The next four years: realistic version

by John Quiggin on November 3, 2004

While I’ve tried to be open to more optimistic possibilities, it’s far more likely that the second Bush Administration will be more of the same, and worse. The problem for the winners is that the consequences of the Administration’s policies, still debatable in 2004, will be grimly evident by 2008, and there will be no one but Republicans to take the blame. In purely partisan terms, as I argued several times before the election, this was a good one to lose.

It’s impossible to predict in detail how things will turn out in Iraq, or on foreign policy more generally. But Bush’s first term made one thing clear. If there’s a way to stuff things up, these guys will find it. I expect there will be some initial talk on both sides about rapprochement with Europe, but it won’t last long: if the assault on Fallujah turns out as bloody as appears likely, that could easily be enough to any such process to an end.

Things are much clearer on the economic front. As I mentioned in my previous post, Reagan’s first term saw the implementation of crackpot “supply-side” theories in which tax cuts would produce long-run budget surpluses, but when they produced huge deficits instead, the orthodox Republicans took control and raised taxes, among other measures to bring the deficit under control. In the Bush administration, by contrast, not only have the crackpots become the orthodoxy, but they don’t even bother (much) with Laffer-curve theories about an eventual return to surplus. The current view is that sustained deficits are entirely harmless. It’s virtually certain that the first-term tax cuts will be made permanent, and probable that there will be some additional cuts, as well as relief from the Alternative Minimum Tax. On the spending side, I expect there will be some severe cuts in non-defence discretionary spending, but there’s not a lot to cut, especially if you exclude areas like agriculture, that have strong Republican protection, and the policy initiatives of the last Congress, like the prescription drug policy.

An even bigger problem, not mentioned at all in the campaign as far as I know[1] is the trade deficit. The deficit has grown steadily, exceeding 5 per cent of GDP in recent months. Although it’s a mistake to view the trade and budget deficits as twins, the combination of a budget deficit and minimal household savings implies the need for a balancing deficit on the current account, if any net investment is to be financed. Without a rapid reversal, sustained high trade deficits will translate into exploding current account deficits, as compound interest works its magic. This implies the need for a further large depreciation of the dollar, and an increase in interest rates or both. For the moment, interest rates have been held down by the willingness of Asian central banks to buy Treasury notes. But this can’t last.

In the absence of a serious attempt to bring the trade and budget deficits under control, a substantial increase in interest rates is inevitable, and that will almost certainly imply a slowdown or recession.

fn1. Except maybe in relation to outsourcing

{ 31 comments }

1

Ted Barlow 11.03.04 at 10:37 pm

Luckily, the Bush administration ought to have a cunning new set of tax cuts on deck for just that eventuality.

2

Giles 11.03.04 at 10:50 pm

you ignore the second possibility namely that US trade deficits could reverst if the Euorpean Economy starts grwoing faster than the US. this could correct the trade balance without any need interest rate effects.

3

Andrew McManama 11.03.04 at 10:51 pm

But I’ve become convinced that no one cares about anything but “moral issues” and policy is meaningless to most of the population of this country…
Good thing I’ve always got the motherland to return to.

4

lemuel pitkin 11.03.04 at 11:36 pm

But this can’t last.

Why not?

5

jam 11.04.04 at 12:15 am

Of course there will be others to blame. You badly underestimate the resourcefulness of this regime.

6

jam 11.04.04 at 12:16 am

Of course there will be others to blame. You badly underestimate the resourcefulness of this regime.

7

burritoboy 11.04.04 at 12:57 am

Giles,

There’s no substantive reason to conclude that. The EU may import more in general, but the EU might not import more from America in particular.

8

Chris 11.04.04 at 1:25 am

You know, every person who hates Bush could create a little peace in their lives and say, “It’s the culture, it was really deterministic that things work out like this – and we can accept that and work within it!”

Like they did with Stalin, Castro, Ho Chi Minh, Pol Pot, and Hussein.

The left can accept mass murderers. Can they accept someone who is trying to do the right thing, though imperfectly?

9

jet 11.04.04 at 1:33 am

Chris, that is a low blow :P

Only the whacky left “accepted” Stalin and Castro. How many legitimate icons of the left can you find that accepted Stalin and Castro?

10

Giles 11.04.04 at 1:37 am

BURRITO

Indeed but since the sum of trade deficits world wide sum to zero that doesnt matter – if the EY run a larger deficit someone else must run a larger surplus. And that surplus must be invested – perhaps in the US debt.

