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State of the Race, Part 3: Winning by Losing

By Sean Trende - September 21, 2012

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Now consider that the average post-war business cycle lasts about six years from trough to trough. We hit our last trough in mid-2009, which means we should be due for another recession in the next few years.

We could easily begin to contract before we have fully recovered from the last recession. There are already signs that slowdowns in Europe and China are spilling over to our shores. This is probably too late to affect Obama’s re-election chances, but if it turns into a full-blown recession, it would greatly impact 2014 (when 11 Democrats are facing re-election in states that went for George W. Bush).

Let’s also not forget that the European Union has basically kicked the “Greek can” down the road for over a year now. Perhaps it will find a permanent solution to that problem. But you also have to weigh the possibility that the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) go under, setting off a worldwide depression.

Presiding over this would be catastrophic for either party. The percentage of people who blame Obama for the state of the economy has been steadily increasing throughout his term; he, and by extension, the Democrats, are likely to take full ownership in the second term.

As for a President Romney, he would be the second Republican in a row to preside over a stagnant or collapsing economy. Either way, the likely result would be a depressed base, an energized opposition, furious independents, and blowouts in 2014 and possibly 2016.

Now partisans on both sides are probably already warming up their keyboards to e-mail me that their side has a plan. Democrats will say that Obama will push more stimulus, which they believe will work. Republicans will say that Romney will push supply-side tax cuts, which they believe will work. Perhaps.

The fact that extremely smart people offer up diametrically opposed solutions to these problems with 100 percent certitude erodes my confidence that we really know what to do. There's a reasonable chance that we are modern analogues to Theodoric of York, Medieval Barber (start at about the two-minute mark if you don't get the reference), and that policymakers 80 years from now will look at us with the same mix of sadness and disdain that we apply to the policymakers of the late 1920s, who were absolutely confident they were taking the proper steps to do what was best for the economy.

This is a financial collapse, and financial collapses usually take a decade to work through, meaning we’re probably about halfway through this. I’m basically skeptical either party will be able to alter these numbers all that much. Governing during this time will generally be electorally catastrophic. 

2. Debt. The current CBO projection assumes that we will add $3 trillion in debt over the next decade. But the reality is actually much, much worse than that. This assumes that we go off the famous “fiscal cliff” in December and allow all of the Bush tax cuts to expire, allow the full force of the alternative minimum tax to kick in, allow all of the spending cuts agreed to earlier this Congress to kick in, and greatly slash money paid to Medicare providers. Needless to say, if people see their taxes raised, their doctors stop accepting them for care, and we go into a recession, none of this will be popular.

If we assume Congress won’t allow this to occur, then we are looking at the CBO’s “alternate scenario.” It involves an additional $11 trillion in debt over the next few decades.

Remember too that CBO assumes a few years of strong growth, and that we settle down to 2.5 percent growth. Its baseline scenario presently assumes that 16 of the next 40 quarters will involve growth stronger than we’ve had in all but four of the previous 40 quarters. It always predicts a bounce that never seems to come; in 2010, CBO projected we would enjoy 4.4 percent growth in 2012 and 2013, and that our deficit in 2012 would be only $650 billion.

So if we miss CBO’s targets under either the baseline or alternative scenario, we could be looking at debt levels several trillion dollars higher than even those grim scenarios. And if we get stagflation, and interest rates rise, payments to service the debt will likewise rise.

Neither the Ryan plan nor the Obama plan would be sufficient for even an average scenario here. Obama cuts $4 trillion over 12 years (about $3 trillion over 10), and uses the OMB baseline, which assumes even more robust economic growth than CBO. There are other gimmicks involved. The Ryan plan assumes incredibly robust supply-side effects from his tax cuts. Even under these rather Pollyanna-ish assumptions, both simply get the deficit under control rather than eliminate it. Again, using “new normal” assumptions, they fail even at this.

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Sean Trende is senior elections analyst for RealClearPolitics. He is a co-author of the 2014 Almanac of American Politics and author of The Lost Majority. He can be reached at strende@realclearpolitics.com. Follow him on Twitter @SeanTrende.

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