The US econ­omy and the midterm elec­tions

The US econ­omy's strength should boost Repub­li­cans' prospects in con­gres­sional elec­tions this Novem­ber. But polls cur­rently show that Democrats will re­take one or both cham­bers of Con­gress, which means that even if the econ­omy doesn't af­fect the elec­tion,

Financial Nigeria Magazine - - Contents -

The US econ­omy is grow­ing, in­fla­tion has fi­nally hit the US Fed­eral Re­serve’s 2% tar­get, and un­em­ploy­ment is quite low – and at an all-time low for African-Amer­i­cans and His­pan­ics. For the first time in mem­ory, there are more job open­ings listed by US com­pa­nies than there are un­em­ployed peo­ple. Such con­di­tions usu­ally fore­shadow rising real (in­fla­tion­ad­justed) wages, which would in­di­cate that Amer­i­can work­ers, many of whom were left be­hind in the anaemic postcri­sis re­cov­ery, might fi­nally reap ben­e­fits from the strong econ­omy.

Elec­toral mod­els pre­dict that a strong econ­omy favours the party in power, and that a weak econ­omy dooms it to crush­ing losses. And yet, with the econ­omy in its best con­di­tion in over a decade, most polls show a sub­stan­tial Demo­cratic Party lead in the run-up to the 2018 midterm con­gres­sional elec­tions this Novem­ber. More­over, most po­lit­i­cal pun­dits pre­dict that the Democrats will take back con­trol of the House of Rep­re­sen­ta­tives. And some even fore­see a “blue wave” in which Democrats also re­take the Se­nate, de­spite hav­ing to de­fend far more seats than the Repub­li­cans. In sev­eral re­cent spe­cial elec­tions, Repub­li­cans have held on by far nar­rower mar­gins than in past elec­tions for the same con­gres­sional seats.

There are a num­ber of plau­si­ble ex­pla­na­tions for this anom­aly. For starters, the poll­sters and pun­dits could sim­ply be wrong, as many were in the 2016 elec­tion. At the same time, Pres­i­dent Don­ald Trump may be hurt­ing his and his party’s elec­toral prospects, espe­cially among sub­ur­ban women, by launch­ing per­sonal at­tacks against those who crit­i­cize him – in­clud­ing the pop­u­lar bas­ket­ball star LeBron James. And it is pos­si­ble that, de­spite high rat­ings for his han­dling of the econ­omy, many vot­ers may not at­tribute the econ­omy’s strength to Trump’s poli­cies.

But an­other pos­si­bil­ity is that the “eco­nomic ef­fect” on elec­tions no longer holds true. While eco­nomic dis­tress may harm the party in power, eco­nomic strength might not help it as much as in the past. As vot­ers be­come wealth­ier, more have the lux­ury of fo­cus­ing on other is­sues.

In the Demo­cratic pri­mary elec­tion for New York’s 14th district ear­lier this year, demo­cratic so­cial­ist Alexan­dria Oca­sioCortez trounced in­cum­bent Rep­re­sen­ta­tive Joseph Crow­ley, the fourthrank­ing Demo­crat in the House. Clearly over­con­fi­dent, Crow­ley barely even cam­paigned. Since then, Oca­sio-Cortez has be­come a me­dia dar­ling, ap­pear­ing along­side Ver­mont Se­na­tor Bernie Sanders, a self-de­scribed so­cial­ist who nar­rowly lost the Demo­cratic pres­i­den­tial nom­i­na­tion in 2016. While much of the en­ergy among Democrats is on the far left, the party has made a point of se­lect­ing can­di­dates with a real chance of win­ning in Novem­ber.

Mean­while, in the Repub­li­can pri­maries, can­di­dates en­dorsed by Trump, or closely aligned with him, have tended to pre­vail. But Repub­li­cans do not cur­rently have as much en­thu­si­asm as Democrats, which may af­fect turnout among the party’s sup­port­ers in Novem­ber.

