One other big piece of legislation that was passed and received the President's signature was a stimulus package in the form of a check for each citizen over 18 in the amount of $2,000 per month, to be paid out in the remaining months of 2021. The funds would be made available to all those who earned less than $40,000 in 2020, regardless of their income in 2021. The actual unemployment rate at the time of the Inauguration was 17%. The hope was that this stimulus would allow those without jobs to survive economically until they could find meaningful work and that the spending of these people would boost the economy and encourage job creation. Still one other big piece of legislation was an emergency package to bail out the states, who had already begun on large budget cuts at the tail end of 2020, because they had no money to pay for their current spending. The bail out was designed to get the states back to normal operation, if at all possible.
The President then announced that all additional fiscal policy initiatives, such as the Green New Deal, would need to be offered in a balanced manner, with tax revenue collected to match the additional spending in the program. The President encouraged Congress to do just that, but many Progressives among the Democrats bridled at this suggestion, as the stimulus and bailout of the states didn't face this constraint. The President further irked the Progressives by announcing that he would not sign a bill to raise the minimum wage to $15 until the unemployment rate got below 8%. The President indicated that with the fragility of the economy at present, a significant increase in the minimum wage would hinder job creation. Let the jobs come first and then increase in wages come after the economy returns to near full health.
* * * * *
It is now mid May 2022. After an initial gangbusters start by the new administration, further progress slowed substantially. The economy improved a great deal in the first half of 2021, then growth continued but at a much slower rate. Fissures in the Democratic coalition started to emerge because the various segments of the coalition felt that their agendas were being put on hold. Talk began that the Republicans would take back control of the House in the midterm elections.
About a month earlier, President Biden had become quite ill. It wasn't Covid but rather some new variant of flu. Even after he recovered he looked tired and old, much older than he appeared at the inauguration. The President made a brief broadcast from the Oval Office announcing that he would step down as President in a couple of weeks, as he was no longer physically up to doing the job. Vice President Kamala Harris would assume the Presidency. She has been well briefed on all relevant matters on the President's agenda. There is jockeying in the media about the choice of a new Vice President, who would have to be approved by the Senate. Some of that speculation was about whether that choice might help to hold the Democratic coalition together. The Republicans have been in a passive mode since the Inauguration. They would like to see further fracture in the Democratic coalition, as that would help them return to power.
* * * * *
The above is not meant as a prediction, but I think is sufficient for what I want to write below.
In game theory, multi-stage games are analyzed by finding (Nash) equilibrium in each possible subgame and then rolling that back to the first stage of the game, so an equilibrium can be found there. The result is called a subgame perfect equilibrium and serves to predict what will happen overall. It assumes all players are rational and they each make rational forecasts of how the game will unfold.
Here, let's take the first stage as the time up to the election in November and then the period thereafter where the election results are contested, until those results are ultimately resolved. In that first stage, there are very strong incentives to hold the Democratic coalition together, to get Trump out of office, and then to institute a rational plan to manage the pandemic and to jump start the economy. On this much there is broad agreement. On much else, however, there is no consensus within the coalition.
It is well understood the Mario Cuomo's famous lines offer the rule, not the exception.
You campaign in poetry. You govern in prose.
This is the way that politicians play the game. But what about voters? What do voters expect will happen after the election, in the event that the Democrats do win? Are voters rational a la game theory? Or will they bounce in their beliefs about the future - optimistic about the new administration at first, then pessimistic when it appears their group within the coalition is getting short changed or, more likely, that the group is being told their agenda will be accomplished sometime in the future, but not immediately.
If voters are prone to have such bounce in their beliefs, because they aren't trained in game theory and tend to vote with their hearts rather than with their heads, one might expect a responsible leader to get voter expectations more in line with what is likely to happen. The campaign in poetry line is an indication that most leaders don't do this. And under the present circumstances, I too would campaign in poetry, were I running for office. But soon after taking office I would then belabor the point about how this is likely to play out thereafter. Yet the coalition needs to hold to continue the work it has started. How then can voter disillusionment be prevented so that voter participation in subsequent elections remains high?
Let us recall that the Democrats lost the House in the 2010 midterm elections, where the Tea Party emerged as a strong voice on the Right. This followed the passage of the Affordable Care Act, but without a Public Option. Plus, we were still enduring the Great Recession, where it seemed the big banks were getting bailed out, but the little guy was getting screwed. That disillusioned many voters. The governing in prose part was sufficiently distasteful that Democratic voter participation rates dropped substantially, especially among younger and highly idealistic voters. That history should be well within reach of us now. It needs to be reviewed early and often, so it is not repeated.
