Preparing for Economic Sabotage

Since Michael Gerson called out my post on preparing for the possibility of deliberate economic sabotage for criticism in the Washington Post the other day, I thought I might revise and extend my remarks.

Here’s the point, without loaded language. If the economy does well in the short-term, that helps Barack Obama’s re-election prospects. If the economy does badly in the short-term, that hurts Barack Obama’s re-election prospects. John Boehner, Mitch McConnell, and other members of congress presumably have a sincerely held view that Barack Obama’s re-election would be bad for the United States of America. Therefore, insofar as congressional Republicans understand that Obama’s re-election prospects depend heavily on the short-term performance of the economy they have reason to hope—for the good of the country—that the economy does poorly. This is something any prudent president is going to have to keep in mind when he enters into negotiations over legislation that’s likely to have a substantial impact on the short-term performance of the economy.

This is a structural feature of the American political system. Normally it’s muted by the fact that responsibility for short-term macroeconomic stabilization is overwhelmingly delegated to the Federal Reserve’s Open Market Committee; but starting in late 2008 and continuing to this day the Fed has decided that discretionary fiscal policy has an important role to play. What’s more, historically America’s political parties haven’t been particularly disciplined or ideologically sorted which has complicated the incentive structure. Today’s polarized parties, however, create some odd incentives even if you assume everyone is operating all the time in perfect good faith to try to advance the national interest.