20 Jul “The Economy, Stupid?”

“Will economic well-being matter in 2024?” – The Lonely Realist

This past October, TLR predicted that the 2024 Presidential election would be decided by “The Economy, Stupid,” noting that “James Carville’s memorable 1992 campaign quip was prescient then and will be prescient again in 2024.” TLR concluded that, despite America’s vigorous economic growth, “a lot could go wrong between now and November 2024. The health profiles of both Joe Biden and Donald Trump are among the many wild cards. Nevertheless, the Biden Administration can be counted on to do whatever it takes to raise perceptions of economic well-being…, and the Republican Party will do whatever it takes to puncture that perception.” Americans want their government to do the impossible… and both Democrats and Republicans are happy to promise exactly that.

Oddsmakers today nevertheless disagree on the importance of “The Economy, Stupid” in this year’s election. America’s economy is not top of voters’ minds. Joe Biden’s health profile and Donald Trump’s personality are. They will be the driving political determinants, with former President Trump the strong (and strengthening) front-runner, especially in the Electoral College. The public nevertheless remains undecided between Democratic and Republican Congressional candidates. Will the economy return to favor, making today’s consensus look “stupid”?

There are several reasons why economic issues have been taking a back-seat in 2024. First, because of the COVID pandemic, comparisons between the 2024 economy and that of 2020 are inapt: Americans clearly “are better off now than they were four years ago” because 2020 was the peak year of the pandemic. Contrasts between 2024 and the Trump Administration’s pre-pandemic year of 2019 also are misleading, especially given 2019 economic tipping points, massive government stimuli and Federal Reserve actions. Yes, America’s economy has boomed over the last 5 years – even with the pandemic, GDP growth has averaged more than 2%/yr., the ratio of employment/unemployment continues to hover around all-time highs, and stockmarket prices are breaching record after record. However, inflation has far exceeded expectations, with price increases of 7% in 2021, 6.5% in 2022, 3.4% in 2023, and 3% YTD, and home ownership has become unaffordable for a broad swathe of Americans. Whether voters today indeed “are better off now than they were five years ago” accordingly depends on tribal beliefs perception: who should do voters credit for economic growth and prosperity…, and who do they blame for resulting inflation?

As TLR has repeatedly written, blame and credit belong equally to both Political Parties. Both, after all, have been avid followers of Modern Monetary Theory (MMT), which posits that, because the U.S. government owns the Dollar printing press, the U.S. can spend as much money as it would like to amass virtually limitless debt…, and that’s precisely what the country has been doing over the last 4 Administrations (Bush2, Obama, Trump and Biden). America’s debt currently stands at $34.8 trillion, with America’s annual deficits projected to exceed $2 trillion well into the future. [ED NOTE: The CBO’s recent deficit projection was more than $400 billion larger than what the CBO had projected only 5 months earlier.] Whereas “Tax and Spend” previously was the Democratic Party’s mantra, recognizing that additional taxes (although necessary) are a vote-killer, Democrats have simplified their mantra to “Spend, spend again, and increase taxes only on billionaires.” Similarly, the current Republican Party mantra has a similar populist rhythm: “Reduce taxes as much as possible, and then spend as much as or more than the Democrats,” with the 2024 Republican Party platform calling for eliminating taxes on tips, reducing the corporate tax, adding tax rebates, making permanent the 2017 tax cuts, and ensuring that there are no reductions in Medicare or Social Security benefits. There is no discussion by either Party of “debt” or “deficits.” MMT rules!

To be fair, however, that’s the formula that has jet-fueled America’s economic growth over the last 6+ years: tax cuts by the Trump Administration in the Tax Cuts and Jobs Act (2017) and spending via the Coronavirus Aid, Relief, and Economic Security Act (2020); spending by the Biden Administration in the Coronavirus Response and Consolidated Appropriations Act (2021), Infrastructure Investment and Jobs Act (2021), American Rescue Plan Act (2021), CHIPS and Science Act (2022), and Inflation Reduction Act (2022); and elimination of fiscal discipline via the Bipartisan Budget Act of 2019 and subsequent suspensions by mutual agreement of existing debt and deficit limits. Such excessive excess hasn’t yet undercut America’s economic advantages in part because of Federal Reserve policies that, as Cassandra previously explained, have proven the Fed to be “a highly capable economic general [whose] creative policies successfully navigated [America’s] economy to consistent growth.” Cassandra predicted more than 2 years ago that the Fed “will fine-tune America’s economy to achieve a soft landing,” forecasting what no one at the time thought possible: “By Q1 2024, America’s economy will be expanding, inflation will be continuing to fall, and GDP growth will be returning to a stable 2024 level of ~2%/year”…, and that’s exactly what has happened.

Assuming that Cassandra’s economic predictions for 2024 prevail, will “the economy, stupid” be resurrected to drive 2024’s electoral outcomes? Does the superficial success of MMT – via spending, cutting taxes, spending some more, and ignoring rising debt and deficits – mean that Election Day 2024 will provide Democrats with Presidential and/or Congressional victories? That doesn’t seem likely. For better or worse, Joe Biden’s age-related infirmities are dominating voter polls. They today are the focus of media … and voter attention. They trump [pun intended] positive economic news of expanding American GDP, rising incomes and employment opportunities, and reduced inflation…, with American voters continuing to ignore the inevitable consequences of unrepayable national debt and rising deficits. While it is true that “times rarely are different,” this political time indeed IS different. Never before has America fielded two geriatric Presidential candidates, one of whom has evidenced increasing mental disabilities and the other carrying the stigma of criminality and extremism to an extent that a majority of Americans have said they would never vote for him. The economy accordingly is taking a back seat. While in the past economic successes and failures have determined elections, 2024 seems virtually certain to be the electoral exception.

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Prior TLR commentaries can be found here.

Finally (from a good friend)