Midterm elec­tions are al­most al­ways a ref­er­en­dum on the pres­i­dent and his poli­cies. In the 2010 and 2014 midterm elec­tions, strong Repub­li­can ma­jori­ties were viewed as a re­pu­di­a­tion of Pres­i­dent Barack Obama. Ac­cord­ingly, Democrats have been fram­ing the midterms as a ref­er­en­dum on Trump. At the same time, Repub­li­cans have tried to make the midterms about Nancy Pelosi, the lib­eral House Mi­nor­ity Leader from San Fran­cisco who would likely re­turn as Speaker if the Democrats gain a House ma­jor­ity. The prob­lem is that a po­ten­tial Speaker is a tougher tar­get to hit than a sit­ting pres­i­dent, let alone one as per­sua­sive in the me­dia as Trump.

For now, at­ten­tion is be­ing paid to the econ­omy’s po­ten­tial role in the elec­tion. But af­ter Elec­tion Day, the re­sults will, in turn, af­fect eco­nomic poli­cies, and thus the eco­nomic out­look. If Repub­li­cans re­tain the House and Se­nate, the pro-growth tax and reg­u­la­tory re­forms en­acted thus far will be sus­tained, and per­haps even ex­panded. Like­wise, if they keep the Se­nate, con­ser­va­tive fed­eral judges will con­tinue to be con­firmed.

By con­trast, a Demo­cratic ma­jor­ity in the House will pre­dictably block Trump’s leg­isla­tive pro­pos­als; and a Demo­cratic ma­jor­ity in the Se­nate (a long shot) will stonewall con­ser­va­tive ju­di­cial ap­pointees. Though di­vided gov­ern­ments some­times pro­duce pol­icy com­pro­mises and pre­side over a strong econ­omy, it is hard to imag­ine that hap­pen­ing if Democrats re­take ei­ther or both cham­bers of Con­gress.

Af­ter all, even sup­pos­edly mod­er­ate Democrats have moved fur­ther to the left to ward off so­cial­ist chal­lengers. And more Democrats are co­a­lesc­ing around an agenda of greatly ex­panded govern­ment spend­ing and higher taxes (though they haven’t yet spo­ken much about the lat­ter).

A widely cir­cu­lated Gallup poll re­cently found that a higher per­cent­age of Democrats are amenable to so­cial­ism than to cap­i­tal­ism. Hence, most of the Democrats veer­ing to the left are propos­ing uni­ver­sal govern­ment-pro­vided health in­surance (“Medi­care for all”), tu­ition-free col­lege, and a fed­eral job guar­an­tee or ba­sic in­come.

Of course, en­act­ing that agenda would re­quire a Demo­cratic pres­i­dent and ma­jori­ties in both cham­bers of Con­gress. And even then, it would cost tens of tril­lions of dol­lars. Pay­ing for it would re­quire a large Euro­pean-style value-added tax (VAT) or dra­mat­i­cally higher in­come and pay­roll taxes, most likely lead­ing to Euro­pean-style eco­nomic stag­na­tion.

For their part, the Repub­li­cans are di­vided be­tween tra­di­tional free-mar­ket, free-trade con­ser­va­tives and Trumpian “eco­nomic na­tion­al­ists” who want to re­strict im­mi­gra­tion and trade in lieu of con­ces­sions by Amer­ica’s trad­ing part­ners.

So, af­ter the Novem­ber elec­tions, the strong US econ­omy may be threat­ened by an es­ca­lat­ing trade war or the spec­tre of higher taxes. With growth slow­ing in China, Europe, and else­where, the global econ­omy will need Amer­ica to avoid those dan­ger­ous pol­icy mis­takes.

Michael J. Boskin is Pro­fes­sor of Eco­nom­ics at Stan­ford Univer­sity and Se­nior Fel­low at the Hoover In­sti­tu­tion. He was Chair­man of Ge­orge H. W. Bush’s Coun­cil of Eco­nomic Ad­vis­ers from 1989 to 1993, and headed the so-called Boskin Com­mis­sion, a con­gres­sional ad­vi­sory body that high­lighted er­rors in of­fi­cial US in­fla­tion es­ti­mates. Copy­right: Project Syn­di­cate

If Repub­li­cans re­tain the House and Se­nate, the pro-growth tax and reg­u­la­tory re­forms en­acted thus far will be sus­tained, and per­haps even ex­panded.

Michael Boskin

A view of US Capi­tol Hill

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