OK, John, So Should the Republican Party Tank the Economy? If So, I Have an Idea How They Can Do It…

So John’s post inspired me to write on a topic I’ve been thinking about for a while now. Let’s posit the following three assumptions:

  1. Incumbent US presidents perform worse when economic conditions are worse.
  2. If the US defaults on its debt, there could be catastrophic consequences for the US economy.
  3. The number one goal of the Republican party is to defeat Obama in 2012.

Ergo, the Republican party ought to do everything possible to ensure the US defaults on its debt.

(Note: we could also replace step two with anything else that might harm (or prevent an improvement in) the US economy, such as blocking a stimulus plan.)

What’s wrong with this logic? Seriously, if John (and years and years of economic voting literature) is correct, then shouldn’t the Republicans at this point be doing everything they can to tank the economy over the next 12 months or so, and wouldn’t causing the US to default on its debt be a great way to accomplish this goal? I don’t mean to pick on the Republicans here – we could have said the same thing about the Democrats in 2007 (e.g., did the post-Lehman economic mess elect Barack Obama?). Nor do I mean to pick on the economic voting litearture. I like the economic voting literature, so much so that I even wrote a book about economic voting.

But I’ve been wrestling with this question a lot, and especially so since McConnell came out and said that his number one goal as Senate majority leader was to deny Obama a second term. From a purely political standpoint, is there any political limit to what the Republicans should to try to do to cause the US economy to tank over the next 12 months? To clarify, by “political limit”, I mean any action which would cost the party more in votes in 2012 than it would gain from the corresponding decline in economic conditions?

So let’s start at an extreme. If every Republican member of Congress went out and simultaneously tried to physically destroy an important facet of the US economic infrastructure (and admit it, this would make a great scene in a Bruce Willis movie), then I think that we would all agree that that time would be different. Similarly, if the GOP behaved like any other responsible opposition in the US over the past 50-70 years, we should expect Obama to get the blame for a bad economy, and, by the simple reality of the zero-sum nature of the US’s two-party political system, Republicans to benefit.

So the question is, where are we now? Are we closer to GOP commados taking out the vital centers of infrastructure or advocating for policies that they claim their voters put them in office to, well, advocate for? My guess is it is the latter, which means John is probably right: if events in the next month or two have an adverse effect on the US economy over the next year, it is probably the president who plays an electoral price, not the opposition that controls a single house of Congress.

Which brings me back to my original point: why should we even be expecting the Republican party to try to prevent the US from defaulting on its debt? From a purely political perspective, shouldn’t this be gold for the opposition?

********************

Anticipating reactions, let me try to offer a few possible answer to my last question.

First, as John notes, the Republicans might believe the Gingrich/Clinton story more than they believe the economic voting literature. As we know that at least one Republican Senator is not a big fan of political science, that might not be terribly surprising. Moreover, if Obama makes good on his threat to stop paying Social Security, then maybe John’s critics are correct and this time will be different.

Second, another,potentially more interesting answer is interest group politics. As Wall Street and the US Chamber of Commerce begin to put pressure on the Republicans to compromise, we might begin to see a real fight within the Republican party between those who want to preserve the business climate as it is and those who want to avoid an increase in taxes at all costs. Maybe it is Wall Street vs. the Tea Party, maybe it is the really rich vs. the super rich, and maybe it is something else. But it seems to me that if I’m right and at a macro-level it is politically in the interest of the Republican party to let the government default on its debts, then if the Republican party does turn around and agree to increase the debt ceiling, then there will be some very interesting micro-level processes at work here for us to try to discover.

Third, there is a strand of the economic voting literature that assumes voters are smart enough to not reward governments for economic prosperity that is delivered through bad economic policies that deliver short-term expansion but cause more serious longer-term problems. I have never seen an attempt to measure the opposite: are voters smart enough to not punish incumbent governments for failing to improve economic conditions because of an intransient opposition that is bent on causing long-term economic problems in return for short-term political gain? About the closest thing I’ve seen to this is a very interesting recent paper by Mark Kayser and Michael Peress which shows that voters in OECD countries during the great recession were much less likely to punish incumbents for economic conditions beyond their control (e.g., the “global” component of economic developments) then they were for ways in which their country’s economy deviated from global trends (e.g., the “local” component of economic developments, and ostensibly more the responsibility of the country’s government).