* * * * *
Now I'd like to get to my title. From the time that Kamala Harris was selected to be the candidate for Vice President till the Democratic Convention, there was piece after piece that extolled the virtue of that choice and the virtues of the candidate. It seemed she could walk on water. Making for that type of vision is consistent with campaigning in poetry. I thought we needed a governing in prose view of the job of Vice President which, except for the option value of becoming President someday, is really not an attractive position.
If you are a fan of the TV show The West Wing, you'll immediately recognize the name of John Hoynes. He is the first Vice President under President Josiah Bartlett. (Eventually, Hoynes resigns because of an extra-marital affair he was having while in office.) Hoynes laments being Bartlet's whipping boy, having to make speeches about policies he doesn't support. And he is unenthusiastic about being excluded from the main decision making apparatus - he does not attend senior staff meetings, where the arguing through what should be done next happens. And he does a lot of fluff ceremonial stuff that the President is unable to do himself. Plus, Bartlet could be a real s.o.b. and take Hoynes for granted, which happened on more than one occasion. The only reason for Hoynes to endure all of this is to position himself for a run at the Presidency after Bartlet steps down from office, or to assume the Presidency in case Bartlet can't fulfill the duties of office.
Bartlet never served as Vice President. Of course, Biden did, and he may be sensitive to these issues as a consequence. On the other hand, there will be so much on his plate if he does become President that he may simply not have the time and energy to redesign the role of the Vice President to make it more appealing to Kamala Harris. If so, after the initial honeymoon period, friction between the two may develop, especially if something like the scenario described in the first section comes to pass. It is not inconceivable that some of the friction will get a public airing which, if it happens, might further undermine the Democratic Coalition.
* * * * *
Now I want to make one more point and then close. This is about the macroeconomics of Keynesian stimulus versus the macroeconomics of Federal budget balance. In other words, when should you worry about the national debt and when should you ignore it? I'm an amateur on these matters and I don't want to claim otherwise. Yet I'm a PhD economist so even my amateur view might help non-economist readers think this through this question. The answer matters in considering the scenario I scripted in the first section.
Consider an economy in two possible extreme states - operating at full capacity or operating at well below full capacity. In the first state, the unemployment rate is low. In the second, it is very high. It's also possible to consider intermediary states, but to keep the story simple I will only consider those two extremes.
The rule of thumb is for fiscal policy to entail budget balance when the economy is at full capacity. Deficit financing then will entail rising interest rates that crowd out otherwise profitable private-sector investment and, if sustained, may increase the rate of inflation substantially. In contrast, deficit financing when the economy is operating substantially under capacity is necessary. The private sector itself is not generating enough economic activity. The economy needs a jump start. Deficit spending, preferably in the form of direct investment or in grants to those people who will definitely spend the money and not save it (so not for tax cuts for the wealthy) is what is needed.
The issue is this. While the qualitative argument will produce general agreement, determining whether the actual quantitative response is right sized or is too much or too little is more art than science. I'm afraid, however, that Center-Left Democrats are apt to go for too little response. So Bill Clinton, who presided during a period of enormous growth (even if some of it was due to a bubble economy) championed that he was able to produce a budget surplus in his last year in office. While Barack Obama had his eyes set on a Grand Bargain, which ultimately failed because the Republicans couldn't accept the need for tax increases as part of the deal. And then in Hillary Clinton's book, What Happened, gives her views on the 2016 election. The economic policies that she advocated for are all of the budget-balance variety, which reflects a view of the time where the economy was operating at full capacity.
There is a general folklore that the New Deal cured the Great Depression. But some have questioned that on the grounds that even the New Deal was insufficient (in part because the states pulled back on their spending and that countered some of what the New Deal aimed to do). Indeed, in a post from a few years ago I wrote the following which begins with a quote:
The New Deal didn't cure The Great Depression. Shicklgruber cured The Great Depression.
It's from Axel Leijonhufvud's book, On Keynesian Economics and the Economics of Keynes. (This may not be an exact quote. I don't have that book in front of me and am writing this from memory. But it is pretty close even if it is off a bit.) In other words, the U.S. economy ratcheted up substantially during WW II over its level during the Great Depression. That ability to ratchet up the economy, even as many Americans were overseas fighting the war, was indicative that the economy was actually well below capacity before that.
I write this because I fear the bias of moving to a full capacity approach as sensible will actually be too timid as a Biden administration takes office. So it is my hope that he doesn't steer to the Center too soon. Yet if I were to guess what will happen, that would be my guess, which is why I wrote the scenario in the first section as I did.
A President must make the tough choices, even if they are unpopular. But that the choice is unpopular doesn't make it right. It's on this economics that the Democratic coalition might possibly find a way to find some glue to keep things together. Yet it definitely won't be easy to do that.
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