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/

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More Current Affairs

Apr 13th 2022
EXTRACTS" "Ukraine and Russia produce a substantial amount of grain and other food for export. Ukraine alone produces a whopping 6% of all food calories traded in the international market. At least it used to, before it was invaded by the world’s largest nuclear power." ...... "When it comes to cereals like wheat, corn, rice and barley, the big players talk about millions of metric tonnes, or MMTs. A single MMT of wheat contains about 3.4 trillion food calories,." ....."Ukraine produced about 80 MMT of grain (a category that includes wheat, corn and barley) in 2021, and is expected to harvest less than half of that this year. A shortfall of 40 MMT is enough missing calories that a country like the UK could only make it up by having everyone stop eating for three years. That’s the thing about tonnes of grain: a million here and a million there and pretty soon you’ve got a real issue on your plate."
Apr 11th 2022
EXTRACT: "I don’t even know the little girl’s name. All I do know is what a friend of a friend wrote on Viber: that her relative, a senior nurse in one of Kyiv’s hospitals, “saw in the morgue a child with 20 varieties of sperm on her small body.” Since this information was conveyed in a private conversation, there is no reason to doubt its veracity."
Apr 8th 2022
EXTRACT: "Russian society has so far failed to stop Putin, just as German society failed to stop Hitler. And so, like a poisoned chalice, that task has fallen to the West, as it did in 1939. The West must now treat Putin and his regime the same way that Winston Churchill treated Hitler: Don’t talk to him, just defeat him. Dead-enders such as Putin are too fanatical and desperate to be reliable negotiating partners."
Apr 3rd 2022
EXTRACT: "From 1807 to 1814 on the Iberian peninsula, Napoleon had to fight Spanish, Portuguese and British armies while beset by ubiquitous, ferocious insurgents. He described this war as his “bleeding ulcer”, draining him of men and equipment. It is the west’s aim to make Ukraine for Putin what Spain was for Napoleon. In the absence of a negotiated settlement, Ukraine and Nato will continue to grind away at Russia’s army, digging away at that bleeding ulcer and prolonging Russia’s agony on the military front, as the west continues its parallel assault on its economy. If Putin’s plan is to proceed with the Korea model, he will fail. There is a strong possibility that Putin has only a limited idea of how badly his army is faring. So be it – he’ll find out soon enough that there is now no path for him to military victory."
Apr 1st 2022
EXTRACTS: "Policymakers expected that the country would be able to secure its energy supply entirely from renewable sources, so they resolved to phase out coal and nuclear energy simultaneously. The last three of Germany’s 17 nuclear power plants are set to be shut down this year." ---- ".... the share of wind and solar power in Germany’s total final energy consumption, which includes heating, industrial processing, and traffic, was a meager 6.7%. And while wind and solar generated 29% of the country’s electricity output, electricity itself accounted for only about a fifth of its final energy consumption." ----- "If Germany suddenly halted Russian gas imports, gas-based residential heating systems – on which half the German population, approximately 40 million people, rely – and industrial processes that rely heavily on gas imports would break down....."
Apr 1st 2022
EXTRACT: "For Putin, the past that matters most is the one the dissident author and Nobel laureate Aleksandr Solzhenitsyn exalted: the time when the Slavic peoples were united within the Orthodox Christian kingdom of Kievan Rus’. Kyiv formed its heart, making Ukraine central to Putin’s pan-Slavic vision. ---- But, for Putin, the Ukraine war is about preserving Russia, not just expanding it. As Russian Foreign Minister Sergei Lavrov recently made clear, Russia’s leaders believe that their country is locked in a “life-and-death battle to exist on the world’s geopolitical map.” That worldview reflects Putin’s longstanding obsession with works of other Russian emigrant philosophers, such as Ivan Ilyin and Nikolai Berdyaev, who described a struggle for the Eurasian (Russian) soul against the Atlanticists (the West) who would destroy it. ---- Yet Putin and his neo-Eurasianists seem to believe that the key to victory is to create the kind of regime those anti-Bolshevik philosophers most detested: one run by the security forces. A police state would fulfill the vision of another of Putin’s heroes: the KGB chief turned Soviet General Secretary Yuri Andropov."
Apr 1st 2022
EXTRACTS: "Ukraine, known as the breadbasket of Europe, is struggling to export last year’s harvest, and may be unable to produce much this year either. In addition, the war has caused a global fertiliser shortage, which will push up food prices around the world too. Coming at a time when the global pandemic had already increased food insecurity and depleted resources around the world, many countries may not be resilient to a major food crisis brought on by the war. Back-to-back global catastrophic events like this have not happened for close to 100 years." ----- "Another useful analogue is the case of Germany during the first world war. When war broke out in 1914, the German authorities had anticipated a short conflict – not too dissimilar to Russian assumptions a few weeks ago. Just like in Ukraine now, the first world war severely disrupted German farming."
Mar 31st 2022
EXTRACT: "The horrors of World War II – the death camps, slave labor, and inhumane experiments on people – produced a global commitment never to permit such crimes to be repeated. This began a transformation of international politics whereby appreciation of the value of every person’s life and dignity ensured that even most authoritarian governments at least paid lip service to human rights.  ----- But the Soviet Union and many of its successor states, particularly Russia, never internalized this change. More than three decades after the USSR collapsed, most post-Soviet countries are still governed according to the old “imperial” paradigm. So, it should come as no surprise that we are now witnessing a clash between fundamentally different sets of values and ultimate goals for statehood."
