As I had written recently about Nixon and a book I had just read about him by Nick Matusow-"The Nixon Economy." I found it a very good read. I think in may ways his term in particular is a very interesting time in U.S economic history.
It was Nixon who said "We are all Keynesians now"-not exactly, but close enough: more like "I am now a Keynesian now in economics." Actually it was Milton Friedman who said the exact "We are all Keynesians now." Though if you quote him more fully what he said was that 'there's a way in which we are all Keynesians now just as there's a way in which none of us are anymore' it's still rather eyebrow raising that it Friedman himself who said that.
Nixon believed that the only way for the GOP to come back in national politics-he came at at time when the GOP had seen the Democrats control both the Presidency and both Houses of Congress 28 out of the previous 36 years, going back to FDR winning in 1932-was by flagging the Social Issue-what has come to be known as the Southern Strategy or wedge issue, though it wasn't only originally about the South but the way to make also Northern whites who traditionally had supported the Democrats-in some cases since when their ancestors had first come off the boat back in the 19th century-while at best the Republicans could do on the Economic Issue was neutralize.
Nixon did this by ultimately doing many things he had spent his whole career inveighing against-fiscal stimulus and even mandatory wage-price controls-even the Democrats had only uses "voluntary" guideposts prior to that-though they deliberately put Nixon on the spot by passing the bill that gave him the power to do mandatory controls.
For all this, the Nixon Administration is a very fertile period to study the economy. Now I'm in the middle of Carl Biven about the Jimmy Carter years: "Jimmy Carter's Economy: Policy in the Age of Limits."
I thought this was the perfect thing to follow up the look at Nixon's economy. Biven-and many of Carter's on advisers in retrospect-see Carter's chances of re-election in 1980 as more or less hopeless, that he was the victim of a number of intractable problems beyond his own control.
It seems to me that there is a good deal of truth in this. Of course, regardless of how true that may be, it's not much of a selling point when you're trying to campaign for re-election. Saying that it's all beyond your control isn't exactly an inspiring platform to run on.
It also makes you look impotent and as Mitt Romney would put it against the President in 2012-"in over your head." Carter looked in over his head. I remember that 1980 election. Even though I was just 9 at the time I hated Reagan from the start and thought the better man lost.
But I recently watched that debate between him and Reagan and in retrospect he just looked like a beaten man. Mitt Romney's name came up and that's no accident. It's quite obvious that this was his playbook-to make Obama the one holding the bag in the face of intractable problems. Yet it didn't work.
I think what damned Carter was that he seemed like what Romney said about Obama: a nice guy who was just in over his head. It's impossible to dislike Jimmy Carter personally. But if America doesn't like bullies they're even less likely to elect a guy who seems like the victim of bullies. That's how President Carter seemed, alas.
The Iranian hostage crisis was the icing on the cake. His aborted rescue mission. His inability to secure their release. To be sure even after his defeat, his foreign policy and diplomatic teams stayed on the case night and day and eventually secured the hostages release. Unfortunately the timing could not have been crueler to Mr. Carter as they were released just as Reagan was sworn in. You can't explain that away-wether it can be or not, you've lost the optics battle and no amount of explanation can undo that.
My guess as to why President Obama wasn't a victim as President Carter was is that Obama has victories. He's not a loser. I really thought that the ObamaCare SJC win was huge. I think if he loses that case it might have been the final nail in his coffin.
I know the counterargument. Supposedly Americans hated ObamaCare and it was a terrible albatross-so it was thought at the time. In the end, ObamaCare whether or not the American people hated it wasn't supposed to be what the election was mainly about. It was supposed to be a referendum on President Obama's handling of the economy and nothing else. Or at least so the Romney team-and many in the credulous media kept telling us.
Yet, ObamaCare immediately got a little more popular after the win. Remember what I said about the victim of bullies. If ObamaCare goes down that's how the President looks rightly or wrongly. His win there changed everything. Then his first term wasn't wholly aborted. He had achieved what he had set out to achieve.
