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osewalrusBack in late 2016 and early 2017, I predicted that it would take Republicans about 2 years to crash the economy -- which would put it too late to impact the 2018 election (we'd still be living off the Obama economic recovery as well as the global recovery -- which I gotta say was stronger than I had anticipated). Mind you, I caveated that if Republicans were successful at repealing the ACA, they would accelerate the collapse to 2018, but that didn't happen.
Now that (some) of the behaviors that prompt this prediction are being made manifest, a number of economists are worrying about a slump in 2019 from the upcoming inflation and overall decline in productivity from our aging workforce (especially with our reducing the number of healthy young immigrants flowing into the country). And yes, if we assumed Trump was actually going to follow through on his commitment to cut taxes and raise military spending, it was fairly predictable that we would blow out the deficit at exactly the wrong time in the business cycle. (I'm sure y'all remember the Keynesian theory that government acts to moderate the boom-bust cycle of capitalism by pumping in capital during recession and sucking off capital in the good times.) So now that it is actually happening, conventional economists are predicting a stagflation style downturn in 2019 (although this will also depend a great deal on whether global demand continues to rise and whether the dollar remains the default global currency).
But I was willing to place the bet in 2016 based on the historic trends about the economy and Democratic Administrations. There have been a bunch of studies over the years (especially since Blinder and Watson's 2014 study), but economists consistently cannot explain why. The general consensus among economists therefore is that this is coincidence. This is because economists do not understand how the President actually (as opposed to theoretically) influences the economy. This, in turn, is because most economists don't understand how Washington actually works and what the President actually does.
From where I sit, I see a bunch of significant post-war trends that all work in the same direction. Much of it has to do with the appointments power and the signals sent to industry. (The impact of regulator signaling on industry is studied by a specialized class of political economists and not much in macro-land.)
But here are my basic reasons why the economy does better under Dems and worse under Rs since WWII.
1. Lax enforcement of financial rules encourages risky behavior and outright bad behavior.
It's no coincidence that the major financial scandals have happened under Republicans. Yes, Dems have increasingly been crappy on financial regulation and enforcement. But they are generally more serious about it over all, and usually pick a couple of rules they are serious about enforcing. Republicans are much more explicit about the "nudge, nudge, wink, wink" thing. Additionally, Industry is much more likely to worry about Ds imposing new regulation if things get too much out of hand. So shenanigans folks would never even imagine trying under a D administration become more frequent under an R administration.
It doesn't help that risky behavior yields major returns in the short run. The whole reason for a bunch of the New Deal era financial regulations is because the risky behavior in the aggregate eventually catches up with the market, but the feedback loop keeps pushing the sector actors to greater and greater risk, and to engage in worse and worse bad behavior to hide the fact.
2. Anti-consumer behavior is overall contractionary, and Republicans have much less interest in either addressing abuses with new rules or enforcing existing rules.
Another area where Republicans are consistently less likely to enforce -- let alone create new rules -- is in the realm of consumer protection. This varies from a general reluctance to get in the way of the "free market" but willingness to enforce existing law to a general "consumer protection, fuck that" attitude. In an economy that is designed on a theory that we have a substantial middle class that purchases consumer goods and consumer oriented services, the rise in consumer ripoffs has several significant contractionary impacts. It means consumers have less disposable income. It means consumers are more reluctant to engage in commercial activity because it is unpleasant. And it makes it more difficult for consumers to actually budget for expenses or save money.
3. Consolidation turns out to be bad for the economy, and for wages. As are anti-labor policies.
We have had a raft of recent papers looking at the broader impact of concentration on wages and wage stagnation. Turns out that concentration has significant impact on the overall decline in real wages and wage stagnation. Intuitively this should make sense. Wages rise as a result of competition among employers for qualified employees. The fewer the employers, the less competition for workers (I won't even get into the problem of conscious parallelism in wages and pricing). So concentration has an upward pressure on prices and a downward pressure on wages. Bad combination.
Now as it happens, Democratic Administrations since Carter have generally been nothing to write home about in any of these categories. But Republicans are always much worse -- and businesses absolutely expect this behavior. Heck, that's the whole branding of Republicans as "business friendly." And while it is fashionable for cynics to believe there is no difference between the parties, the major economic actors believe there is -- and shape their behavior accordingly. Sure, after it becomes clear that Dems are toothless on the subject, the business actors begin to relax -- but they still have more worry about regulatory backlash/overhang in a Democratic Administration than in a Republican Administration. This is why the party that controls the White House is so much more important for these impacts than the party that controls Congress.
To use an analogy. From the perspective of business, Democrats have been the parent who says "don't make me come over there!" It may not be much of a threat, but it moderates behavior much more than the parent who says "whatever you want, sweetums." Or, put another way, from the perspective of the businesses whose behaviors over time impact the economy, Democrats are Kyle Brovlowski's mom while Republicans are Eric Cartman's Mom. And the results are similar. Under Democrats, businesses will at least try to keep their bad behavior out of sight or fear of getting in trouble. Under Republicans, the primary actors are utterly unconcerned about possible consequences and quite confident that if something happens, Mom will clean it up.