The root cause of the US deficit is the higher growth in the US than elsewhere. This can be corrected by a fall in US growth as John hopes or an increse in growth elsewhere.

11

KCinDC 11.04.04 at 1:45 am

A lot of mass murderers were “trying to do the right thing, though imperfectly”. Very few evildoers dress in black and cackle loudly about how evil they are like they do in bad movies. People don’t generally think what they themselves are doing is evil.

12

Kimmitt 11.04.04 at 2:00 am

How many legitimate icons of the left can you find that accepted Stalin and Castro?

Stalin, several — but they were pretty legitimately hoodwinked, and the vast majority figured that out. Castro, many — but consider the Latin American alternatives. Cuba was, for a long time, one of the richest, most free (!), and safest Latin American countries. You can forgive a lot of people for noticing present success and missing inevitable eventual failure.

13

HeeHateMe 11.04.04 at 2:00 am

PFBDX

I am glad I have $$$ invested in above. Although I don’t have a clue about foreign interest rates.

14

Kimmitt 11.04.04 at 2:00 am

How many legitimate icons of the left can you find that accepted Stalin and Castro?

Stalin, several — but they were pretty legitimately hoodwinked, and the vast majority figured that out. Castro, many — but consider the Latin American alternatives. Cuba was, for a long time, one of the richest, most free (!), and safest Latin American countries. You can forgive a lot of people for noticing present success and missing inevitable eventual failure.

15

nevelichko 11.04.04 at 3:48 am

“a good one to lose”
indeed. the grapes are increasingly sour :)

16

John Quiggin 11.04.04 at 3:52 am

But this can’t last.

Why not?

Lemuel, my argument is spelt out in the linked post.

Giles, an acceleration of EU growth would be helpful, but unlikely to be adequate unless the US also reduced consumption growth /

17

Walt Pohl 11.04.04 at 4:08 am

Nevelichko: John has been saying this for months.

18

rps 11.04.04 at 4:36 am

That’s what I said after the Republican victory in 2002. I was wrong.

There hasn’t been anybody but Republicans to blame for the mess we’re in since 2002 (at least), but that didn’t stop them from shifting the blame. Republicans have blamed the insurgency in Iraq on Michael Moore’s aid and comfort, and they’ve blamed high gas prices on John Kerry because he opposes drilling in ANWR.

As long as there is somebody on this earth who disagrees with them, the Republicans will find a way to shift the blame away from themselves, and many will believe them.

19

little big man 11.04.04 at 4:54 am

I really really don’t think the next four years will be “Bush unleashed.”

Here’s why;

The current events in the world are not created by one country, the USA. The current strata and the last twenty-five years are all about the fall of the USSR. It’s the collapse of a superpower. The equilibrium shifted.

With the influence of the USSR largely gone the independence of so many countries is created and not necessarily in a flowery fashion.

Everything changes on that one note, a powerful entity falling. The economic shifts are collosal hence the rise of China etc. War and terrorism are virtually predictable outcomes of the grab for power or “realignment of power.”

I’m simplifying because I could write a “War and Peace” novel about this but the only way a person can arrive at such a conclusion is by answering their own questions. However long that takes.

Terrorism isn’t fundamentally about religion or racism it’s about influencing the economies of other nations, that’s where the power lies. It’s the midEast variation on the powergrab. Those pricks don’t offer anything to their masses so I see terror (maybe too euphemistically?) as them “jumping the shark” or as the long beginning of the end.

So the economic and military moves of the US while disturbing are also the logical moves the nation would make under the current circum which is the realignment of power. I don’t see all of this as a Bush invention or an American invention. So I don’t see it as a wave of pointless aggression and abject greed. It has goals and limits. What other nations do is equally important.

One more thing. This business of “things getting better” is a very arbitrary, melancholoy reaction borne of idealism. Idealism is the foundation of the Left IMHO. It is also the great illusion in life IMHO.

Life is a wavering mix of positive and negative (physics). There’s no “way it should be.” That’s a weird myth that follows humanity like a shadow. When you look at history, nothing changes from a broad perspective. When you study behavior patterns, nothing changes. When you observe other animals you’ll see the same hierarchies in play. The same patterns. The same math. The same logic.

