Wednesday, October 12, 2011

Were we screwed all along?

That's the question Jonathan Chait asks in response to Ezra Klein's column from the weekend analyzing why the Obama administration didn't have more success fixing the economy. He thinks we weren't:

Is there any possible way we could have escaped our fate? Actually, one possibility leaps out from Klein’s analysis: We could have elected John McCain president.

The reason for this is not that we could have avoided the Kenyan Socialism or even the regulatory Uncertainty held up by conservatives as the cause of the continued slump. (It’s a demonstrable canard.) Rather, it’s that a McCain presidency would, for purely political reasons, offer the possibility of greater Keynesian demand-side response.

He then goes on to suggest that policies would have been passed easier because Republicans wouldn't have been angry that they lost an election and Democrats wouldn't have been as angry and completely politically minded as Republicans were when they lost.

But what if we had a Republican president? Perhaps a President McCain might have designed a less sweeping and less effective stimulus than President Obama did. But Republicans would have gone along — after all, they did under Bush, and this time the justification was far stronger. It’s also likely that Democrats would have gone along, because they have shown themselves to be happy to support stimulus under Republican presidents. It also seems likely that, as the crisis deepened, President McCain would have fought for more stimulus measures, and these measures would not have been dead on arrival because there would not have been a right-wing backlash against the first one.

I think this is a pretty plausible argument about how both parties would have reacted to a McCain win. Republicans certainly flipped their shit in response to Obama winning and have done nearly everything they could to try and prevent him from doing anything. Its hard to envision Republicans giving McCain too much of a hard time. Yes they resisted Bush's stimulus. But iirc, they (or at least some) eventually came around. And they would have more incentive to do something after they had won an election as compared to being afraid of screwing up right before one.

The more uncertain part is the Democrats. It would have been a really tough loss to have the hopeful Obama lose and let another Republican usher in another 4 years after a really crappy 8. So while in general Democrats have been more likely to put aside politics a bit and work together for policy, I could see them being a little ticked off and not very willing to give McCain exactly what he wanted. Still, I think enough moderate Dems would have been willing to work with McCain in order to uphold Chait's thesis.

But that's all within that first year or so. Where Chait's thesis gets rocky is in that second wave after the initial stimulus policies are passed and have been allowed to work their way into the economy. For Obama, the second wave of action was met with huge skepticism because the first wave didn't seem to do enough. Plus he passed health care reform, which made Republicans even more angry than they were right after the election. Would McCain have done something like Obama did with health care? Probably not. Would his first wave of stimulus have been much better than Obama's. Given the fact that a lot of people underestimated how bad the recession was, I'd say probably not.

So I think this whole counterfactual relies on McCain's ability to convince both Republicans and Democrats that more stimulus is needed. When trying to answer that, keep in mind that he would have to deal with either a Congress that is up for reelection very soon or a new Congress that could turn Democrat given the weak economy. Again, I think Republicans would be, for the most part, willing to do more to help stimulate the economy. They aren't completely against Keynesian policies because they don't go through the mental transformation they did in response to Obama. But Democrats would most certainly be concerned about elections and thus eager to criticize McCain for not doing a good job on the economy. Or if they are in power, Democrats now have leverage to get the policies they want instead of just largely supporting McCain and Republicans' policies. Either that or they do what Republicans have done recently and just block everything McCain wants so that they can get even more electoral gains in the next election.

Chait's thesis probably works until we get to that last part, where he thinks McCain would have an easier time getting more stimulus the second time around. I think Democrats would make it difficult for McCain. And I'm not sure Republicans would have big enough majorities to get a lot done. Though maybe just a little would be more and better than what we are getting now and could get in the near future. This is all assuming McCain and Republicans would have done more than just cut taxes. Chait cites McCain's chief economic advisor's suggestions as evidence that they would have. But that's another big uncertainty in the thesis. In order to wrap this up, I'll give him that one. And overall I'd agree with Chait that at this point we would be ever so slightly less screwed economically had McCain won. But Obama still has time to turn things around. And we wouldn't have gotten the health care bill, which could be important for the economy in the long run. And even with a slightly better situation now, we would still be pretty screwed.

No comments:

Post a Comment