Mid-Term Bullets to Democracy Substantially Dodged
But Plenty of Elephants in our “Political Room” Remain, So Buckle Up
The good news for Democrats, Independents and Mainstream Republicans: The country dodged most, but not all, of the bullets aimed against democracy in the mid-term election. At this writing, election deniers running in contested races overwhelmingly have lost, although Kari Lake could still win the Governorship in Arizona. Widely feared violence has not (yet) broken out. The Democrats have retained the Senate, even without a decision in Georgia runoff in December (which Senator Warnock is favored to win), while it looks like Republicans will narrowly win the House -- a mixed blessing even for them, for reasons stated below, if that happens (still not a sure thing, and we may not know for weeks).
Already the media is rife with speculation about the presidential race in 2024 – especially Trump v. De Santis. President Biden looks set to be the Democratic nominee, barring health issues (also discussed below).
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But slow down! Mindful of Jim Fallows’ excellent piece that I recently circulated warning against making political predictions,
, I want to highlight here some of the top events that are likely to determine the 2024 presidential outcome, regardless of who Democrats and Republicans nominate, as well as which parties will control both the Senate and the House. But without stating how I think these events will break and, for the most part, the net political impact they will have.
The point being, there is so much uncertainty out there about the events I am about to list and describe, and the political fallout of each, anything can happen in 2024. One thing, however, is certain: as much as the mid-term outcome may signal the strong desire of a (slim) majority of Americans to have some “normalcy,” the multiple elephants in our political room almost certainly will keep us in a collective state of anxiety (even if you don’t watch cable television or are unplugged from social media).
Likely Trump Indictment, The Biggest Elephant (and really, no pun intended)
I don’t know about you, but I am a pretty avid consumer of media – print and TV – and with one exception (an article in Politico that I can no longer find), no one who has talked about Trump’s role in the mid-terms or his Tuesday announcement that he is running again has mentioned one word about the multiple criminal investigations he is under: January 6th-related (obstruction of an official Congressional proceeding/fraud on the American people), the Mara-A-Lago documents (obstruction of justice, violation of the Espionage Act). and the Georgia state vote fraud grand jury proceeding.
Now, I’m just an antitrust litigator (and now only a part-time economist), but I know enough law to know that from what has already in the public domain, it is a high likelihood that he is going to be indicted on any or all of the above grounds. Given the Georgia Senate run-off, DOJ and even the Fulton County, Ga prosecutor, as a practical matter, almost certainly have to wait until after December 6th or maybe a few days after to take any formal steps.
There was some reporting before the election that AG Garland may want to punt the federal investigations to a special counsel, which almost certainly would delay the bringing of charges. And the longer the delay, the worse the optics become about any indictment.
Another wild card: if Trump is indicted over the Mar-A-Lago documents affair, in particular, where would the indictment be brought? I think it depends on whether the “theft” or “obstruction” started, or can be claimed to have started, while he still was in office, in DC, or whether it all occurred in Florida; other things equal, the jury pool in Florida would be more favorable to Trump than a jury in DC. The venue for any indictment related to January 6th, quite clearly, would be in DC.
But whenever one or more indictments come, they will be political earthquakes. Might a likely Trump indictment (or two) perversely resurrect Trump’s current flagging political fortunes, allowing him to portray himself as the victim of a “witch hunt” (surely, he will claim, ever in history)? Or would any indictments provide one more reason why the mini-bandwagon among Republican leaders and voters running away from Trump would run even harder and/or attract more support?
Hard to say. And a lot, it seems to me, depends on how De Santis reacts to any Trump indictment. Joining the witch hunt chorus will keep him from alienating the Trump base, but will make it harder for him to beat Trump if De Santis decides to throw his hat into the ring. Or De Santis could say something to the effect of “let the courts decide, I’m running to be the president in the future, I will focus on that, and I challenge the “fake media” to do the same.” Will he take the risk of not being seen to back Trump in his time of legal peril? And if he did, would he viewed as a traitor by enough Republicans, so that he’d have no chance of getting the nomination? Suffice it to say that any Trump indictment will put De Santis in the political cross-hairs, and what decides to do could have a big effect not only on the 2024 race, but also on the future of the country.