All of us may benefit from taking life as it is. You live with it (and it’s uncertainty), do what you can do for yourself and recognize some things just won’t happen. Work, effort have alot to do with how you live. Nobody can do it for you. Everything has a price or consequence or tradeoff, You have to choose your trade-off.

I live with the contradictions and the sameness. I expect to suffer and not to.

The strong are always concerned with the struggle for power. Those who don’t have power are always concerned with the struggle for fairness. Why?

(I noticed the posts on the trade deficit. Consider this virtually impossible scenario; If the US consumer stopped buying, for whatever reason, how many minutes would it be before the economies of the entire planet crashed?)

20

Link 11.04.04 at 5:51 am

by 2008, and there will be no one but Republicans to take the blame. In purely partisan terms, as I argued several times before the election, this was a good one to lose.

People are stupid. Their IQs might not be that low, but their sense of normalcy is malleable. That’s why I don’t believe in the Leninist “it gets worse before it gets better” strategy. In 2002, Americans didn’t want to start a war with Iraq. But Bush used a steady stream of terror talk to condition people into believing it was necessary. A few more terrorist attacks, and reactionary nonsense will be made status quo.

The Latin American left thought the people would rise up, too. But in the end, they became desparecidos while the silent majority stood by.

21

kerryfan 11.04.04 at 6:03 am

You forget the 22nd amendment. No matter how bad the next 4 years are, W won’t be on the ticket. So the Republicans can put up a new unaccountable figurehead for the next ride on the Ferris wheel.

22

McDuff 11.04.04 at 9:00 am

“You know, every person who hates Bush could create a little peace in their lives and say, “It’s the culture, it was really deterministic that things work out like this – and we can accept that and work within it!”

Like they did with Stalin, Castro, Ho Chi Minh, Pol Pot, and Hussein.”

Hey, absolutely. The only problem I have with that is that is was the Right who made that argument for Hussein and Pinochet, among others.

Which has, of course, nothing to do with the discussion except to point out that your attempt to nail “the left” as people who support dictators suffers from a sampling error in the data.

23

bad Jim 11.04.04 at 9:00 am

Will the U.S. Marines level Falluja tomorrow? The next day? Any predictions of the number of casualties, civilian or combatant, American or Iraqi?

Four more years. It feels like 1972, except the music was better back then, and we were young.

24

bad Jim 11.04.04 at 9:06 am

Except that in 1972 the saying went, “as goes Massachusetts, so goes the District of Columbia”. Thirty two years on we’re still fighting the culture war, and we’re getting closer to winning.

Too bad about that whole peace idea, though. You’d think that would be an easier sell than gay marriage, wouldn’t you? Or not.

25

Bernard 11.04.04 at 9:53 am

Little, idealism is all over the spectrum. The conservative right are as idealistic as the liberal left, the just have different ideals. Same goes for the neo-cons, market libertarians etc. I’d say everyone is idealistic to the degree that they place models of the way things should be over immediate personal considerations. That means, inevitably, that people get less idealistic the further they rise toward real responsibility (because when real decisions have to be made consequences have to be considered). It also means that people who have few or no guiding ideals at all tend to be very bad leaders for everyone else because personal power is their sole concern (a la Stalin, 1984 etc.).

26

Matt McIrvin 11.04.04 at 1:06 pm

“Life is a wavering mix of positive and negative (physics). There’s no “way it should be.” That’s a weird myth that follows humanity like a shadow. When you look at history, nothing changes from a broad perspective. When you study behavior patterns, nothing changes. When you observe other animals you’ll see the same hierarchies in play. The same patterns. The same math. The same logic.”

That would make sense, but it’s not completely true. 500 years ago, there was no such thing as science as we know it. Absolute monarchy was the most common form of government, slavery was an accepted social institution in most of the world, and women were chattel everywhere.

On a micro-level, you could see all the same basic patterns in human behavior that we see today; and the seeds of the change were not anything new to human nature, but something you could also see bubbling right under the surface in ancient Greece, and probably in other forgotten times as well. But something did change.

27

Matt McIrvin 11.04.04 at 1:08 pm

“Life is a wavering mix of positive and negative (physics). There’s no “way it should be.” That’s a weird myth that follows humanity like a shadow. When you look at history, nothing changes from a broad perspective. When you study behavior patterns, nothing changes. When you observe other animals you’ll see the same hierarchies in play. The same patterns. The same math. The same logic.”

