THE PERILS OF PANIC

Panic is a bad thing.

Personally or professionally.

Individually and socially.

The consequences can be tragic.  

Before Keynes ushered in the era of modern economic thinking, economic panics were recurrent.  The Great Depression of 1929, itself a species of panic, was not all that unique.  In the preceding century, there had been at least three of them.  The Panic of 1837 was the then young United States' first major economic catastrophe; the Panic of 1893 its second; and  the financial Panic of 1907 its third.  

In the first two, collapsing bubbles (in, respectively,  real estate and railroads) combined with tight money (in favor of gold and absent regulation from any central bank) led to bank runs, which imploding demand turbo-charged.  As prices collapsed and unemployment surged, a perfect storm ensued.  The customers had no jobs and the producers had no customers.  In the third, the financial Panic of 1907,  a misguided scheme to corner the market in US Copper stock led to the collapse of its share price, the insolvency of banks and trust companies with large collateral positions in that stock,  and a cascading run on banks and trust companies. As the contagion spread, J.P. Morgan and a consortium of his fellow travelers came to the rescue,  pumping liquidity into the system via loans that prevented additional insolvencies.

There was no J.P. Morgan in 1929 when the Great Depression hit.  And though a fellow product of the Gilded Age, Andrew Mellon, was serving as Secretary of the Treasury, his  advice to then President Herbert Hoover was decidedly different from Morgan's two decades earlier.  "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate," he told President Hoover,  "Purge the rottenness out of the system."  

Mellon's advice was not remotely correct.  

In fact, it was its own form of panic. 

Of the intellectual kind.

Workers and farmers were not the problem or the inherently  rotten part of the system. That role, it turned out,  was being played by the speculators who had bought and sold  stock on (enormous) margin, creating a market bubble not remotely linked to actual value that burst on Black Tuesday, and the do-nothing governments -- ours included -- who refused to inject liquidity into the system thereafter as wages, prices and production cratered and  a quarter of the population could not find work.

"Dangerous nonsense" is what Milton Friedman called it.

Today, thanks to Joe Biden and the Democrats, we are not in the throes of economic panic (more about that later).  We are, however,  plagued by a different form of panic.

Of the political sort.

Political panic ensues when a system continually produces sclerotic government unable to confront, solve or even mitigate obvious problems.  

And it takes different forms in our two political parties. 

For Republicans, political panic takes the form of backlash.  Because the party at its core does not believe government can really solve problems (indeed, and to the contrary,  it believes government often makes problems worse), it blames the continuing presence of those problems on amorphous groups of others.  Whoever those others may be -- welfare recipients, immigrants, political opponents,  or foreigners --  they are defined as the source of those problems.  

Hence, they become . . .

Freeloaders (welfare recipients), illegals (immigrants), socialists (Democrats) or users taking us for suckers (most UN member states). 

Over time, the political consequence of this approach  makes someone like Donald Trump inevitable. 

Since 1980, the GOP has supported two policies, tax cuts and conservative judges.  Otherwise, it has been the party of "No".  No infrastructure spending, no universal health care, no Medicaid or Medicare expansion, no spending on child care, nothing to combat climate change, and little to no environmental enforcement. And because their two policies have not materially improved things for the middle and lower economic classes, who have either been running in place or falling behind for the last forty years, they have to justify this otherwise oppositional approach.  They do that by embracing the politics of backlash.  

Initially, this backlash was clothed in rhetorical or pictorial sleights of hand -- Reagan's 1980 general election campaign kick-off in Philadelphia, Mississippi; Bush I's Willie Horton ad; Romney's (supposedly) confidential talk about 47% of us as takers.  Sometimes the backlash became too much and the candidate actually stopped it -- McCain pulling the mic from a supporter calling Obama "an Arab" in 2008.  But sooner or later, if  what you espouse is that nothing government does will work, and what you do espouse clearly has not worked, the  vacuum left over can only be filled by the politics of anger, resentment and grievance. 

Which Donald Trump raised to an art form.

And was willing on January 6 to embrace all the way  to an insurrectionist  coup.

For Democrats, political panic takes a different form.  

It takes the form of doubt.  