Soft/Hard Landing and Timing/Pace of Recovery
While it turned out that high inflation didn’t have as much impact on the mid-term outcomes as widely anticipated – because for independents whose votes were key to the outcome (more on them below), other factors (like election denialism, abortion) appeared to have outweighed inflation concerns, https://www.wsj.com/articles/why-independent-voters-broke-for-democrats-in-the-midterms-11668249002?mod=djemwhatsnews – the historical evidence is clear that high unemployment or actual recession is never good for the incumbent party/president.
So, the big 2024 question, also relevant to all of us in our daily lives, is how much will unemployment rise before inflation, now running a bit below 8% compared to last year, falls back to the 2-3% range, to which Americans had grown accustomed over the two decades preceding the pandemic? Many or most economists will tell you, based on the best historical models, to expect something like 6% unemployment, or maybe higher. Which means a recession (and which I still think is likely to happen, though I am less convinced of this than I was a month ago). Bad for Democrats. Bad for the country. Good for Republicans.
But economic models built on historical evidence may not be that helpful in this particular episode of our history. The reason is that most (not all) of the jump in inflation over the past two years from roughly 2% to 9% was due to what economists call “supply shocks” – the Ukraine war and COVID-induced interruptions in the domestic and global supply chains – whose inflationary impacts were aggravated somewhat by the overly generous American Rescue Plan (the $1.9 trillion of checks sent out once Biden assumed office, an idea that had been championed by Trump in the waning days of his presidency, a fact too many people forget). Those supply shocks could still keep happening (another wave of COVID may come this winter, and no one knows if the Russians will cause more global food shortages than they already have). But if more supply shocks don’t come, as the US and global economies continue cooling off from a global central effort to combat inflation, it is possible, just possible that the moderated pressure on supply chains whose kinks already seem to straightening out could allow inflation to come down almost as quickly as it rose. All without GDP contracting and unemployment rising very much.
The last several months of inflation data give some inkling that this “soft landing” scenario may materialize, though I still think on balance the landing will be bumpier than that. To get a better feel for all this, it is important not to look at the year-over-year change in inflation, but to the monthly changes, which show the direction of inflation, which is key.
The best case for a soft landing can be found in the Fed’s favored measure of inflation, the Personal Consumption Expenditure (PCE) price index. Here are the last three months of the PCE index data, both overall and subtracting food and energy (because they are most volatile components of the index). Data are from the Bureau of Economic Analysis (BEA):
July August September
PCE Overall -0.1 0.3 0.3
PCE Minus Food and Energy 0 0.5 0.5
The overall PCE index only climbed 0.5% over the entire quarter, or an annualized rate of a little more than 2%, while the PCE without food energy was a bit worse – 1% over the quarter, or about 4% annualized – but still much better than the 5-6% numbers we were seeing earlier this year.
The data for Consumer Price Index (CPI), a different index mentioned in the press more frequently in the media and thus likely to be more top of mind to voters, show more inflation is still in the system:
July August September October
Overall CPI (Urban) 0 0.1 0.4 0.4
CPI (Urban) less food and energy 0.3 0.6. 0.6 0.3
The overall CPI 4 month total is 0.9%, which on a yearly basis is about 3%, which is good, but for CPI less energy and food the total four month increase is 1.8%, which translates to an annual 5.5% rate, which is still uncomfortably high, but also below the 8=% inflation rate before this summer (the CPI index minus food and energy is higher lately because food and energy prices have been coming down).
One Bottom line: though inflation is still worrisome it clearly seems to be abating. If over the next few months, the monthly price increases, both for the PCE and the CPI, come in at 0.3% or less, that clearly will be good news, but it will then ignite a big political debate. How hard should the Fed push to get the monthly numbers down to 0.2%, or to its pre-pandemic annualized range of 2%? Most Democrats and perhaps some Republicans almost surely will be urging the Fed to quit raising rates, saying the recession risk (or deeper recession if one has begun) is not worth it. My guess is that the Fed will stick to its 2% guns, unless the inflation numbers get worse, or the unemployment rate climbs north of 6%.
