It’s interesting how far my politics have evolved. If you had told me in 2014 that this channel would include a full-throated call for more stimulus spending, even after a year with a near 4 trillion dollar US budget deficit, I would have been appalled. I’m in surprisingly strong company. The inflation hawks and bond vigilantes on Wall Street have mostly retired in failure. The new generation is now just as eager for a big spending government as I am. What happened to all of us was… events. An under-appreciated aspect of Donald Trump’s presidency is the way that he sort of blew up the argument for fiscal conservatism. The Republicans let him do all the economic stimulus that they denied Obama, and the economy really did kick into higher gear. The threatened inflation never happened, and while people are a little less eager to buy our debt, the Federal Reserve seems to have stepped into the breach without consequences.
The only thing standing in the way of the emerging “magic money” era is the Republican Senate. And they’re only standing in the way until they can put a Republican back in power. Which is way I think we shouldn’t let them do that, as I lay out in today’s video on Georgia’s January 5th elections. As I briefly note in this video, however, I still suspect that those failed bond vigilantes and Republican Senators may actually be right. The British Empire fell because it ran out of people willing to give them money, and I think it’s likely that will be the case with us as well. We just don’t know the time scale. And as Keynes pointed out, “In the Long run, we’re all dead”. 2021 is not the year to try to solve the national debt.
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Video Transcript after the jump…
Hey there. It took longer than usual, but it’s now pretty clear that the United States is getting a new President. I guess I could say that my February prediction of Donald Trump’s loss has been vindicated, but if I did that I wouldn’t be being honest. Joe Biden won, but so did Trump’s Republican party. In fact, if the Democrats don’t win a couple key elections in Georgia in January, it’s very likely that Joe Biden’s presidency will be a failure before it even begins.
What I predicted in February, and what all of the nation’s pollsters expected two weeks ago was a democratic landslide. We expected an easy Biden win, possibly even taking Texas, serious Democratic progress in both houses of Congress, and state legislatures all over the country. I was excited for this. The hope was that we could get some real movement towards solutions in Washington, DC, for the first time since the 2 years Barack Obama had a senate majority from 2008-2010. Well it’s not going to happen.
Trump has lost this election, but the Democrats appear to have lost at every other level. Democrats still control the lower house of congress, but only barely. Without Democratic control of the senate, there will be no Green New Deal. There isn’t going to be any progress on healthcare, infrastructure, education or housing.
More importantly, I don’t think Biden will be allowed to do the stimulus necessary to bring the economy back. There will probably be some kind of stimulus, even Republicans know that’s necessary, but it won’t be big enough. The Republican Senate might even keep Biden from hiring the people he wants for his own government.
Folks are already selling the idea that this will work out, because Joe Biden and Republican Senate Majority leader Mitch McConnel are such great old pals. Markets like this because they now know they won’t be getting any new regulation at all.
I think a majority Republican Senate in 2021 would be a catastrophe. We already know exactly what Mitch McConnel is going to do. The Republicans are going to claim they care about the national debt, and they are going to use that to block absolutely everything Biden proposes. I know this, because under Obama I was cheering for Mitch McConnel to do it. But we now know that this approach is catastrophic for the country. Weirdly, Donald Trump proved it.
It’s common for Trump opponents to point out that he didn’t really improve the fundamentals of our economy. Obama’s first term was better for the stock market than Trump’s, and if you look at an unemployment graph from 2009 to 2020 it doesn’t look like anything changed when Trump came to power. But aggregate figures can be deceiving. When you drill down into the details, Trump’s presidency was actually pretty great for the poorest US citizens. The Unemployment rate didn’t change dramatically, but that figure only measures people who are actively looking for work.
Trump’s economy actively drew people back into the labor force for the first time. The total labor force participation rate turned upwards under Trump for the first time since the financial crisis. And wages for the poorest workers finally went up a bit as well.
To be clear, Trump never delivered on any of his big economic promises, the annual economic growth rate remained stubbornly at the 2 to 3 percent rate it was under Obama. But the Trump economy was legitimately better for the poor than the Obama economy. Trump made this happen by just firehosing government money at everybody. He basically proved Keynesianism.
Trump did a massive tax cut, and at the same jacked up all government spending massively. He trashed all traditional thinking about debt and the deficit, and so far there have been no consequences. To be clear, as a scholar of the fall of the British Empire, I’m 100% convinced there will eventually be consequences for this out of control spending. However, in the middle of the greatest economic crisis since the great depression, it’s not the right time to start working on solutions.
Under Covid, things have gotten even more extreme. People are trying to puzzle out why the Democrats lost this election, and the most convincing answer is quite simple. It’s the Cares act.
Every American with an income below 75000 dollars got a one time check of 1200 dollars or more. From the end of March through the end of July, every unemployed person in the United States received an additional 600 dollars a week, on top of whatever state level unemployment benefits they could access. And this was less than half the spending in the Cares Act, which also had massive bailouts for business and state governments. But the effect on individuals was transformative. For way too many people in the United States, this Covid year has actually been the most economically successful year of their lives. Discretionary income has risen on average, and it’s been truly transformative for the entire bottom half of the income distribution. What’s more it worked. The economy isn’t in great shape, to say the least, but without this spending it would be so much worse. If the Democrats don’t win in Georgia, we will get to see how much worse.
The more I think about it, the more convinced I am that government spending is the reason the Republicans won this election. We aren’t out of the woods yet. It seems like we may have a vaccine now, but it will take months before everyone has decent enough access. We will need more and more dramatic stimulus. And what’s the most independent and bipartisan Republican Senator in congress saying?
“But I want to make sure that we conservatives keep on fighting to make sure that we don’t have a green new deal, we don’t get rid of gas and coal and oil, that we don’t have a medicare for all plan put in place, that we don’t raise taxes on American enterprise that would kill the economy, so look, I congratulate him, but I’m not going to put aside conservative principles, we’re going to fight for the principles that we believe in.”
A Biden presidency that relies on that kind of Republican Senate will be a complete failure. If we were living in normal times, then maybe that’d be fine. But we’re not. We need better. The country needs more. Which means we need the Democrats to win in Georgia.
This is where we’re at right now. Biden has won the Presidency. Democrats have a thin majority in the House. And the Republicans lead in the Senate, 48 to 50. Senators serve six year terms, and the states usually elect each of their two Senators in different years. But due to an early retirement, the two senate seats that are left are both in Georgia. And these two elections are close enough that they are both going to a run-off election on January 5th. If the Democrats win both of these elections, then Vice President Harris will be the deciding vote in the Senate, Biden will be able to hire the people he wants, and the new president will have a chance to lead the country out of this catastrophe. If the next two years are going to be anything other than a disaster, then the Democrats Raphael Warnock and John Ossoff need to win on January 5th.
The common counter-argument to this is that if Democrats have full control of Congress and the White House we’re going to go socialist!!! This is absurd. People making this argument depend on people not knowing about the deeply centrist, extremely business friendly histories of Joe Biden and Kamala Harris. What’s more, the absurdly slim margin that the Democrats would hold, even if they take the Georgia seats, means that it’s conservative Democrats like Joe Manchin that get to decide what happens. We’re not going to get socialism if the Democrats win in Georgia. But if they lose we will get a disastrously do-nothing Congress, and a quick return to a Republican president, quite possibly Donald Trump.