Democratic prospects amid Maurer's concerns

Explaining why he writes so much about the DSA, Jeff Maurer writes:

I take the question of whether we need to change course (from MAGA) as a given. I’m much more interested in how to change course, and to where. And that’s why I focus on the fight between normie Democrats and DSA Democrats: I think that’s currently the most relevant ideological rift in the country. If sane, solution-oriented Democrats win this factional fight, then I think we can turn the tide against MAGA and elect a competent government. But if we lose, then I think that will be good for MAGA and very bad for sanity, generally.

Others, myself included, have expressed similar sentiments. Based on the simple electoral rules that seem to apply to historical general presidential elections, Democrats will win in 2028. If Democrats follow Maurer’s advice, nominating a “solution-oriented” candidate who runs a competent government, the best they can hope for is to achieve sufficient popularity to win reelection. But after that Republicans will return. I note that George W. Bush left office after overseeing a disaster, sending the Republican brand into the toilet. He was followed by a Democratic administration that was sufficiently competent to get re-elected—and the result was MAGA.

Similarly, after 8 years of a reasonably competent Clinton administration, voters opted for the disaster of the second Bush administration. There is no reason to believe that exposure to reasonably-competent, normal Democratic administration, will lead to a recovery to sanity by the Republicans. So what Maurer suggests buys up to four more years before something maybe even worse than MAGA is running the country.

Multiple failures of the Biden administration and the persistence of Democratic silliness1 suggests that the “crazy virus” contracted by Republicans after 911 spread to Democrats after the 2016 election. I’ve previously described a theory for this involving Stephen Skowronek’s Political Time Cycle. The ultimate cause of the crazy is an aging dispensation (the political order established by winners of critical elections), as I wrote here:

The problem is our dispensation-constrained political leaders can only offer policy perceived as garbage by a majority of voters. They vote for the garbage their side offers because they see the garbage the other side is shoveling as even worse. Each party seeks to modify their offerings to make it relatively more palatable than the other side’s slop to persuade “swing voters” try their offerings. Then when they are elected and voters experience the effects of what they voted for, they opt for what the other side offers.

An example of the “crazy virus” in fiscal policy
Consider the “problem” of the national debt. Concern about this issue pops up periodically. The last time was in the 1990’s when maverick third-party presidential candidate Ross Perot made it the centerpiece of his campaign. Perot’s crusade bore fruit and the debt problem was solved. A mix of tax increases and spending cuts had transformed a deficit of 4.5% of GDP in 1992 to a surplus of 2.3% of GDP in 2000. Presidential candidates John McCain and Al Gore pledged to keep the surplus in order to reduce the debt relative to GDP. This would make room for the increased debt anticipated from the retirement of the Baby Boomers and so avoid a potential debt crisis. In contrast, candidate George W Bush wanted to cut taxes, eliminating the surplus. Bush defeated McCain in the Republican primary, and Gore in the general election. He was true to his word and cut taxes by 2% of GDP, while increasing spending by 1% to generate a deficit of 1.1% of GDP in 2007.

Then came the 2008 crisis and government spending spiked to deal with the economic threat, falling afterward to a new level about 1½ points higher, reflecting new spending under the Obama administration, such as the ACA, and increased Social Security and Medicare expenditures due to aging Boomers (as anticipated in 2000). By 2016, the deficit stood at 3.2%. In 2016, President Trump ran on a program of tax cuts like Bush before him. He delivered; revenues fell a little over 1%, spending rose modestly due to rising elder care costs, resulting in a deficit of 4.9% in 2019. Then came the pandemic. As with the financial crisis, spending rose and then fell to a new, higher level, this time not due to rising cost of elder care, but to increased interest costs and the combined effect of a number of small program changes. Together these increased spending by about 1%, delivering a deficit of about 6% in recent years.

The story I just outlined began with Perot’s revolt against 12 years of Republican fiscal recklessness which nearly doubled the federal debt from 26 to 48 percent of GDP in 1992. The Clinton administration shelved its economic plans in favor of deficit reduction and drove debt levels down to 33% of GDP in 2000. Republicans returned to power and by 2008 debt was up ten points to 43%. Not only that, but they left an economy in free-fall, producing a sharp reduction in revenues increasing debt to 53% in 2009. Democratic efforts to address the debt burden in response to concerns raised by a conservative billionaire, and warnings of a Republican Fed chief were completely countered by reckless Republican policy with which the same Fed chief had zero concern.

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Back in power under a charismatic new president, Democrats could rightly feel they had been played by the Republicans on the deficit in the 1990’s. Had not Dick Cheney admitted to a belief that deficits no longer mattered? And now Republicans had bequeathed them an economic crisis that was going to drive up the debt by a substantial amount no matter what Democrats did. Not only that, Republicans planned a program of total opposition to any positive action to address the crisis for fear that Democrats would get the credit for success. Having wised up to Republican ways, the Obama administration eschewed Clinton austerity, instead implementing their own unfunded Affordable Care Act just as Bush had done with Medicare Part D and the Iraq War. Obama did not cut taxes as Bush did so the effect on the deficit was smaller (+2.2% over 2007-2016 compared to +3.3% over 2000-2007).