Second Bottom line: I still think a mild recession, at a minimum, is most likely before inflation is tamed, at 3% and certainly at 2%. But even if that happens, Democrats are not necessarily cooked going into 2024 if the recovery happens soon enough and proceeds strongly enough in 2024. So that swing voters can look ahead rather than behind them and have faith that things are improving. If that’s not happening, then Republicans – with their “go to” remedy of “tax cuts – would have the political wind at their back.
A lot of “ifs” here – including what happens on the international front (see below) and the pandemic over the winter – or other “shocks.” Which is why it’s crazy to make any hard predictions. And why the Fed reasonably is “data driven,” taking each new statistical release at a time, ready to adjust if necessary.
Debt Ceiling Fight (Read only if Republicans gain control of the House, otherwise ignore and move on)
One potentially big (though probably short lived) negative shock could arrive soon in June or July 2023 after the statutory debt ceiling has been hit and all of the usual Treasury maneuvers for moving money around to delay default have been exhausted: if Republicans make good on their pre-election threat to refuse to raise the debt ceiling unless President Biden and the Democrats agree to big spending cuts, especially in social security/Medicare, but possibly elsewhere.
I will not rehearse here the craziness of even having a debt ceiling, which is a historical relic, and makes no sense. Like your credit card balance, you are obligated to pay it once you’ve already spent the money. Ditto for the federal government, once Congress has appropriated funds. Once upon a time, the debt ceiling was raised without any partisan fuss, but in recent decades, it has been used as blackmail, almost entirely by Republicans to get what they want. In 2011, with Republicans then playing the debt ceiling card, the nation came close to a default, which briefly rattled financial markets.
One more thought before I get into the politics. Although House Republicans will say that big spending restraint is necessary to control inflation, no realistic budget cuts now would have any more than a de minimis anti-inflationary impact, on top of the anti-inflationary impact of rising interest rates engineered by the Fed. As reported in the Wall Street Journal on November 10, 2022, simulations by the Penn-Wharton budget model (a highly respected source) show that it would take a $750 billion federal spending cut to knock off just to knock inflation down by one percentage point. $750 billion is the size of the entire defense budget. Nothing close to that is going to happen.
Now, it is true that it is necessary to get the long-term deficit under control, more so than when the 2011 debt ceiling fight occurred. The ratio of federal debt to GDP is now in the 100% range, up from about 60% then. And in a perfectly functioning world where both parties are willing to make reasonable compromises would be good for the country and is long overdue (and eventually will have to be made, at some point). https://www.nytimes.com/2022/11/04/opinion/national-debt-spending.html. The obvious candidates: some trimming in Medicare in particular (or more realistically, higher premiums on wealthier recipients, a lifting of the income cap on social security taxes, and perhaps a more realistic measure of inflation for adjusting future social benefits) and some higher taxes, primarily on the wealthy, coupled some modest across-the-board cuts in discretionary spending. In other words, the elusive “grand bargain” on long-term deficit reduction, which President Obama and Speaker John Boehner came close to reaching a decade ago, but couldn’t close the deal because of recalcitrance in both parties to compromise (as I discussed in my post on the late Alice Rivlin:
The problem is that, at this point, if Republicans end up with a small vote margin in House, the House Speaker (whoever it is) effectively will be at the mercy of the craziest wing of his/her party: Margorie Taylor Greene, Matt Goetz, Lauren Boebert (if she wins), Louie Gohmert, and others of a similar ilk (I hesitate to give them any label, though “unhinged” is not a bad try). They seem more hell-bent on risking a true Treasury default and thus at least a temporary global economic earthquake than any Republicans who have tried this irresponsible tactic before. On the other side, Biden and Congressional Democrats very likely believe that the public will blame Republicans – as they have in prior shutdown/debt ceiling games of chicken – if the default occurs because the President and Congressional Democrats refuse to accede to any Republican demand that Medicare/Social Security benefits be cut in any way. Thus, the next game of debt ceiling chicken entails an uncomfortably high likelihood of a debt default. The good news is that such a default is almost certainly likely to be temporary, because the market shock waves it would cause would put enormous pressure on at least some House Republicans to side with Democrats in voting to extend the ceiling (Democrats would certainly insist a date some time in 2025).