For my entire life, the Democratic Party has been arguing with itself.  In the '60s, it argued with itself about civil rights and Vietnam.  In the '70s  and '80s, it argued with itself over whether it would be the party of old labor (Walter Mondale) or new ideas (Gary Hart).  In the '90s, members of its Democratic Leadership Council (DLC) like Bill Clinton trimmed the sails of liberals and centrists like New York's Pat Moynihan sidelined Hillarycare, the liberal side of President Bill's "two for the price of one" electoral promise.  In the aughts, the moderates didn't think America could elect a black man as President. Or pass Obamacare in 2010 after Ted Kennedy died and his Republican successor made the filibuster real.  

They were wrong . . .

Twice.

But today the Democrats are still arguing . . .

With themselves.

This time, it's the moderates versus the The Squad,  Joe Manchin versus Biden's Build Back Better, or, as some think . . .

Biden (as President) versus Himself (as the 2020 Presidential candidate).

This past Tuesday, the Democratic nominee for Governor in Virginia narrowly lost and the Democratic nominee for Governor in New Jersey narrowly won.  Those results upended two pieces of conventional wisdom and led to the immediate birth of a third.  The two conventions were that Virginia  was a blue state where suburban women and college graduates have elected nothing but Democrats to statewide office since 2014,  and that New Jersey was super-blue, Biden having pasted Trump by eighteen points in 2020.  The third is that Democrats are now in big trouble and had better jettison Build Back Better (BBB), pass the bi-partisan infrastructure bill and hunker down for the mid-terms (which they will probably lose).

I think much of that conventional wisdom is wrong.

Not all of it.

But a lot of it. 

And here's why.

First, the underlying notion here is that the Biden presidency is a failure and that is not remotely true. When Biden was sworn in on January 20 the unemployment rate was 6.6%. Today it is 4.6%.  When it scored the administration's $1.9 trillion American Rescue Plan, which passed without a single Republican vote in either the House or the Senate, the non-partisan Congressional Budget Office (CBO) said we would not hit 4.6% until 2023.  Biden and the Democrats beat that forecast by a substantial margin.  In October, the Biden economy created 531,000 new jobs and the figures for August and September were revised to show an additional 235,000 jobs in those months.  In Biden's first nine months, 5.6 miilion new jobs have been created, more than any created during that period in the last three Republican administrations.

Second, though political prognosticators typically read a lot into the results in Virginia and New Jersey in the year before the mid-terms, the tea leaves this year are not as clear as they have been in the past. In 2009, the last time a Democrat was in the White House, Republicans won the gubernatorial races in both those states.  And by comfortable margins.  In New Jersey,  the incumbent Democrat, Jon Corzine, got only 44.9% of the vote.  54.3% of the voters went with either Republican Chris Christie (48.5%) or the independent  Chris Daggett (who for his entire life 'til then had been a Republican  and who won 5.8% of the vote).  And in Virginia, the Republican won in a landslide -- 58.6% to 41.3%. In Virginia, the  Republicans also controlled that state's House of Delegates until 2018 and they controlled the state Senate until 2019. 

The notion of Democratic inevitability in either state  is thus a canard.  

The accurate and more relevant claim, however, is that the results in both races counsel message discipline for the Democrats going forward.

In Virginia, though the Democratic nominee, former Governor Terry McAuliffe, was a centrist, he put his foot in his mouth when he said parents shouldn't be telling schools what to teach their children.  Parents are critical in the education of their children and of course can and should have input into  curriculum.  The real problem is that they should not be lied to about what is being taught or how it is being taught 

Governor-elect Youngkin's  education pitch was that Virginia's kids are in effect being taught to race hate and that teachers are being indoctrinated with some sort of anti-Enlightenment version of Critical Race Theory (CRT). 

Neither claim was true. 

I have read the same sources Andrew Sullivan and other CRT opponents have cited in claiming the contrary and they are wrong.  

These are the facts: 

In the wake of the killing of George Floyd last year and other similar tragedies, educators in Virginia were alerted to some CRT literature as one among many resources they might consult in an effort to teach about the issue of race in America.  Those teachers were not told to ignore or otherwise de-emphasize the Enlightenment or engender guilt in white kids on account of their race.  Nor did the state Department of Education or its school districts endorse CRT. Those claims are myths.  In fact, of the documents Sullivan and other opponents of CRT  cite, the one  from the Loudon County Schools expressly states that Loudon County "has not adopted CRT".  And the other -- cited for the proposition that Virginia's Department of Education (DOE) "embraced CRT in 2015" -- did in fact endorse CRT.  But that document was from an outside consultant, not the Virginia DOE,  and the CRT it endorsed in at least one place was  the acronym for "Culturally Responsive Teaching", not "Critical Race Theory".

