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Monday, March 20, 2006

Winning in 2008 by Losing in 2006

I've mentioned on more than one occasion in this forum that much of the American public is too lazy to do their homework on economics, government, the Constitution, etc. This morning I'm going to explore a way that either party can use the "soundbite" mentality of the electorate to their advantage in 2008, but only if they end up losing the 2006 mid-terms.

Today's WaPo has an article about the GOP's infighting and lack of message for the mid-terms, and every paper and blogger has said the same about the Democrats in the last couple of weeks.

First, I'm basing my assumptions in this on the fact that in late 2007 or early 2008 our economy will begin slipping into a recession. It's fairly easy to predict, energy costs haven't hit it as hard as they should, but after 18 more months of them being high, they will. The labor market is tight, which drives up costs, and interest rates, while low by traditional standards, are still higher than when most folks went on credit spending sprees. So I give it 18-24 months before the economy stops growing, for about 6-9 months. That's just enough time to use it for political fodder.

If the Democrats were to win the 2006 mid-terms, and take either chamber of Congress, even both, you can expect a few things to happen. Specifically, a number of tax cuts that Bush pushed through in 2001 and 2002 will expire, which will help start the recession.

There's 45 years of data, since Kennedy first cut taxes in 1962 that show the correlation between tax cuts and economic growth, and that data will be ignored, to pander to the party base, "tax the rich" will be the mantra. But the truth is they will only be part of the economic issue, the rest is above

The other thing you'll see is the standard "Washington Gridlock" that occurs the first year or so that a new party takes a chamber. The new party wants to push their agenda, but without both chambers, or the White House, its tough.

2008 then becomes an election about Democrats blocking tax issues that kept the economy growing from 2002-2007. It will be very easy for the GOP to paint an "obstructionist House (or Senate) that put the brakes on a growing economy".

Even if the GOP keeps both sides of Congress the recession I predicted will still happen, because the tax policy alone won't make it go away. Economies take "a breather" once in a while, regardless. It's matter of how long it lasts, which is where government comes into play.

That breather would provide the Democrats the ability to claim that the GOP policies aren't working, and point to rising unemployment, and tightened interest rates as the fault of the other guys. They'll also have the advantage of lowered tax receipts due to higher unemployment, so the deficit will grow more.

Obviously other things could also have an effect on the elections, terrorism, the war in Iraq, or the ethics issues in DC could all change the outcome. I'm only looking at one small part of the puzzle, but since folks think they understand dollars and sense more than the others, it's usually an important part.

Now, my ideal scenario is that more American's take economics courses and read some books to figure out how economies actually work, so they can demand real solutions from elected officials. Because if we weren't so easily convinced by sound bite solutions, none of what I just wrote would matter. We'd actually make politicians have real plans.

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13Comments:

Blogger ablur said...

Unfortunately, as right as you are on economics and the probable out come, I think emotionalism will win out. The "IF it feels good, do it" crowd has been indoctrinating our society for to long and the democratic party embodies that. The republicans can never seem to paint an emotional image and draw in this crowd. Outside groups such as the Vietnam vets actually won the election for the republicans. They were able to establish that emotional message that drew the vote.
Too bad everyone isn't a thinker like you and I and look past the emotional drivel for the facts. We need to restore responsibility and logical thinking back into the American psyche.

8:53 AM  
Blogger Anthony said...

This comment has been removed by a blog administrator.

11:30 AM  
Blogger Anthony said...

I have an MA in economics and I'm beginning a Ph.D. in political economics this fall, so I hope that suffices for the basic econ course that you'd like all Americans to take.

With that stated, with the current budget deficit and national debt sitting at under $9t, and the trade deficit is the largest in history, the economy doesn't look good. Interest rates will eventually rise, causing a further appreciation of the dollar, creating more imports, creating a larger trade deficit, which will lead to larger fiscal deficits unless spending decreases or government receipts increase.

The Bush Administration has seen the single largest increase in spending since LBJ, but the vast majority of that spending increase has been focused on war and military expenditures. Remember the lovely economic situation that occured because of LBJ's spend-on-a-war-without-corresponding-increases-in-government-receipts policy?

