Who Will Be Holding the Political Bag in 2021-2024?
Tea Party Economist
George H. W. Bush suffered a recession in 1990-91. It cost him the Presidency in 1992.
George W. Bush suffered a recession in 2008. It cost McCain the Presidency in November.
Will Trump suffer a recession in 2020? No one knows. But if he does, the Democrats will consolidate their control over the House. They will take the White House, and they will probably take the Senate.
I live in a state where we may go from two Republican Senators to none.
But exactly what will the Democrats win? The massive federal deficit which will get larger. Rising unemployment will arrive. Demands from the voters for "Medicare for all" will increase.
The main thing they will have going for them is low interest rates -- or negative rates -- for Treasury debt. This will fund the deficit.
They will raise corporate taxes. The economy will get worse. They may impose a carbon tax. The economy will get worse. They may raise top marginal income tax rates. The economy will get worse.
The Federal Reserve will return to QE. But lower interest rates will not persuade investors to save. Businesses will be afraid to borrow.
Europe will suffer a recession. China's economy will slow.
So, it will look as though the Keynesians have won politically. This is not the same as winning economically.
NO TIME FOR DESPAIR
I have known Prof. Richard Ebeling for almost 50 years. He and I attended the now-famous Austrian conference at South Royalton, Vermont, in 1974. In 1996, he discovered lost papers of Ludwig von Mises that the Nazis had confiscated in 1938 when they took control in Austria. Ebeling found them in the KGB archives.
He has watched the ebb and flow of liberty for half a century. He has studied this history as far back at 1900. Recently, he made an assessment of where we are today. You can read it here. Here is his conclusion.
But what is facing America today is not a totalitarianism of the type and forms experienced in the 20th century but the incremental eating away of freedom through various government interventions and redistributions, some may reply. And this collectivist gradualism has a more invidious opponent. It was easy to make the contrast between freedom and tyranny when you could point to West Berlin and East Berlin, or, as one still can today, South Korea and North Korea.But the challenge has not been the end of all freedom all at once, but one more intervention or regulation here, and one more distributive program expanded or introduced there — the loss of freedom, in other words, through a thousand government interventionist cuts. And almost always they have been offered as reasonable trade-offs between more economic security or social justice against the reduction of some amount of a greedy and wealthy businessman’s decision-making and income, or the selfish actions by those not as “enlightened” as the “progressive” reformer.
Every one of these programs does a number of inescapable things: the programs cost more and more money; and they become increasingly corrupt and heavy-handed, as they demonstrably fail in solving the problems for which the intervention or redistribution was justified as necessary and reasonable to begin with. Having Confidence in Freedom to Fight to Win It
We often point to the weight of increasing taxes, price inflation, and a growing burdensome debt that helped bring about the weakening and end to the Roman Empire. We explain the fiscal extravagance of the French royal court that set the stage for the French Revolution in 1789. We today draw attention to a country like Venezuela where well-intentioned socialism has created a disaster of an economy and a violent political struggle to end that country’s experiment with political paternalism for power and plunder.
Every extension of the interventionist-welfare state carries with it the seeds of its own fiscal and corrupt destruction, when looking to the future. Every experiment with socialist planning ends with economic stagnation, political tyranny, and social chaos. That means that the future does not belong and is not guaranteed to the enemies of freedom.
That future can belong to the friends of freedom. But a starting point must be to not view the seeming trends of the present to imply an inescapable direction that must be followed in the future. The last 100 years has shown how false such forecasting can be. We must have the confidence that freedom is both good in itself and need not be compromised in the face of asserted collectivist dangers abroad or the challenges to liberty here at home. Freedom may triumph, but only if we do not surrender by fatalistically giving in to those who wish to reduce or end liberty.
I agree entirely with his assessment. Socialism doesn't work. Its bastard child, the welfare state, is running out of money. Economic growth is slowing in nations that have adopted the welfare state.
The defenders of the welfare state who get elected on the basis of promises regarding an extension of the welfare state have been unable to deliver on their promises. ObamaCare was the main welfare state project of the last decade, and it lies in tatters. My guess is that the Democrats, if they take control of the government in 2021, will scrap the whole thing. I don't know what they're going to substitute for it, but it has proven to be a failure. If they adopt a single-payer system, the deficit is going to expand even faster in the recession.
The public likes the welfare state, but the voters do not want to pay for it. That is the bottom line of the welfare state. Margaret Thatcher made that observation a generation ago. Socialism works until it runs out of other people's money.
Marie Antoinette never said "let them eat cake." Some of us critics of the welfare state have said this: "Let them eat promises."
If the Democrats take control of the House, the Senate, and the White House, they are not going to have any excuse for not delivering on their promises. The Republicans will not be able to stop them. So, when the promises don't come true, the public is going to blame the incumbents. Today's voters are impatient. They are increasingly skeptical of politicians. They still chase after the rainbow of the welfare state for all, paid for by the rich, but they have been chasing that rainbow ever since 1933 in the United States. They are nowhere near to the pot of gold at the end of the rainbow than they were then.
The federal piggy bank is no longer the untapped resource that it was in 1933. The special-interest groups, especially the most powerful of all lobbies, old people, have already staked their claim on that flow of funds. They are not going to turn loose of it. Their numbers grow by 10,000 people a day. The baby boomers are flowing into the welfare state as never before. This is going to continue for at least another decade. The longer they live, the less likely they will be to turn loose of the piggy bank. Who is going to be elected with this campaign promise? "Cut Social Security and Medicare." Not until there is truly a fiscal showdown between the old people and the taxpayers are younger voters going to rise up in wrath against the oldsters. I don't think that's going to be in the 2020's.
CONCLUSION
Those of us who are appalled by the extension of the welfare state can take heart from this: it is not going to extend much beyond Social Security and Medicare. Those expenditures will creep up, and they will thereby cut off every major new program except possibly Medicare for all, which will simply accelerate the fiscal crisis in the health care system.
In the 2020's, the federal government is going to find that it is running out of other people's money. That is when the real political showdown will begin.