In theory, Congressional Democrats could try before the end of this year to put a debt ceiling extender into an end of the year omnibus appropriations bill, but because such a maneuver would require 60 votes in the Senate to avoid a filibuster, there may be no such effort (to the best of my knowledge, appropriations bills are not subject to the simple majority vote rules under reconciliation rules).
Congressional Investigations/Impeachment? (Again, Depends on Republican control of the House)
Republican control of the House will mean multiple investigations of the Biden administration – over the Afghanistan withdrawal, origins and responses to COVID, the immigration crisis at the Southern border, and of course Hunter Biden – along with possible, if not likely, impeachment efforts against Attorney General Garland (especially if DOJ indicts Trump), DHS Secretary Mayorkas, and possibly others. In short, an absolute circus. How much traction this will have with independent voters – since Ds and Rs are almost surely dug in – is hard to know.
The drip-drip effect of the investigations alone could be damaging for Democrats, or if nothing surprising turns up, then the cumulative impact of the investigations could turn even more middle of the road voters against the Republican party for not addressing kitchen-table issues. If Republicans go further and undertake impeachments, against either Garland or Biden in particular, my strong hunch is that they will backfire, just as Republican efforts to do the same with President Clinton did after 1998.
I’m not talking about the weather on election day 2024 (though that may affect turnout), but about serious weather events plausibly linked to climate change between now then. More bad “summers from hell” akin to 2022 or worse; or some more “ice age” events of the kind that afflicted Texas in 2021. As some readers of this column know, I believe that eventually the US, if not other countries, will have no choice but to deploy some form of geo-engineering to cool down the warming effect of the greenhouse effect already baked in by already dangerous atmospheric CO2 concentrations.
And perhaps by a coincidence, the November 5th issue of The Economist featured climate change and paid more attention to geo-engineering as a serious possibility than I have seen to date in a major news outlet. https://www.economist.com/interactive/briefing/2022/11/05/the-world-is-going-to-miss-the-totemic-1-5c-climate-target. (Although the focus of our own Defense Department on “rogue” countries doing geo-engineering of their own overlooks the fact that the countries we apparently seem to be most worried about doing this almost certainly would love it if the US led the way, as I have been arguing. https://www.economist.com/science-and-technology/2022/11/02/americas-defence-department-is-looking-for-rogue-geoengineers.)
But in the meantime, as more American suffer the effects of extreme weather events, more will be convinced that doing at least something about climate change is necessary, and climate change denialism will fade. If all this happens, this bodes well for Democrats, especially because younger voters – who were key to the Democrats’ success in the mid-terms – care a lot about climate change, and over time, younger voters will account for a growing share of all voters. Republicans’ best response to future serious weather events is to embrace some form of Ron DeSantis’ answer – invest more in climate adaptation rather than kill jobs by abandoning fossil fuels – but that answer is unlikely to sway those voters who really care about climate change, although it may be enough to retain the support of independents and mainstream Republicans who realize something has to be done about climate change, but see Democrats’ zeal for abandoning fossil fuels (even if only over the long run) as being too extreme.
Of course, if I’m wrong about more weather hell coming, then Republicans will not be as threatened by continued climate change denialism among many/most of their leaders.
Do Nothing Congress (if Republicans take the House) and Some Advice to Democrats (if they retain the House, and even if they don’t)
If Republicans take the House, virtually no legislation will pass in the next two years. But parties controlling each chamber can be expected to propose and seek passage, at least in one chamber, of those bills each party wants as campaign issues for 2024.
Examples in the Democratically controlled Senate include: codification of Roe, stricter gun control; some elements of Build Back Better that were left on the cutting room floor from last session (such as expansion of the earned income tax credit; an expanded child tax credit); something on Dreamers and immigration more generally (including, if Ds are smart, a lot more money on technology for border security and processing asylum seekers); and legislating the Biden college student loan forgiveness plan (that is now in trouble in the courts, portending trouble at the Supreme Court). To pay for their proposed added spending, Democrats again will propose various tax increases on upper income tax earners and corporations, including taxing “carried interest” of hedge, private equity and venture funds at ordinary rather than capital gains rates. But everything in the Senate, even with a 51-49 majority (assuming Warnock beats Walker again), still will come down to what Senators and Manchin agree to (Leader Schumer taking to the floor only bills on which Democrats are united).