That would make sense, but it’s not completely true. 500 years ago, there was no such thing as science as we know it. Absolute monarchy was the most common form of government, slavery was an accepted social institution in most of the world, and women were chattel everywhere.

On a micro-level, you could see all the same basic patterns in human behavior that we see today; and the seeds of the change were not anything new to human nature, but something you could also see bubbling right under the surface in ancient Greece, and probably in other forgotten times as well. But something did change.

28

steve duncan 11.04.04 at 1:12 pm

Bush can’t think of any failures to date. Whatever goes wrong in the next four years will be blamed on others, with the public swallowing the blame shifting whole. Gays, feminists, liberals, “obstructionist” legislators, the French, Germans, European Union, multi-lateralists, enviromentalists, accomodationists, immigrants, elites, academics, regulators, ACLU, hippies, commies, pinkos, trial lawyers, rap music, activist judges, abortionists, atheists, Hillary & Bill Clinton, the World Court, socialists, Greens, rock music, Howard Stern, Jane Fonda, Martin Sheen and Hollywood will all be responsible for everything bad that occurs. But never George Bush. George Bush doesn’t make mistakes. Just ask him. Point to an action or event in his life where he’s paid a price for error or misjudgment. Losing Osama? Going AWOL? His D.U.I driving problems? Failure after failure in various businesses in Texas? Wiping out the U.S. budget surplus? Botching Iraq? Face it, no matter how bad things get in the next four years Bush will evade all blame. Nothing in his life to date leads to any other conclusion.

29

Slippery Pete 11.04.04 at 2:02 pm

Regarding the “no one to blame but the Republicans” meme: The same could be said for this election cycle. Immense deficits, looming failure in Iraq, an increasingly authoritarian presidency, “disappearing” and tortured prisoners in Iraq and Cuba, etc. There’s nobody to blame for these failures but Republicans, but it didn’t matter because Bush is Jes Folks and half the country finds it appealing, so he won.

No, it’s NOT good that Democrats lost, in partisan terms or otherwise. It’s very, very bad. Don’t hold your breath waiting for justice and accountability at the polls in 4 years. There was none this time, and there’s no reason to think there will be any next time.

30

John Baptist 11.04.04 at 2:06 pm

A good one to lose, my ass. The long term health of the Democratic party does not interest me in the slightest. I just want my country back. You want to know why we lost: charisma. Period. No swagger. Bring back Clinton.

31

little big man 11.05.04 at 4:39 pm

“….That means, inevitably, that people get less idealistic the further they rise toward real responsibility (because when real decisions have to be made consequences have to be considered)………….because personal power is their sole concern (a la Stalin, 1984 etc.)……………….Posted by Bernard · November 4, 2004 09:53 AM”

I agree with that. To move to one part of the extreme that I logically work “backwards” from I’ll say this; All human behavior is self-motivated. Everything operates in hierarchies such as tribalism where higher ranking members dictate beliefs and lower ranking members unconciously/conciously submit. For anyone to pursue power as a sole concern is really not that much different from the pursuit of power with democratic concerns because the premise is virtually dictated by circumstance.

The US isn’t the bastion of a thriving middle class because of it’s democratic ideals. It has it’s wealth and democracy because it’s natural resources could support it. It’s power comes from that. The ability to sustain a large population and produce industry and war.

Conversely you’ll find where the resources of any nation/tribe are different or limited they’ll will move further away from the luxury of the US lifestyle. Generally speaking of course but the pattern is there. Resources equal survial, free time, power.

“………That would make sense, but it’s not completely true. 500 years ago, there was no such thing as science as we know it. “……….Posted by Matt McIrvin · November 4, 2004 01:06 PM

I believe “progress” is a myth. There’s something lost in every transaction so the gain is arbitrary. This leans toward existentialism or what Buddhists do conciously or unconciously.

For example a drug effects a disease but the drug has many effects which can create illness. These “effects” are euphemistically known as “side-effects.” There’s the cancel to everything that physics shows us. It’s an equilibrium where everything has a cancel or balance.

In medieval times bleeding was considered to remove the disease from the blood and the sufferer. We find that incorrect and primitive by today’s standards. Yet when you have blood taken in a blood test, you leave and believe that the blood will be analyzed etc. etc. In effect, under a different belief system, you’re doing a bleeding and leaving just as in medieval times. The bleeding itself is not a treatment but part of the procdure.

We still use bleeding, how progressive!

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