10 Responses to OK, John, So Should the Republican Party Tank the Economy? If So, I Have an Idea How They Can Do It…

  1. foosion July 14, 2011 at 5:34 pm #

    >>why should we even be expecting the Republican party to try to prevent the US from defaulting on its debt?>>

    Why has the US never defaulted on its debt? Perhaps because in the past political parties cared about something other than defeating their political opponents, such as governing or doing the right thing for the country.

    As you suggest, interest group politics may enter into the political calculation. A default would not be good for business interests and the very wealthy, who are major supporters of Republicans. Those groups are more likely to notice who’s to blame and act accordingly.

  2. Andrew Gelman July 14, 2011 at 9:05 pm #

    Josh:

    I disagree with your item 3 above. Congressional Republicans don’t want to happen to them what happened to the Democrats in 2010. You broke it, you bought it, etc.

  3. Jeff Carnegie July 14, 2011 at 9:21 pm #

    Josh, your logic assumes the Republicans only care about the next Presidential election and nothing therefter. If they have longer range vision, then they need to accoutn for (1) whether people would place lasting blame on the GOP for the damage to the economy, (2) the cost of then having to fix the economy afterwards (as Andrew Gelman points out), and (3) the lost support and fund raising from the business executives that would be hurt by the US default.

    So they might win the next election by tanking the economy, but if it destroyes they party from that point forward is it worth it?

    • anonymous coward July 14, 2011 at 11:07 pm #

      I think the eagerness and virulence of their campaigns against undocumented immigrants, when (legal) Latinos are among the fastest-growing groups in the US, argues against their being particularly long-term thinkers.

  4. political economist July 14, 2011 at 10:46 pm #

    “Ergo, the Republican party ought to do everything possible to ensure the US defaults on its debt.

    What’s wrong with this logic?”

    I think you are confusing marginal and total effects.

  5. Charlie July 14, 2011 at 11:49 pm #

    I’d say that the economic voting literature just connects a bunch of equilibrium points. Both parties shoot for some region in the middle (one a little to the left, the other to the right) and, given this strategy, the policy difference between the parties is mitigated by economic forces. If one party doesn’t shoot for the middle, then we are off the equilibrium path and the economic voting model won’t describe what to expect.

  6. Jay July 15, 2011 at 9:59 am #

    What’s the literature “that assumes voters are smart enough to not reward governments for economic prosperity that is delivered through bad economic policies that deliver short-term expansion but cause more serious longer-term problems”?

    Being a historian and not a political scientistic, I’m not well-versed in all of the literature, but I thought the point of Bartels’s recent work, for example, was that voters (at least American voters) are VERY short-term thinkers when it comes to the economy.

  7. Patrick July 16, 2011 at 6:22 pm #

    It is sad and unfortunate that the Liberal Establishment is so disdainful of the “Tea Party” Republicans, that they don’t bother listening to what they are saying. And what are they saying? The #1 threat to America is not the current (perhaps phony) debt ceiling increase, but the fundamental threat to America’s financial future due to a Government that is spending far, far above its means.

    This is not about political gamesmanship, but about ‘turning the country around’. If you think America is heading over a waterfall due to a government that taxes, borrows and spends too much, you will wanting no part in ANY action that takes us closer to the edge. Passing a debt ceiling without starting to fix the fiscal issues of overspending is such an action.

    Had the President and his acolytes stopped lecturing and started listening for a change, they would detect that, no, there is no interest at all by conservatives and Republicans in harming the economy, either short-term or long-term. The conservative/Republican real interest is in helping the economy long-term by reducing the size, scope, cost, influence and burden of government, so it returns to a sustainable and rational level relative to our economy.

    Given this, the question is ill-posed. The RIGHT question is: Will a debt ceiling ‘deal’ get us further along that path towards a sustainable and less burdensome government than a ‘no deal’ scenario or not?