Unlike poor Jimmy Carter.
It's interesting reading this book. Carter as he himself would say later had the shortest honeymoon in memory. And it was his own party. That's what killed him. He lost the Democrats. You can't lose your own party. Once you do, it's over. That's what happened to Jimmy Carter and it happened early.
Things started on the wrong foot right away when in his first budget Clinton went on a mini crusade against government pork-what we today call "earmarks." Carter came in from his experience as Governor in Georgia with the conviction that water projects in particular were a egregious government waste. So he planned to eliminate them. This touched many high ranking Democrats in Congress who had been planning for years to get a chance to bring water projects to their own state.
He stepped on many toes with this. Whatever the plusses or minuses of this, he certainly went about this the wrong way being new to the ways of Washington: as a candidate being a "Washignton outsider" was very advantageous as everyone at the time was sick of Washington-corruption, Vietnam, Watergate, etc.
In Washington itself, his lack of Washington savvy bit him on the nose. Again, you don't want to lose your own party. Americans vote incumbent President's back into office. Since 1900 only one incumbent President since 1900 have been turned out of office: you guessed it, Herbert Hoover. (Prior to 1900 it was very different.)
So the kiss of death for Carter was that he would be primaried by his own party. The impetus for this already started with the water projects debacle. Tip O'Neil voiced the Democrats' sentiment well when he said 'Mr. President I've waited for to have a Democratic President for years and this is what I'm hearing?"
When asked what did him in Carter is very clear. He believes the inflation problem that predated and spanned his term was what killed him. It seems likely. Biven makes the point that his inflation problem went hand in hand with the hostages problem. Both showcased Carter up against intractable problems that maybe weren't his fault but at the least showed him powerless to do anything.
What's interesting is that the economy by many gauges performed quite well during Carter's term. Per capita GNP was very strong-strongest since LBJ. Carter along with LBJ, Reagan and Clinton alone among President's since 1964 had employment growth in excess of population growth.
Biven also points out that arguably inflation is not as socially destructive as it seems. To be sure it causes problems. Yet many had a pretty strong inflation hedge during the 70s-the steady rise in housing prices more than made up for the rise in the general price level. Inflation in fact may have a worse effect on the rich than low income people overall. (For these arguments see pg. 4.
It certainly helps borrowers vs. lenders and in general the first group is less wealthier than the second. Yet the public has a very negative view of inflation. On the one hand for everyone who is hurt by inflation someone else is benefited. Yet even those who benefited from 70s inflation viewed themselves as damaged.
In recent decades thanks to the experience of the 70s, particularly Carter's experience, inflation is seen as being unacceptable politically. This is different from how Nixon saw it. He thought of it as inflation "in the abstract" being something that the average American can't identify with whereas even a half point in unemployment is "dynamite."
At this point due to our own current experience with high unemployment again-and little memory now of high inflation the pendulum may swing again.
Actually the reason why Keynesians like Krugman like the idea of NGDP is he thinks of it as making higher levels of inflation more acceptable. This is very different from the thought process for Sumner and company.
In any case, what I'm quite curious about coming out of all this is how much is the fear over inflation overdone. However, the second thing I'm curious about is that even if this is so: it the public's view about inflation really so intractable? Or is this sentiment in any way fluid?
The public largely thinks of inflation as the prices of their own consumption going up due to someone getting greedy-profiteering businessmen, price gouging. People don't look at it like the economists do: for the latter it's actually our wages that they see as problematic not so much the prices of goods.
They see the rise in prices as being nefarious and don't understand the ways in which it can actually be beneficial-indeed, even if the price of their house has outstripped the cost of their consumption while the amount owed on their loans have gone down. Yet when you look at student loans from teh standpoint of students it was a Golden Age-the lenders saw it differently to say the least.
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