Now that (some) of the behaviors that prompt this prediction are being made manifest, a number of economists are worrying about a slump in 2019 from the upcoming inflation and overall decline in productivity from our aging workforce (especially with our reducing the number of healthy young immigrants flowing into the country). And yes, if we assumed Trump was actually going to follow through on his commitment to cut taxes and raise military spending, it was fairly predictable that we would blow out the deficit at exactly the wrong time in the business cycle. (I'm sure y'all remember the Keynesian theory that government acts to moderate the boom-bust cycle of capitalism by pumping in capital during recession and sucking off capital in the good times.) So now that it is actually happening, conventional economists are predicting a stagflation style downturn in 2019 (although this will also depend a great deal on whether global demand continues to rise and whether the dollar remains the default global currency).
But I was willing to place the bet in 2016 based on the historic trends about the economy and Democratic Administrations. There have been a bunch of studies over the years (especially since Blinder and Watson's 2014 study), but economists consistently cannot explain why. The general consensus among economists therefore is that this is coincidence. This is because economists do not understand how the President actually (as opposed to theoretically) influences the economy. This, in turn, is because most economists don't understand how Washington actually works and what the President actually does.
From where I sit, I see a bunch of significant post-war trends that all work in the same direction. Much of it has to do with the appointments power and the signals sent to industry. (The impact of regulator signaling on industry is studied by a specialized class of political economists and not much in macro-land.)
But here are my basic reasons why the economy does better under Dems and worse under Rs since WWII.
1. Lax enforcement of financial rules encourages risky behavior and outright bad behavior.
It's no coincidence that the major financial scandals have happened under Republicans. Yes, Dems have increasingly been crappy on financial regulation and enforcement. But they are generally more serious about it over all, and usually pick a couple of rules they are serious about enforcing. Republicans are much more explicit about the "nudge, nudge, wink, wink" thing. Additionally, Industry is much more likely to worry about Ds imposing new regulation if things get too much out of hand. So shenanigans folks would never even imagine trying under a D administration become more frequent under an R administration.
It doesn't help that risky behavior yields major returns in the short run. The whole reason for a bunch of the New Deal era financial regulations is because the risky behavior in the aggregate eventually catches up with the market, but the feedback loop keeps pushing the sector actors to greater and greater risk, and to engage in worse and worse bad behavior to hide the fact.
2. Anti-consumer behavior is overall contractionary, and Republicans have much less interest in either addressing abuses with new rules or enforcing existing rules.
Another area where Republicans are consistently less likely to enforce -- let alone create new rules -- is in the realm of consumer protection. This varies from a general reluctance to get in the way of the "free market" but willingness to enforce existing law to a general "consumer protection, fuck that" attitude. In an economy that is designed on a theory that we have a substantial middle class that purchases consumer goods and consumer oriented services, the rise in consumer ripoffs has several significant contractionary impacts. It means consumers have less disposable income. It means consumers are more reluctant to engage in commercial activity because it is unpleasant. And it makes it more difficult for consumers to actually budget for expenses or save money.
3. Consolidation turns out to be bad for the economy, and for wages. As are anti-labor policies.
We have had a raft of recent papers looking at the broader impact of concentration on wages and wage stagnation. Turns out that concentration has significant impact on the overall decline in real wages and wage stagnation. Intuitively this should make sense. Wages rise as a result of competition among employers for qualified employees. The fewer the employers, the less competition for workers (I won't even get into the problem of conscious parallelism in wages and pricing). So concentration has an upward pressure on prices and a downward pressure on wages. Bad combination.
Now as it happens, Democratic Administrations since Carter have generally been nothing to write home about in any of these categories. But Republicans are always much worse -- and businesses absolutely expect this behavior. Heck, that's the whole branding of Republicans as "business friendly." And while it is fashionable for cynics to believe there is no difference between the parties, the major economic actors believe there is -- and shape their behavior accordingly. Sure, after it becomes clear that Dems are toothless on the subject, the business actors begin to relax -- but they still have more worry about regulatory backlash/overhang in a Democratic Administration than in a Republican Administration. This is why the party that controls the White House is so much more important for these impacts than the party that controls Congress.
To use an analogy. From the perspective of business, Democrats have been the parent who says "don't make me come over there!" It may not be much of a threat, but it moderates behavior much more than the parent who says "whatever you want, sweetums." Or, put another way, from the perspective of the businesses whose behaviors over time impact the economy, Democrats are Kyle Brovlowski's mom while Republicans are Eric Cartman's Mom. And the results are similar. Under Democrats, businesses will at least try to keep their bad behavior out of sight or fear of getting in trouble. Under Republicans, the primary actors are utterly unconcerned about possible consequences and quite confident that if something happens, Mom will clean it up.
