Horses for Courses? The Candidates and the Economy

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.