An apparently banal story in yesterday’s Wall Street Journal reveals much about current democracy. The reader familiar with the economic analysis of politics (public choice) may read the story as follows: Joe Biden and his supporters are trying hard to prove to voters that “Bidenomics” has done much for them by spending their or their children’s money, and by pushing Colbertiste industrial policy. Voters only see inflation, not realizing that most of it was due to Trump’s deficits, which were higher than Biden’s. Most voters don’t anyway understand what the candidates are proposing and a crushing majority wouldn’t know (for example) where to find measures or indicators of the rate of inflation on the sprawling government websites; even fewer would be able to understand the numbers and their methodology. (See “Biden Goes All In on Bidenomics. Voters Aren’t Buying It,” July 22, 2023).
The candidate himself, trying to buy votes with his largesse, is incited to say just about anything useful for his purposes—just like the other side, although there is a difference of degree in the brazenness of nonsense and lies. One of Biden’s mouthpieces said that the president “brought hundreds of thousands of manufacturing jobs back to the United States.” In reality, the jobs were “brought back” not from foreign lands, but from the Covid recession of early 2020. The chart below shows that, given the Covid recession, the number of manufacturing jobs did increase by 800,000 during Biden’s term thus far, while it had decreased by 36,000 under Trump. As for manufacturing production, which is more revealing than employment (workers’ sweat), it decreased slightly under Trump (given the Covid recession), increased slightly under Biden, and is now back to roughly what it was under Trump (and Obama). If we add the impact of inflation (generated by Trump and Biden), industrial production is a bit lower under Biden than it was under Trump before the recession. This is just an example among many.
By the way, Colbert also thought that his boss Louis XIV made his subjects richer by spending the money (or other resources) he had confiscated from them.
Going back to democracy and to paraphrase Joseph Schumpeter, the typical individual, who is so efficient in managing his private affairs where his own interests are concerned—and can thus contribute so much to general prosperity—becomes an irrational primitive in a necessarily dysfunctional system when he tries to run the lives of all others. Both Friedrich Hayek and James Buchanan have provided useful theories to help escape the truncated dilemma between democracy and tyranny. For a more radical theoretical alternative, Anthony de Jasay defended liberal anarchy, or perhaps it was conservative anarchy.
To simplify a bit, but just a bit, democracy can only work in two ways: if it is a means for changing the government peacefully (“throwing out the rascals”) in a strictly limited state; or if it represents an ideal of collective liberty and “sovereignty” under which the individual is powerless and happy to be so, like in the village of Patrick McGoohan’s The Prisoner.
READER COMMENTS
Mark Brady
Jul 23 2023 at 1:02pm
“Voters only see inflation, not realizing that most of it was due to Trump’s deficits, which were higher than Biden’s.” And not monetary creation courtesy of the Fed?
Pierre Lemieux
Jul 23 2023 at 2:59pm
Mark: Yes, but this money creation, or part of it, was certainly to accommodate Trump’s deficits (and Biden’s lower ones).
Mark Brady
Jul 23 2023 at 3:07pm
Agreed, but the direct cause of the price inflation is monetary expansion. As you remind us when you castigate “greedinflation” and other variants on that theme. 🙂
Pierre Lemieux
Jul 23 2023 at 8:44pm
Mark: I agree. How can anybody disagree with your source?
Pierre Lemieux
Jul 28 2023 at 10:57am
Mark: I agree with your critique: I should have been more precise.
Robert EV
Jul 23 2023 at 3:43pm
This is all happening in a republic. Where does democracy come into the picture?
“Work” for what?
And even in those theoretical total democracies people wouldn’t vote on everything, they wouldn’t want to. Though sure, it wouldn’t go well for people with minority personalities, as the majority would frequently vote to squelch the minority’s predilections while voting against limitations to their own predilections. But this is a problem with any sort of government system which doesn’t respect fundamental rights, not just a totalitarian democracy.
Looking at the chart there has been a net gain of 200,000 from the prior peak.
