The American Electorate and Republican Strategy

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The American electorate is afraid. The American electorate is confused. And the American electorate is spitting mad!     

Regrettably, one of the greatest sources of their misfortunes is almost invisible to many if not most of them. For the vast majority of my 69 years, the U.S. government has been running a deficit in its budgets, and the chickens are about ready to come home to roost. The national debt run up in those many decades of deficit spending now totals about $18.2 trillion or 103% of GDP. It could be paid-for over an entire year (plus about half a month), if nobody ate or drank anything they did not produce themselves or bartered for, if nobody, no company, and no government made any expenditures of any kind, and if the economy continued to produce just as it did in the previous year! How impossible is that! Talk about an extinction level event!

Of course no one is going to be so stupid as to make such an idiotic proposal for paying the national debt, but the previous paragraph does illustrate the humongous hole our nation has dug for itself. Unfortunately, this potentially catastrophic financial condition of the federal  government is only beginning to come into the peripheral vision of most people (excepting the tea-party folks), and you hear and read little about it in the main stream media other than an occasional article in the Wall Street Journal and report on Fox News. Yet in approximately a decade, assuming it has not been dealt with, the national debt promises to crush the life out of our economy. Starting with sometime in the 2020s, the spending for the entitlements (Social Security, Medicare, and Medicaid), will begin to take so much of the GDP that it will start to crowd out all other government functions and investment in the economy.

Even so, although awareness has not quite penetrated the public consciousness of how close the danger of complete financial collapse is, the effects of the progressive programs that brought about unceasing deficit spending can be seen all around us. Most especially we can see it in a supposedly recovering economy that just refuses to take off. Some unemployed have become so discouraged by not finding jobs they have dropped out of the labor force altogether. The labor participation rate has declined to 62.6%, the lowest in 38 years. Although there has been some job growth, the new jobs have been mostly in low skilled, low pay jobs. Below you can see a FRED graph of real median weekly wages, roughly from the beginning of the Great Recession to the present.

These wages have fallen from about $352 in January 2010 to $336 in June 2015 as measured in real 1982-1984 CPI adjusted dollars. This works out to a 4.6% pay cut over those five years.

How are our economic troubles connected to perpetual deficit spending?  Research by Carmen Reinhart and Kenneth Rogoff has shown that sovereign debt somewhat greater than 90% of GDP would cause governments to begin crowding corporations out of capital markets to service their debts, thereby causing smaller investments and less GDP growth. As I wrote a few paragraphs ago, our sovereign debt is about 103% of GDP. There can be little doubt that our huge national debt is part of the explanation for our disappointingly low GDP growth so far in the recovery.

How disappointing has our growth been? Below is a graph of the Obama recovery’s GDP growth rate plotted versus year from the beginning of the recovery in the yellow curve. It is compared with the Reagan recovery from the great stagflation in the blue curve, and with the recovery from the savings and loan crisis beginning in 1992 with the red curve.

The Obama recovery appears to have reached a steady state growth rate of about 2.1% per year. This recovery is not merely sub-par, but is the worst recovery we have had at least since and including the one following the Great Depression.

However, it is not just the cumulative effects of many decades of deficit spending afflicting the American electorate. Economic problems of more recent vintage have been created by Obamacare, a huge increase in federal economic regulations, among which are the highly destructive regulations created by the Dodd-Frank Act, and finally the effects of the Federal Reserve’s misguided monetary policy (see Quantitative Easing and Its Effects, Why Have ZIRP and QE Failed?, and Economic Damage Created by the Fed).

But wait! That’s not all! While groaning under their economic burdens, Americans must also face the existential external threats of ISIS, Russia, China, and Iran – threats created by a weak President who has tried to ignore them and attempted by sheer will-power to wish them away. See the posts U.S. Army Downsizes, A Failed, “Lead From Behind” Foreign Policy (1), A Failed, “Lead From Behind” Foreign Policy (2), and Consequences of a Weak US President.

It should not surprise anyone then that the American people have developed a great deal of angst over the last seven years or so, or that their number one fear is of government corruption. Nor is it surprising that they should be pretty damned mad about it all. Read this Bloomberg Politics post about the anger of Black people on the violence in their communities and and on their economic despair. Or this 2012 Forbes post on the anger of everybody on just about everything. There was the anger of the Tea Party against the out-of-control deficit spending of the federal government, and the anger of the Occupy Wall Street movement about income disparity. The Democrats in Washington are angry with the Republicans for not letting them have their way, the Republicans are angry with Democrats for not being willing to cut any real spending, and all Americans are angry with all American politicians for not being able to compromise and solve any problems. Since that 2012 Forbes article, the arising of existential foreign threats (see Should We Fight ISIS? (1), The Growing Threat of Russia, The Purposes of Iran, and Is China a Threat?) and the fears for our own self-preservation have led to wide-spread anger on many national security issues, such as the so-called Iran nuclear deal.

In terms of sheer partisan interest, seldom has a political party been so blessed as the Republican party with the gift of the Democratic Party. The Democratic Party may have  the propaganda assets of most of the main stream media, but they are also the obvious authors of much that has gone wrong. This has been especially true during Obama’s administration. All of the increase of excessive and hurtful government regulation mentioned above, and all of the described threats to the existence of the United States occurred during Obama’s administration and were primarily created by Democratic Party policies. Even the New Keynesians in charge of the Federal Reserve over the past decade or so can be argued to be mostly the fault of the Democrats since Democrats have been the natural champions of Keynesianism. (The Republican George W. Bush did nominate the New Keynesian Ben Bernanke to be Chairman of the Federal Reserve, so even Republicans can occasionally sin.) Also, were it not for sequestration holding down federal spending, Democratic programs would be continuing to increase government spending exponentially. Sequestration ends in 2021, however, and after then federal spending is programmed to explode with rising entitlement spending.

How should the Republican Party argue their case to the electorate? First and most obvious is to tie the Democratic Party to all their regulatory and tax excesses during Obama’s regime, and to explain how free-market policies that reform and reduce taxes and that greatly reduce business regulations will be a growth elixir. Jeb Bush’s pledge of 4% GDP growth, considering all the pent-up demand during Obama’s administration, is not at all outlandish. I believe that almost all Republicans and all of the Republican candidates for President understand this first, obvious point.

Secondly, the Republican Party should emphasize the great peril in which the Democrats have placed the U.S. with their incompetent, neo-isolationist, and pacifist policies. This is especially true with a possible Russian challenge of NATO over the Baltic Sea and its bordering countries, and with the Russian insertion of forces into Syria. These are also points I think most of the Republican candidates understand with the possible exceptions of Donald Trump and Rand Paul.

There are some other points Republicans might want to press concerning taxes, energy, the Federal Reserve, and some other points, but I will postpone their discussion to a future post.

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