Mar 26th 2022
EXTRACT: "Referencing past legacies as a justification for present-day political decisions is often effective – such appeals trigger emotional reflexes and contribute to thinking about politics in terms of rivalry and defence. The irony within the tragedy of the current situation is that Putin will assuredly go down in history as the figure that did more to unite the Ukrainian people (albeit against Russia) than any other in recent memory."
Mar 24th 2022
EXTRACT: " Despite the death and destruction that Russia rains down daily on them, the vast majority of Ukrainians are bullish about the future: 77% believe the country is moving in the right direction, 93% think they can beat back Russia, and 47% expect to win in the next few weeks.  Ukrainian policymakers are no less bullish, driving a hard bargain in negotiations with the Russians. Several factors account for this remarkable optimism."
Mar 21st 2022
EXTRACT: "As Russia’s war in Ukraine continues, China’s role has been thrown into sharp relief. Prior to the war, some commentators suggested that China would openly side with Russia or seek to act as a mediator – so far Beijing appears to have resisted doing either. As Qin Gang, China’s ambassador to the US, wrote recently in the Washington Post, Beijing has nothing to gain from this war, arguing “wielding the baton of sanctions at Chinese companies while seeking China’s support and cooperation simply won’t work”. Ambassador Qin also stressed that Beijing had no prior knowledge of the conflict,...."
Mar 17th 2022
EXTRACT: "The second source of Russian power is of course the world’s largest nuclear arsenal. Nuclear weapons would not deliver victory in a conventional war, but they could destroy a country in the blink of an eye. This brings us to a terrifying question: What will Putin do when he realizes that he cannot win his war in Ukraine by conventional means?"
Mar 17th 2022
EXTRACT: "An influential Shanghai-based academic commentator on international affairs, Hu Wei, recently advanced a cautionary argument that has been circulated widely in Chinese-language publications. In his commentary, which is unlikely to have been published without the approval of some of Xi’s senior courtiers, Hu wondered how Chinese communists would react if the war escalated beyond Ukraine, or if Russia was clearly defeated." ------- "For Hu, the answer for China’s leaders is simple. They should wash their hands of the relationship with Putin, ....."
Mar 12th 2022
EXTRACT: "Meanwhile, Xi seems to have realized that Putin has gone rogue. On March 8, one day after Chinese Foreign Minister Wang Yi had insisted that the friendship between China and Russia remained “rock solid,” Xi called French President Emmanuel Macron and German Chancellor Olaf Scholz to say that he supported their peacemaking efforts."
Mar 7th 2022
EXTRACTS: "........Russia has been isolated by draconian Western sanctions that could devastate its economy for decades,...." ---- "Russia’s prospects are bleak, at best; without China, it has none at all. China holds the trump card in the ultimate survival of Putin’s Russia."
Mar 3rd 2022
EXTRACT: "Although Ukraine’s armed forces are outnumbered by those of Russian President Vladimir Putin invading our country, we take heart from the growing support we are receiving from friends abroad. Nobody should forget that this is not just an unprovoked invasion of Ukraine; it is an assault on the free world. ---- Putin has been at war with the free world for decades. "
Mar 2nd 2022
EXTRACT: "Moreover, with China sharing the Kremlin’s interest in containing the advance of liberal democracy around the world, Putin could count on the Chinese to provide an additional economic lifeline by purchasing Russian gas. But this new relationship will not be costless. As the world continues to divide into separate technological and economic blocs, Russia will become even more dependent on China, implying a loss of strategic autonomy. Russia may have a powerful military; but with a GDP similar to that of Spain and Italy, it is far from being an economic power."
Mar 1st 2022
EXTRACT: "The financial measures just announced against Russia are unprecedented for a country of its size. This of course means it’s impossible to predict exactly how their impacts will reverberate around the Russian – and global – economy. And we still need to see the exact details of the plan. But on their face they threaten the collapse of the Russian ruble, a run on Russian banks, hyperinflation, a sharp recession and high levels of unemployment in Russia, as well as turmoil in international financial markets."
Feb 26th 2022
EXTRACT: "Putin apparently assumes that China will back him. But while he launched the invasion just weeks after concluding something akin to an alliance agreement with Xi in Beijing, Chinese officials’ reactions have been very distant with calls for “restraint.” Given Putin’s near-total reliance on China for support in challenging the US-led international order, lying to Xi would have no political or strategic advantage. That is what is so worrying: Putin no longer seems capable of the calculations that are supposed to guide a leader’s decision-making. Far from an equal partner, Russia is now on track to become a kind of Chinese vassal state."
Feb 25th 2022
EXTRACTS: "Russia’s ascent to global power in the nineteenth and twentieth centuries resulted in numerous tragedies not only for the neighbors it subjugated and gradually absorbed, but also for its own people. China’s current leaders, in particular, should be mindful of this history, considering that imperial Russia seized more territory from China than from anyone else." ----- "Putin is taking Russia hurtling back toward the nineteenth century, in search of past greatness, whereas China is forging ahead to become the defining superpower of the twenty-first century. While China has achieved unprecedentedly rapid economic and technological modernization, Putin has been pouring Russia’s energy-export revenues into the military, once again cheating the Russian people out of their future."