In a Republican-controlled House expect to see bills outlawing abortion altogether (although if Rs were smart, they’d limit such a ban to any abortion after 15 weeks, as Sen Graham proposed about a month ago); tax cuts (most likely favoring the wealthy) paired with deep cuts in discretionary spending (without specifying where, rather just a lower cap), and quite likely some “savings” in Medicare/Medicaid/Social Security (how much detail remains an open question); more money for border security with a narrowing of the asylum definition; and something on crime (not clear what it will be, but Rs have always run on “law and order”). I’m reasonably sure I’ve left a lot out, but my imagination right now went let me go beyond this list.
If, in the unlikely event at this writing, the Ds manage to hold onto the House, then the Ds have their internal battles to fight (actually they’ll need to address their differences even if they are relegated to minority status): progressives (who are the beating heart of much of the party) versus moderates who won in swing Congressional districts or states. If the progressives act rationally, they should listen to their moderate colleagues, like Senator Tester (Montana) and Rep. Spanberger (Va), among others, who know what it takes to win in swing or purple areas. Because future control of the House for Ds depends on these elected officials, not on progressives who come from reliably blue, safe (for Democrats) seats. In particular, and especially if the party backs college loan forgiveness, the party needs more focused policies and messaging for non-college educated white voters, both male and female.
The right to an abortion, which cuts across party lines, will only do so much. Of course, a soft economic landing and/or economic recovery in 2024 will help with these (and other) voters. In principle, so will an expanded EITC and more money for job training. But working-class voters have a distrust of the government doing more for them, even if in their interest. So whether or not Ds retain control of the House, progressive Ds need to listen to their moderate wing, while the moderates could benefit from importing some of the passion that progressives bring to the table. Ds will need a modus vivendi between their two wings going into 2024, especially if Trump is not the presidential nominee, because a substantial fraction of independents, it appears, who don’t like either party held their noses and voted Democratic only to register their disapproval of Trump.
As for Rs, they need to figure out who they are and what they stand for – not who they blindly worship or what they are against --especially in a post-Trump era. De Santis may figure it out for them, putting the chips of the R party on culture issues, especially if the economy breaks in Democrats’ favor (if it doesn’t, then Rs will hugely advantaged whatever they say).
Rest of the World Risks
If the Ukraine war has demonstrated one thing (beyond the horrific cruelty of Vladimir Putin and much of the Russian army), the US economy and our politics are tethered to what happens in the rest of the world. Two flashpoints could affect us in many ways, let alone the 2024 presidential race:
--What happens in Ukraine: will there be a settlement of some kind to end that tragedy? Or will the war continue or even escalate? In a worst case, could Russia use the tactical nuclear weapons he has been threatening to do off-and-on? No point speculating about the fallout of any these events, all of which are uncertain.
--Ditto for China, especially vis-à-vis Taiwan. Much here depends on the outcome of the November 14-16 meeting between Presidents Biden and Xi today. If those talks prove inconclusive, then it’s all up to what China decides to do. Americans should be nervous. Just about every informed thing I’ve been reading suggests that at some point China is likely to take Taiwan, initially by blockade or, if required, through military assault. Whether that would happen in the next two years or in the next one or two administrations, or hopefully not at all, it goes without saying that a major war between the US and China – which is what would happen since President Biden has made clear, with some Republican support, that the US will defend Taiwan against attack -- would be catastrophic in many ways. Politics don’t matter.
--Another foreign terrorist attack: Can’t be ruled out, and no point speculating about the political consequences here too either.
Another elephant in the room is the President’s health. Even if he formally announces in early 2023, 18 months until the November 2024 election is a long time when you’re already 80. If, for health-related reasons, Biden is not the nominee, it will be a free-for-all in the Democratic party for the nomination, even if Vice President Harris begins with a head start. Clearly, a wild card.
In the immortal words of former Defense Secretary Donald Rumsfeld, there are any number of “unknown unknowns” that are out there and could affect us all too, politics aside. On that cheery note, I leave where I started: buckle up, we are all in for more bumpiness in the next two years.
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