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The Economy And Popularity

I would like to believe Walter Russell Mead's basic point that Big Government-style programs that ensured Democratic popularity in the 1930s won't work today, but I have my doubts.  Mead writes that Democrats, without ending the Depression, made gains in the midterm elections of 1934 while Democrats are poised to lose seats in 2010.  Fair enough, but the analogy is problematic.  I think that the best metric for understanding the differences between 1934 and 2010 is the state of the economy.  Mead is right that FDR's policies had not ended the Depression by 1934, but the economy had perceptibly improved.  GDP was growing at over 10% in 1934 and the unemployment rate had fallen over 3% in the last year.  We can argue to what extent FDR's policies were responsible for the growth and the future implication for policy, but he clearly benefited politically. 

By comparison, the unemployment rate is now stuck almost 2% higher than when Obama took over and GDP growth is weak.  Obama is obviously paying the political price, but his popularity isn't that bad considering the circumstances.  Can you imagine the job approval of a President McCain under the same circumstances?  It won't take much of an improvement in economic conditions for Obama to be marginally popular again.  That doesn't mean he is destined to win reelection, just that, depending on economic conditions (and the results of Obama's fights with the forthcoming Republican House of Representatives and maybe Senate), the politics of 2012 might partly point away from the politics of 2010.  And even a narrow Obama reelection might result in the entrenchment of Big Government-style political changes that Mead thinks are on the way out.

Categories > Politics

Discussions - 7 Comments

I can't help but wonder whether what we're seeing is something like what would've happened in 1934 had the stock market crashed in 1932, rather than 1929. As it is, the recession came in time to get Obama elected, but too late for it to do him any long-term good.

But certainly not too late for him to do long-term harm. In realtion to that, I just love arguments about whether or not FDR's policies and programs did either short or long-term good. I tend to think New Deal deniers have the stronger argument.

The nation is still split on the utility of those Big Government style programs. The effectiveness of any given program determines whether or not anyone likes it. That is a subjective judgment and not a principled approach to government. Maybe democratic government doesn't need principles, but only political popularity and political persuasion -- political might makes right.

True.

But to a very large extent this isn't and never was the great depression.

The great depression analogy was bear favorite hyperbole. The same applies to greece and even Japan analogies.

The pro-Obama way to think of it is that 1929 was 2008, and that the reason we aren't seeing 10% growth and radical improvement in unemployment is that we short circuited the fall. I mean a good chunk of the upmove in the stock market came from incredibly favorable comparisons with greatly depressed year over year quarters. But if we really had let AIG fail and this caused a domino effect that whiped out banks in Europe and the United States(AIG insured banks in Ireland, Greece, Spain, and when it could only make partial payments and speculators got wind of who no longer had insurance to cover deposits. It could have collapsed the EU). And supposing we could let all these banks fail and not pay out the FDIC insurance.... then we could have been at 21.4% unemployment, with a GDP growing at 10% and a more Roubiniesque Dow 1500.

And if we really want to talk FDR why not bring World War 2 back into the picture if only to partially demonstrate the hyperbole of the analogy. If we are going to go this route lets note that Germany is the second largest exporter behind China, and that Germany's main import from the US is T-bills. Almost the exact opposite of conditions pre-great depression. Germany owed the allies reperations, the US was an exporter, and the US made loans to Germany under the Dawes and Young plans so that Germany could pay us back reperations and buy our goods.

The main beneficiary of the great depression in the US was Hilter in Germany, because when we collapsed and the Dawes plan was seen as folly, we gave 90 days to the Germans to pay us back and unemployment skyrocketed especially in Germany.

As with Hitler, today the main benneficiaries of the global retrenchment are White Nationalist parties in Europe like the Jobbick of Hungary....Only this is 9 parts hyperbole 1 part truth. The nations whose banks have failed have been effectively bailed out by Germany, and now Britain under an Obamaesque Cameron is launching austerity, and cutting back on its perceived military needs.

"Fair enough, but the analogy is problematic." Truer words were never spoken Pete, I have yet to find an analogy that with some time and further research is not problematic, or discredited by an authority with more knowledge and almost certainly also more interest.

Because I think Obama certainly has a Cameron side(he showed it too early in his 2009 state of the Union), I expect to see him wisely navigate 2010 towards 2012.

Almost certainly the politics of 2012 will point away from 2010, but not as drastically as 2010 pointed away from 2008.

Unemployment at 8.5% in 2012. Obama will tout his export focus, which he will claim has resulted in a much improved trade ballance. There will be a trade and currency war with China. The Canadian dollar will be worth more than the U.S. dollar. The price of Oil denominated in Canadian dollars will only barely increase. Gold will fall against the Canadian dollar. Canada and Britain will import more from the U.S. Farmers in rural communities will partially resent cutting off the farm bills, but it will be done for the deficit, and it will be doable in part because of a massive boom in the price of agricultural products, ethanol subsidies will end, and biodiesel will begin to replace it, but a bushel of corn still doubles. States like Iowa and Nebraska will have very healthy economies. The highest unemployment will be in blue states, the lowest in red states. The disjunctions will multiply. A lot of rhetoric will sound more like hyperbole, more and more any culturally and politically unifying analogy will sound fair enough, but not so fair as to be troubling. Almost nothing will be wrong with Kansas. 2012 will be a great time for all the folks who moved Canada and took up farming, and large grain farmers from unheard of places like Saskatchewan, Manitoba and Alberta will buy up homes in Arizona and California to rent to folks from Mexico.

I digress.

John fine point but the differences in duration and depth of downturn might require tweaking the dates a little. I'm thinking more of a crash in 1930 with the employment nadir in 1934. We are back to (slow) growth but we are still at near the bottom of the labor market. I suspect that 2012 will present a deeply amibiguous economic situation, with just enough GDP growth and decline in unemployment to give superficial plausibility to Obama arguments that his policies saved the economy and fostered a sick economy back to slow recovery

A little.

Kate, I think most economic historians (as opposed to political historians) agree that the New Deal did little to bring about economic recovery, except for FDR's decision to leave the gold standard and his mostly-ignored Reciprocal Trade Agreements Act. Yet there were clear signs of recovery as early as late 1933, the result of a long-overdue cyclical upturn. The more I study the subject, the more I think that public policy has less impact on economic activity than most pundits claim.

except for FDR's decision to leave the gold standard and his mostly-ignored Reciprocal Trade Agreements Act.

You are forgetting the revised financial architecture (the banking holiday, Glass-Steagall, the FDIC, the workouts for non-performing mortgages). You are also forgetting just how damaged and dysfunctional the labor market was by 1933. Some of this was exacerbated by New Deal policy (NIRA, the minimum wage, the Wagner Act), and some ameliorated (the WPA). Also, the attempt to balance the budget in a single fiscal year (1937) had disagreeable effects, so one can surmise that the deficit spending (proportionately a good deal smaller than today's) was salutary as well.

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