Robert EV
Jul 23 2023 at 3:46pm
Which had indeed peaked, and plateaued, even at very low interest rates and under increased tariffs.
Pierre Lemieux
Jul 23 2023 at 9:01pm
Robert: What my figure doesn’t show (because I wanted to focus on the recent presidential terms), is that the employment plateau of the recent months is more than 5,000,000 below 1998 (and about 7,500,000 below the 1979 peak for the whole dataset starting in 1939).
Robert EV
Jul 24 2023 at 12:39pm
Thanks Pierre. I saw indications of some of that below the chart, but didn’t comment on it as it is, as you indicate, from another era.
Pierre Lemieux
Jul 23 2023 at 8:43pm
Robert: Your question “‘Work’ for what” is a good one. In my reply to Steve below, I formulated what “work” means in a liberal tradition consistent with economic analysis.
steve
Jul 23 2023 at 6:18pm
I can’t think of any country described by this “a means for changing the government peacefully (“throwing out the rascals”) in a strictly limited state” or this “an ideal of collective liberty and “sovereignty” under which the individual is powerless and happy to be so”. What countries, if any, would you say fit either of those 2 models. I can think of an awful lot of countries that have had major economic growth since giving up monarchies or authoritarian governments and embracing democracy. Maybe you don’t regard large economic growth as “working”?
Steve
Pierre Lemieux
Jul 23 2023 at 8:40pm
Steve: By “working,” of course, I mean, in the liberal-libertarian tradition, “satisfying the individual preferences of people as natural equals.” (Hayek would replace “natural equals” with another, more or less similar, characterization. Little exercise: What would it be?) My first model is the ideal of liberal democracy towards which most Western countries in Europe and North America were evolving around the 18th-19th century; and that most liberal thinkers had in mind. The second model represents what most countries have more or less become; the best historical case may be France after 1791.
To get an idea of the liberal tradition, it is useful to read the books I linked to (in fact, I linked to my reviews, which are only a pale reflection of the books themselves). Add to this Hayek’s Volume 2 of Law, Legislation, and Liberty (which contains the answer to my little exercise above) and Buchanan’s The Limits of Liberty (my reviews again, but they may provide an easy introduction). Trigger warning: all that IS challenging, although consistent with the economic way of thinking.
steve
Jul 24 2023 at 9:31am
Interesting that you see the 18th and 19th centuries that way. It was a time when in nearly all of those countries well less than half of the population had anything even remotely resembling freedom, let alone economic freedom. If minorities were not slaves there were severe limitations on ownership. Women could not freely engage in economic activity and property rights for them, if they existed, were sketchy. The cities, really the economic engines of the time, were at risk of failure until there was major government intervention to provide sewers, clean water and public health.
At the risk of implying that positive liberty exists, since it was universal, I doubt that we would have gained the economic prosperity we see now absent both democracy and the intrusion of government more broadly into the public sphere. There just isn’t a successful model anywhere of either the very small, laissez-faire govt you seem to want or for complete socialism. The answer seems to be somewhere in between.
Steve
Pierre Lemieux
Jul 24 2023 at 11:11am
Steve: Have a look at Hong Kong, the Industrial Revolution, and failed industrial revolutions. (PS: I wrote, “towards which most Western countries in Europe and North America were evolving.”)
Monte
Jul 23 2023 at 9:24pm
There’s plenty of blame to go around. Biden’s $2 trillion ARP and $1 trillion infrastructure bill was a helluva a lot of helium to add to an already over-inflated economy. We can also argue whether or not the trillions spent by Trump during the pandemic was a necessary evil. Adding to those inflationary pressures were supply chain issues and a money expansion program followed by the Fed that began well before the 2020 election (Powell & company were completely wrong on “transitory” inflation).
If the next presidential election narrows down to the same two, I’ll grudgingly vote for Trump. Bidenomics has been a national disaster and President Biden, himself, an international embarrassment.
