Thursday, February 28, 2013

Presidents and Growth


Imagine walking by a protest and hearing this as the rally cry:

"What do we want?"
"Three Percent Annual Real GDP Growth"
"When do we want it?"
"Now!"

That would be too pragmatic to be on peoples' list of demands, but that is what they really want. More likely, you will hear people say "Jobs","Health care", or "Respect", but when it comes down to it - all of those things can be found in plenty when the economy is growing. Three Percent GDP Growth is enough for the vast majority to experience gradual improvements in income and quality of life. This steady improvement has been scientifically-proven to be the key to happiness.

Bill Clinton delivered. Or more of, he was in charge of the country during the Internet Boom. He followed the Keynesian Prescription of rolling-back Government expenditures when times are good in order to make sure that government does not crowd out private investment. When economic times are bad, then it is the government's job to spend more in order to keep aggregate demand even. Luckily, he never had to do that. Clinton did not get bogged down in ideological battles on the role of government (Though, he did get bogged down in a sex scandal). He is seen as an effective manager.

George Bush was not as lucky. He had a tumultuous presidency. The Internet Boom busted at the beginning of his Presidency and then the US was attacked shortly thereafter. He chose the Keynesian solution of increasing aggregate demand by cutting taxes while increasing government expenditures (military spending). Neither of which are particularly effective prescriptions as they have very low fiscal multipliers, but they are in line with Reagan-ite Republican ideological values. The economy slowly recovered until 2004, when the housing bubble started and subsequently busted at the end of his presidency. He is now seen as a poor manager.

Barack Obama is trying to deliver. He inherited the housing bust just like George Bush inherited the Internet bust, but this one was significantly deeper. Obama followed the Keynesian solution too. Congress passed over $1.5 trillion+ in stimulus (Original Bill + December 2010 deal), a health care bill that pushed more money to the poor, and increased military expenditures by surging in Afghanistan. Much more effective stimulus than the Bush tax cuts, but still arguably not as effective or as much as it could have been. The economy is slowly recovering. The jury is still out on how Obama will be seen.

He is negotiating with a Republican Congress that was elected as a protest movement in 2010. Protest movements, because of ideology, have a hard time actually governing. Compromise is a dirty word as it is tantamount to "selling out". This is why Obama is seen as emerging victorious time and time again when he negotiates with the Republican Party. Not because the policy is particularly progressive, but he gets to 'yes' just like his side wants and the other side does not want.

John Boehner is in a precarious position on the Sequester. If he negotiates, he loses in the public's mind and therefore knows his speaker-ship days are numbered. If he does not negotiate, the country can go back into recession and people will blame the Republican Party. The only thing that puts egos aside and brings Republicans to the table is if the public opinion becomes so damning that they can not ignore it.

The Republican Party needs a change in strategy, because currently there is no way they can win. .  The days of fighting over ideology are over. The fight is no longer "big government " versus "small government" as it was during the Reagan years. That ship has left the rising tides and sailed on. The question is: "How do we get back to full employment? How can government be run more effectively?"

They need to articulate a vision that they can negotiate for, instead of opposing for the sake of opposing. You can not win unless you stand for something. Only then, can the Republicans win again. The whole country would be better off.

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