    If it DOES, then the “Tea Party” will bite. What deal would that be? The Tea party agenda would be – Obama-care repeal, the BBA, large spending cuts, and spending caps; these are what would elicit a ‘yes’. ANY tax hikes would be a “NO”. Since Obamacare repeal would be off-the-table from the Democrat side, and ‘entitlement reform’ the conservative way and liberal way are so far apart the twain cannot meet, and since BBA is likely a bridge too far for Democrats … we are left with Spending Cuts.

    So we know EXACTLY what will elicit a deal that can stick: A bill with sufficient spending cuts that tells the Tea Party that they will be further along the long-term path to sustainably smaller government than a ‘shutdown crisis’. Is it enough? If its just a few trillion off of $45 trillion in 10 year spending plans, that 5% cut from Obama’s plans will not be enough for many. Ryan budget for FY 2012 however would be.

    Either the Obama administration and DC Democrats know this fully and are engaged in partisan gamesmanship by trying to bait the Republicans into a no-deal crisis, or they are clueless and have not listened. It’s very dangerous to get drunk on your own rhetoric, and most of the anti-Tea Party rhetoric from the liberal side is bilgewater unfit for intelligent consumption. the bottom-line:

    A REAL and SERIOUS effort towards lowering spending and toward fiscal responsibility would get conservatives in the House to a deal. Smoke and mirrors and gimmicks and brow-beating and ‘my tax hikes or the highway’ will … not.

    “But it seems to me that if I’m right and at a macro-level it is politically in the interest of the Republican party to let the government default on its debts” This is dubious on many levels. An axiom – the Republicans ALWAYS get the blame. There is genuine desire by politicians on both sides NOT to muck things up, and McConnell plan can be viewed in that light. However, that desire is curiously lacking in Obama’s behavior. The ‘crisis’ is something Obama seems to be wanting, as his behavior has been to make a deal harder to reach, and he is trying to score far too many partisan points against the very people he is supposed to be talking to. The ‘default’ option is an option of the President, he could sign an order to make sure the interest on debt is paid first, taking that whole concern off the table. Yet, he doesnt do that; rather, he raises the stakes with the fearmongering-type statements of calamity. These are pressure-tactics, not consensus-building tactics.

    By Aug 2nd, there will be either a spending-cut-only ‘deal’ bill, e.g compromise between Biden $2T cuts and cut, cap and balance, or there will be no deal at all. (McConnell’s plan B is an abortion, a bill that cuts the legs from under the House wont get through the House, and it adbidcates too much to the President.) The ‘no deal’ will be a political failure for both sides and for which both sides will deserve and get blame. It will not be a boon for Republicans, nor for Obama, nor for the country. Call it a ‘lose/lose/lose’ option.

  8. LFC July 16, 2011 at 6:49 pm #

    The conservative/Republican real interest is in helping the economy long-term by reducing the size, scope, cost, influence and burden of government

    The notion that the economy is being harmed by the size and “influence” of government is a piece of mystification which is unsupported by evidence. It was false when Barry Goldwater said it, it was false when Ronald Reagan said it, it was false when George H.W. Bush said it, it was false when George W. Bush said it, and it’s false today.

  9. Patrick July 18, 2011 at 10:33 pm #

    LFC, you can call it false, but there is plenty of data to support the notion that big Government harms economic growth and smaller Government helps it. Here is just one study out of many many studies which confirm the harm Government does to economic growth: http://www.ecb.int/pub/pdf/scpwps/ecbwp849.pdf

    “This paper analyses the effects in terms of size and volatility of government revenue and
    spending on growth in OECD and EU countries. The results of the paper suggest that both
    variables are detrimental to growth. In particular, looking more closely at the effect of each
    component of government revenue and spending, the results point out that i) indirect taxes
    (size and volatility); ii) social contributions (size and volatility); iii) government
    consumption (size and volatility); iv) subsidies (size); and v) government investment
    (volatility) have a sizeable, negative and statistically significant effect on growth.”