelligence Committee – of treason. My sense is that Trump fears the tough, focused Schiff. Trump has ominously noted that traitors used to be shot or hanged. And he hasn’t helped himself with members of either party by declaring, in one of his hundreds of febrile tweets, that forcing him from office could lead to a “civil war.” Trump has taken the United States somewhere it’s never been before. His presidency may not survive it."
Sep 24th 2019
EXTRACT: "But regardless of whether the Ukraine scandal remains front-page news, it will haunt the US intelligence community, which has been Trump’s bête noire since the day he took office. Trump has relentlessly attacked US intelligence agencies, cozied up to Russian President Vladimir Putin, and divulged secrets to foreign officials, potentially burning high-value sources. This behavior had already raised serious concerns about whether Trump can be trusted to receive sensitive intelligence at all. Now, intelligence leaders must ask themselves how far they are willing to go in toeing the White House line."
Sep 21st 2019
EXTRACT: "As Lobaczewski pointed out, pathological leaders tend to attract other people with psychological disorders. At the same time, empathetic and fair-minded people gradually fall away. They are either ostracised or step aside voluntarily, appalled by the growing pathology around them.......As a result, over time pathocracies become more entrenched and extreme. You can see this process in the Nazi takeover of the German government in the 1930s, when Germany moved from democracy to pathocracy in less than two years.......In the US, there has clearly been a movement towards pathocracy under Trump. As Lobaczewski’s theory predicts, the old guard of more moderate White House officials – the “adults in the room” – has fallen away. The president is now surrounded by individuals who share his authoritarian tendencies and lack of empathy and morality. Fortunately, to some extent, the democratic institutions of the US have managed to provide some push back."
Sep 16th 2019
EXTRACT: "If the Supreme Court does agree with the Divisional Court that the question is political rather than legal, it will take the UK constitution into quite peculiar territory. Prime ministers will be the new kings and queens. They will be free to suspend parliament at will, and for as long as they wish, without any judicial interference. Parliament will meet not out of constitutional necessity but in the service of the government’s interests – namely, to pass its legislation and to maintain appearances, rather than to hold it to account."
Sep 12th 2019
Extract: "The Republican Party has lashed its fate to an increasingly unhinged leader. Though three other presidential hopefuls for 2020 now stand in Trump’s way, none can defeat him. But they can damage his reelection effort, which is why the Republican Party has been scrapping some primaries and caucuses. How well Trump does in November next year may well depend on how his fragile ego withstands the coming months."
Sep 2nd 2019
EXTRACTS: "Most people think of revolutions as sudden earthquakes or volcanic eruptions that come without warning and sweep away an entire political system. But historians, political scientists, and even the odd politician know that the reality is very different: revolutions happen when systems hollow themselves out, or simply rot from within. Revolutionaries can then brush aside established norms of behavior, or even of truth, as trivialities that should not impede the popular will............ Only time will tell whether we are currently witnessing the hollowing out of British democracy. But Prime Minister Boris Johnson may well have crossed some invisible Rubicon by.......... Whatever happens now, British parliamentary democracy may never be the same again. It will certainly never again be the model that so many people around the world once admired."
Aug 29th 2019
EXTRACT: "Events such as prorogations and dissolutions happen when countries face difficult times. Therefore, because of the disastrous effects of Brexit: sterling in freefall; a recession looming on the horizon and Britain’s international standing at its lowest ebb since Suez, it is no surprise that the country is in this position now. The worrying thing is that using the monarchical power of prorogation does not solve problems – it has a history of turning them into frightening and often violent crises. There is a worrying relationship between the use of such powers and a complete breakdown in government."