FacebookTwitterGoogle+RedditEmail

The Post-Election Economic Blues

by DEAN BAKER

U.S. President Barack Obama won an extraordinary victory last week. Republicans have largely dominated the presidency over the last six decades. The Republicans have won most of the elections since World War II and they have won them by larger margins. In fact, only two Democrats have received a majority of the popular vote in this period: Lyndon Johnson in his landslide victory in 1964 and Barack Obama, twice.

While the Obama victory was certainly no landslide, he won a clear majority of the popular vote and a decisive victory in the electoral college, which determines the actual winner of the election. In principle this should make him well-situated to advance his agenda in his second term. However, it is unlikely that the second term will escape the sort of partisan gridlock that dominated the first term.

The most obvious reason for the continuation of gridlock is that the Republicans managed to retain their control of the House of Representatives, winning at least 234 seats in the 435-seat House. While they lost between two and seven seats (some races are still not decided), they will still have a clear majority in the chamber.

It is worth noting that although the Republicans will control the House it is not the result of getting a majority of the vote. While all the votes are not yet counted, Democratic candidates in total got at least 500,000 more votes for the House than Republican candidates. Republicans have been able to maintain their majority because district boundaries have been drawn in a way that hugely favor their candidates.

However this fact is not likely to make much difference in the political battles of Obama’s second term. The most immediate battle will be around the budget, and John Boehner, the Republican’s leader in the House, has indicated that he will push the same agenda he had prior to the election. This means first and foremost that he will oppose any increase in tax rates.

This opposition is likely to prevent any major deals on the budget. However, unlike in prior years, Obama may have some more room to maneuver. If there is no action from Congress, tax rates will rise to their Clinton-era levels, as the tax cuts passed by President George W. Bush will expire at the end of the year.

That raises the possibility that Obama will simply take advantage of this deadline and allow the higher tax rates to go into effect. In January, he can then propose a measure that will restore the lower tax rates for middle-income taxpayers while leaving higher tax rates in effect for the wealthiest 2 percent of households, which is exactly the position that he pushed during the election. It would be difficult for the Republicans to block a measure that would give a tax cut to 98 percent of the people.

While this is a plausible budget path around the partisan deadlock, there is little prospect for measures that will provide a substantial boost to economic growth. The basic story is simple, the only way to provide a substantial boost to growth would be with another round of stimulus from the government. That seems virtually impossible given the current political situation.

Republicans were not the only ones who railed against the large deficits that came in the wake of the economic collapse of 2008. Democrats, including Obama, have made reducing the budget deficit a top priority. They have distinguished themselves from Republicans on the ways in which they would look to reduce the deficit, favoring more cuts to the military and some tax increases, not on the need for reducing the deficit.

In this context, the government sector will almost certainly be a drag on the growth of the economy in the next four years. We will see less spending and higher taxes.

As a result, the economy will only slowly make up the ground loss due to the downturn. The number of jobs in the economy is roughly 9 million below the trend level. The recent pace of job growth has been approximately 170,000 a month. The economy needs to generate 100,000 jobs a month just to keep pace with the growth of the labor force.

This means that it would take almost 130 months, more than 10 years, for the economy to generate enough jobs to make up its 9 million shortfall at its recent growth rate. That is not a very good picture.

It is difficult to envision a scenario that looks much better. The housing market is recovering and that will provide a modest boost to growth, but it is not likely we will return to the construction rates of the boom years. Trade may be a small positive in the years ahead, but with the economies of most U.S. trading partners also weak, it is unlikely that trade will provide much of a boost in the near future.

In short, the U.S. economy is likely to remain weak and operating well below its potential for most or all of Obama’s second term. It is not an encouraging picture.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on Caixon.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
December 09, 2016
Friday - Sunday
Jeffrey St. Clair
Roaming Charges: Nasty As They Wanna Be
Henry Giroux
Trump’s Second Gilded Age: Overcoming the Rule of Billionaires and Militarists
Andrew Levine
Trump’s Chumps: Victims of the Old Bait and Switch
Chris Welzenbach
The Forgotten Sneak Attack
Lewis Lapham
Hostile Takeover
Joshua Frank
This Week at CounterPunch: More Hollow Smears and Baseless Accusations
Paul Street
The Democrats Do Their Job, Again
Vijay Prashad
The Cuban Revolution: Defying Imperialism From Its Backyard
Michael Hudson - Sharmini Peries
Orwellian Economics
Erin McCarley
American Nazis and the Fight for US History
Mark Ames
The Anonymous Blacklist Promoted by the Washington Post Has Apparent Ties to Ukrainian Fascism and CIA Spying
Yoav Litvin
Resist or Conform: Lessons in Fortitude and Weakness From the Israeli Left
Conn Hallinan
India & Pakistan: the Unthinkable
Andrew Smolski
Third Coast Pillory: Nativism on the Left – A Realer Smith
Joshua Sperber
Trump in the Age of Identity Politics
Brandy Baker
Jill Stein Sees Russia From Her House
Katheryne Schulz
Report from Santiago de Cuba: Celebrating Fidel’s Rebellious Life
Nelson Valdes
Fidel and the Good People
Norman Solomon
McCarthy’s Smiling Ghost: Democrats Point the Finger at Russia
Renee Parsons
The Snowflake Nation and Trump on Immigration
Margaret Kimberley
Black Fear of Trump
Michael J. Sainato
A Pruitt Running Through It: Trump Kills Nearly Useless EPA With Nomination of Oil Industry Hack
Ron Jacobs
Surviving Hate and Death—The AIDS Crisis in 1980s USA
David Swanson
Virginia’s Constitution Needs Improving
Louis Proyect
Narcos and the Story of Colombia’s Unhappiness
Paul Atwood
War Has Been, is, and Will be the American Way of Life…Unless?
John Wight
Syria and the Bodyguard of Lies
Richard Hardigan
Anti-Semitism Awareness Act: Senate Bill Criminalizes Criticism of Israel
Kathy Kelly
See How We Live
David Macaray
Trump Picks his Secretary of Labor. Ho-Hum.
Howard Lisnoff
Interview with a Political Organizer
Yves Engler
BDS and Anti-Semitism
Martha Durkee-Neuman
Millennial Organizers Want to See An Intersectional Understanding Of Gun Violence
Adam Parsons
Home Truths About the Climate Emergency
Brian Cloughley
The Decline and Fall of Britain
Eamonn Fingleton
U.S. China Policy: Is Obama Schizoid?
Graham Peebles
Worldwide Air Pollution is Making us Ill
Joseph Natoli
Fake News is Subjective?
Andre Vltchek
Tough-Talking Philippine President Duterte
Binoy Kampmark
Total Surveillance: Snooping in the United Kingdom
Guillermo R. Gil
Vivirse la película: Willful Opposition to the Fiscal Control Board in Puerto Rico
Patrick Bond
South Africa’s Junk Credit Rating was Avoided, But at the Cost of Junk Analysis
Clancy Sigal
Investigate the Protesters! A Trial Balloon Filled With Poison Gas
Pierre Labossiere – Margaret Prescod
Human Rights and Alternative Media Delegation Report on Haiti’s Elections
Charles R. Larson
Review:  Helon Habila’s The Chibok Girls: the Boko Haram Kidnappings and Islamist Militancy in Nigeria
FacebookTwitterGoogle+RedditEmail