Robert EV
Jul 24 2023 at 1:33pm
I care about national security within the international world, and the economy, so will vote for Biden. Republicans have been crap at national security. Eisenhower overthrew a democratically elected government in favor of a monarch, leading to what Iran became. Nixon nixed a potential peace settlement in Vietnam under Johnson, leading to more US deaths, as well as the Nixon shock (which Carter helped solve via Volcker). I’m not sure whether Nixon should be commended for his China policy, or if that just helped lead to the current situation with Taiwan and the fake islands in the seas around China. Reagan was probably decent all around with the continuation of Carter’s Volcker appointment, and the fall of the USSR. Bush I half-pushed in Iraq, and we saw how that ended up when his son continued the push under false premises. I don’t know which presidents to blame for policy that spurred 9/11, if any, so much of that is really on the British following WWI.
But whatever. Biden did great in the leadup to the invasion of Ukraine. Far better in getting the information out there, which was necessary to nip Russia’s justifications in the bud, than anything at all that Trump would have done. And an additional 200k manufacturing jobs, under increasing (one might say, Volckerian) interest rates, above Trump’s manufacturing plateau under near-zero interest rates.
Monte
Jul 24 2023 at 11:52pm
I’m disillusioned with both, but can’t bring myself to vote for a corrupt, cognitively-impaired, cranky old door knob vs a pompous, arrogant, narcissistic ego-maniac who can at least speak coherently and be constrained by various checks and balances. Anyway, it’s Biden’s handlers and his party that you’ll be voting for. Biden is the human equivalent of Jeff Dunham’s puppet, Walter.
Craig
Jul 24 2023 at 12:37am
There is something about the topic of economics where one tends to look at ‘the economy’ or perhaps the Japanese economy or of course more pertinently to this article, the ‘US’ economy which makes people think of the economy as a kind of machine where the Wizard of Oz sits behind the curtain pulling the relevant levers to induce economic growth.
“Voters only see inflation, not realizing that most of it was due to Trump’s deficits, which were higher than Biden’s.”
The Republicans want to blame Biden of course, but the Democrats are a bit wary about blaming Trump because Biden didn’t do much different and while it would be true, the lag effect would make it feel like an unsubstantiated deflection. And naturally why blame the government when one can blame greedy capitalists, right? But I would add that it isn’t so much the deficit as much as the deficit financed by the Fed, which, yes, there was definitely more money creation post-pandemic while Trump was still in office than when Biden was in office, even prior to the end of QE and the beginning of QT.
It will be interesting to see if voters will credit Biden with the looming disinflation? I actually fear credit will be given to the Inflation Reduction Act!
Thomas Hutcheson
Jul 24 2023 at 4:38am
What hope for voters when economic commentators do nt understand that deficits, neither Trump’s nor Biden’s cause inflation?
Pierre Lemieux
Jul 24 2023 at 11:17am
Thomas: Yes, it depends on how they were financed (as Mark Brady emphasized above). It is not straightforward to estimate how a deficit is financed, but looking at the money base if not at M2 should give us a hint.
Craig
Jul 24 2023 at 11:48am
How are deficits financed? Well, the treasury sells bonds of course, they have ywt to resort to the platinum trillion dollar coin. But I would suggest its not as hard as one might suggest. Ask who is holding the bonds because from the issuance of bonds to the current is a trail of assignors/assignees and in reverse is a dollar cash flow headed to the treasury. So if the Fed balance sheet has $X in bonds on it basically that is the extent to which the deficits have been monetized. Even previous deficits where the bond has been sold to the public, if that bond was sucked up in QE bought with money created, ex nihilo, doesn’t matter if the bonds were previously sold to the public. The Fed does have some mortgage backed securities on their balance sheet and I also think some corporate paper, but right now I think they are sitting on $6tn in bonds. That’s a quick google of course.
Craig
Jul 25 2023 at 8:07am
Just a thought about deficits to Thomas. In the short to medium term I anticipate disinflation obviously in the face of deficits, but long term I suspect that the deficits will eventually add up to a debt and an unsustainable interest expense. While the government doesn’t have to choose inflation to grapple with that, I suspect that, politically, the ‘checks will have to go out’ and the government will ultimately resort to inflation……again….
Comments are closed.