Trump continued with Bush-style tax cuts, boosting the deficit by 1.7% of GDP over 2016-19, which Biden roughly matched with his own 1.4 point boost from 2019-2024. If we acknowledge that at some point excessive national debt is going to be a serious problem (for which there are legions of historical examples) then this cycle of fiscal tit-for-tat has to end. But how, when Democratic efforts to do the right thing in the 1990’s were derisively rejected by his successor and Republicans have no incentive to work with Democrats given long-term trends in their favor? The answer, it seems is there is no way for our present political reality to resolve this issue, implying we are doomed to economic catastrophe. We can see this coming, we know it is bad, but we keep walking into it like crazy men. A superannuated dispensation is a helluva drug.

Jeff Maurer’s plea is a start, but not enough
What I have described above can also be seen in terms of extreme polarization, which I have previously explained in terms of Peter Turchin’s secular cycle and elite overproduction concepts. I illustrated another example of political tit for tat involving what is sometimes called “lawfare.” Trump has struck back at prosecutions for his past crimes with his own lawfare, including pardons of the Capitol rioters and the attempted creation of a $1.8 billion fund to compensate Trump partisans like the Capitol rioters for their support. Republicans have tended to be the aggressors in this political warfare because they have the upper hand as demonstrated by the long-term decline in support for Democrats in Congress and by falling working class support.

Such political showdowns are not uncommon in history. Often, they are resolved through violence. In America, we have something that Bernie Sanders calls a “political revolution.” This is a critical election leading to creation of a new dispensation. That the Reagan dispensation that gave us neoliberalism no longer has any political traction seems clear now. President Trump has tried to refresh the Reagan dispensation, keeping some elements (like tax cuts and deregulation) while dropping others (free trade, pro-immigration) in order the forge a new Republican dispensation, as McKinley and Roosevelt did with the Lincoln dispensation. So far, he has been unsuccessful. Democrats, when they had an opportunity to enact their own dispensation in 2008-9, did not do so. Longer lifespans may be a reason why the arrival of a new dispensation has been so delayed, but with no obvious replacement in the wings, it looks like frustrating politics will continue—unless something changes.

When I looked at the start of four previous dispensations I noted that none of them were created through normal politics. In each one, something outside of normal politics had occurred. The Lincoln dispensation was forged by victory in the Civil War. The McKinley dispensation was enabled by the discovery of gold in Alaska and technological improvements in gold refining. The FDR dispensation was established by the New Deal response to the 1929-32 economic collapse. The Reagan dispensation was enabled by the end of inflation caused by Volcker’s pre-existing program to crush inflation through high interest rates.

This is not to discount the political skills of the reconstructive presidents who created each of these dispensations. But without the opportunity the outside event gave them to act, they could not have accomplished what they did. The 2007-9 crisis was such a outside event that might have been used2 to produce a Democratic dispensation, as the 1929-32 crisis had been used, but this did not happen, showing the importance of astute policy making. Maurer is right that one needs competent figures to achieve good governance. Given the opportunity, lightweights like Donald Trump or Graham Plattner could never function as reconstructive presidents.

Competence is necessary, but not sufficient to create a positive economic future.
Even with competent people and opportunity, good policy must be built on ideas promulgated by political activists based on sound theory. President Obama is a rational actor whose 1980’s experience in southside Chicago had made him aware of the harm the first round of neoliberalism had done to working class people. His administration was staffed by competent people and the economic crash of 2007-9 provided an opportunity similar to Franklin Roosevelt’s. Yet there was no Obama New Deal.

The reason why is because there was little time to mount an opposition to the TARP of sufficient strength to derail it. Once passed the opportunity for substantial economic reform vanished. Before the TARP was passed the market was headed for its “natural bottom” around 400-450 on the S&P500, according to my stock market model. It was widely believed that such a decline would be accompanied by financial system collapse, as happened in the early 1930’s. Once the TARP was passed I put 100% of my reserve cash into the market at the short-term low on November 20, 2008, when the S&P 500 was some 300 points higher than its ultimate bottom. I did this because I was very confident that the market decline associated with the early 1930’s collapse would now not happen. I was right, though I did not get the absolute bottom (in March it briefly went lower) it was still a well-timed purchase.

The strong confidence I had after the TARP was passed that everything was copacetic was widely shared by investors and business in general (which is why the decline did not happen). Because of the passage of the TARP, business and Wall Street were no longer afraid, and no longer willing to accept whatever solutions the next administration would try to implement. Rather, they did not object to the Republicans’ decision to thwart Obama administration efforts to address the Great Recession. In contrast, the economy had sunk for three years after 1929, creating a sense of desperation among Business, Finance and their allies in Congress allowing Roosevelt’s New Dealers a free rein to enact whatever policy they saw fit.

To achieve an economically progressive outcome in 2008 required fast action to forestall the TARP and QE operations by the Fed. This would only be possible with a playbook prepared in advance on how to respond to such an opportunity. Progressives needed a solid understanding of how the country had gotten off track in the 1970’s, how the neoliberal economy works, how it can generate financial crises and so be prepared for action. To my knowledge, such an understanding has not been promulgated. I have suggested some ideas (see links) as a basis for discussion.

But it is possible that the next crisis we face will not be a deflationary one like 2008, but rather an inflationary debt crisis for which a different set of tools are needed. Writers at the The Boyd Institute have been trying to address this issue. Unfortunately, they are doing so from a libertarian perspective which seeks to find a way to continue the current Neoliberal Order, and so it serves the same sort of function as the TARP and QE did following the 2008 financial crisis. It does not address the core issue of the secular cycle crisis, leaving political coup or the traditional violent outcome as possible futures.