In other words, taxation must be increased, spending must decrease--remember, about eight percent of federal expenditures come in the form of interest payments on debt, and the dollar must be allowed to weaken in order to stimulate exports. Yet we can fully expect the Bush Administration to carry out not a single of those policies, which textbook economics would prescribe.

11:31 AM  
Blogger Crazy Politico said...

Anthony, I agree completely with cutting spending. Congress just killed over $50 billion in spending cuts Bush sent them. Unfortunately neither he, nor congress (where all spending originates) have the discipline to say "no" to pork, etc.

As for military expenditures, as a percentage of GDP, Bush's defense budget is about 50% of what John Kennedy's was, and about 2% of GDP lower than Kennedy claimed to be "dangerous".

As for raising taxes, looking at the IRS data tables, revenue collections from 1997-1999 grew at a slower rate than they did in 1995 and 1996, when they were cut.

Right now we are collecting about 5% more tax that we did in 2000, even with the cuts.

The biggest increases in revenue since the 80's have all happened within 2 years AFTER taxes were cut, and the slowest growth after they were raised. (pg 22, IRS Data book for 2005, table covering 1971-2005).
http://www.irs.gov/pub/irs-soi/05databk.pdf
There is a dropoff in revenue after Bush's cut, but that immediatly came back to precut levels after 1 year.

Again, spending cuts, not tax increases have historically proven to be the method to a more sound budget.

4:15 PM  
Blogger Tim said...

"Right now we are collecting about 5% more tax that we did in 2000, even with the cuts."

And yet the Republicans, who control everything now, cannot get spending under control.

You want for me to trust them to do more than feather their own nests and that of the lobbyists?

4:42 PM  
Blogger Crazy Politico said...

Ooops, had my number wrong, it's closer to 10% higher, but that really doesn't matter.I don't trust them to reign spending in. The Prez just sent them some cuts that they sent packing. Killing any spending is hard, killing pork in elections years is like killing, well Captain America :)

5:43 PM  
Blogger shoprat said...

Knute Rockne once said "One loss is good for the soul." I wouldn't want to see the country in the hands of the Democrats but I think it would serve as a wake-up call to the Republicans if they lost a few seats.

6:14 PM  
Blogger Tim said...

"I BAILED YOU OUT, WHEN YOU WERE DOWN ON YOUR KNEES, WHY DON'T YOU CATCH ME NOW I'M FALLIN'"

11:23 PM  
Blogger Crazy Politico said...

Shoprat- There is something to be said about a split gov't, with one party holding the WH, and the other one or both houses of congress. Sometimes things run better when they have to work together.

Tim ??

6:56 AM  
Blogger Tim said...

It's a song, CP.

9:33 AM  
Blogger Little Miss Chatterbox said...

You said, "I've mentioned on more than one occasion in this forum that much of the American public is too lazy to do their homework on economics, government, the Constitution, etc."

I can't tell you how much this frustrates me at times. The American people are so easily swayed by soundbites. Just the huge fluctuation in polls shows that.

Oh, and thanks for those encouraging words about the economy :-).

5:52 PM  
Blogger Crazy Politico said...

Tim, I guess my pop knowledge isn't what it should be.

LMC, if you want a government by, for and of the people, the people should have some knowledge of how it works. When I got "into" politics and government in the 80's (pre internet) it took me a few days at the library to find what I was looking for. I also found a yearning for a better understanding that hasn't gone away.

Do I think everyone should become a freak about it like me, no. But I think everyone owes it to themselves and their country to understand the process.

7:43 PM  
Blogger Tim said...

Cp- The song is rock. It goes "I'm calling all cities from all over the world, this is Captain America callin' I bailed you out when you were down on your knees, why don't you catch me now I'M fallin..."
Kind of saying " We saved the world for Democracy (Or whatever) now WE need your help....

So if you never heard this song, what. You are like a Mormon or something? It was very popular in the "70's

12:04 AM  

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