Andrew et al. need to read what they cite.

Before citing it.

As for New Jersey, it provides even less support for panic.  The Democratic Governor, Phil Murphy, was re-elected.  He is the first Democratic governor reelected in that state since 1977.  As noted, the state had a Republican Governor, Chris Christie, from 2010 to 2018.  Though the GOP has not controlled the legislature for twenty years, Republicans are not an endangered species there.  The gubernatorial race was closer than expected and that too counsels message discipline.  Murphy's foot in mouth during the campaign was as bad as McAuliffe's.  Murphy said "If taxes are your issue, then New Jersey's probably not your state." Now, in context, he was pointing out all the good reasons people might come to New Jersey -- good schools, pleasant towns, a clean environment, a good transportation system, etc. -- and saying that, if you're a one issue voter who does not care about all of  that but does care about taxes only, then you'll probably go elsewhere.

But c'mon Phil.

This wasn't your first rodeo.

Of course the opposition will snip that comment from its context and air it a million times in a negative commercial.

So . . .

Please be smarter than that.

(Meanwhile, as the commentariat waxed eloquent on the (overwrought) meaning of New Jersey and Virginia, two other factoids from those states underscored the form  political panic takes among Republicans .  One was Donald Jr. calling Murphy's New Jersey win "a blatant crime being committed". In contrast, Terry McAuliffe congratulated his opponent and delivered a gracious concession in Virginia.)

Third, the notions that Build Back Better is some radical socialist construct or that Biden himself opposed it as a candidate in 2020 are also false.  

As Greg Sargent pointed out in yesterday's Washington Post, the Biden campaign in 2020  ran "TV ad after TV ad after TV ad and [delivered] speech after speech after speech [making] a core promise: Higher taxes on the rich and corporations to fund large investments in climate, job creation, health care, education, infrastructure and even the care economy."  I don't know whether Biden ran to be the next Franklin Roosevelt, or whether the voters do not want him to be.  But I do know that  he did not run to be another Republican . . . 

Or another centrist who refuses to deal with long term problems because of electoral risk and just kicks them down the road. 

The bi-partisan $1 trillion infrastructure bill that passed after liberals allowed the House to vote on it last night is major progress and  will help fund maintenance and improvements in hard infrastructure -- roads and bridges, airports, tunnels,  rural broad band, the electric grid and coastal improvements to deal with the consequences (but not the causes) of climate change.  It will do nothing to combat inequality, promote pay equity or improve health care. For that, we need Build Back Better. Even a small version of it will be  better than nothing.

The moderate Democrats in Congress want infrastructure without BBB because they think BBB will hurt them next fall.  Though they have succeeded in paring down BBB to under $2 trillion, and though five of them last night agreed to vote for BBB conditioned on how the CBO scores it so that liberals would allow an immediate vote on the bi-partisan bill, the moderates are channeling their inner Republican by worrying about the effects of BBB on the deficit and inflation.  That worry is silly.  The $1.7 trillion or so in the latest version of BBB will be spent over ten years.  During that time, given projected GDP of approximately $250 trillion, the expenditure will be a mere bagatelle and not remotely inflationary. In fact, by increasing productivity, especially among families who will be helped with child care, paid family leave and free community college, it will improve productivity and therefore reduce inflation.

If the Democrats lose in 2022, it will be on account of re-districting, voter suppression and cultural issues, not BBB.  Of those three problems, they can only solve two of them, the first by jettisoning the filibuster and passing a Voting Rights Bill to eliminate state suppression efforts, the second by more nuanced messaging that talks about race but pivots to economic class and doesn't demean parents or taxpayers.  If the pandemic ends, mask and vaccine mandates will be rewarded. And in any case, since you cannot end the pandemic without them, a responsible government really has no choice.

When the infrastructure bill was finally voted on late last night, President Biden correctly called it "monumental".  To get there, the vote had to remain open for fifteen hours as leaders cobbled together the deal that allowed the vote to go forward and Biden then worked the phones to sell it, convincing moderates to vote on BBB once the CBO scores it later this month and liberals to trust a written pledge that such a vote will actually occur.  At the end of all this torture, Nancy Pelosi said "Welcome to my world -- this is the Democratic Party.  We are not a lock-step party."

No kidding.

Hers -- and mine --  is the party of doubt.

It's our form of panic.

But it beats the other side's.