The politics of recession

Via Greg Mankiw, outgoing National Bureau of Economic Research president Martin Feldstein is worried that the United States is in for a nasty recession:

The United States is in a recession that could be "substantially more severe" than recent ones, National Bureau of Economic Research President Martin Feldstein said on Friday.

"The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida...

Answering questions from the audience, Feldstein said the downturn could be the worst in the United States since World War Two.

If Feldstein is right, what are the political consequences? The last recession we had at the end of a president's term was Jimmy Carter (January-July 1980) and the result was an election that was perceived as a massive repudiation of Carter and his policies. Ronald Reagan's election -- while not a popular vote landslide -- was seen as a "mandate" election that led many Democrats to deviate from their usual voting patterns to support his early legislative program (see Mandate Politics by Grossback, Peterson, and Stimson for more).

While President Bush obviously isn't up for re-election, it's not hard to imagine that his already low approval ratings might go even lower, dragging down John McCain. The recession will also create an extremely unfavorable issue environment for McCain, who has admitted to knowing little about economics.

Under these circumstances, is a "mandate" election possible for a Democratic president? Maybe, although I suspect that the Democrats will lose a couple of percentage points from their popular vote margin due to their historically unprecedented choice of an African American or female nominee.

But this presidency still isn't some great prize for the Democrats. Even if they have a "mandate" for a few months, George W. Bush has created an almost impossible set of problems for the next president. Is there a historical precedent for a president leaving so many unsustainable policies to his successor? The exhaustion of the overstretched military will eventually require the troop surge in Iraq to come to an end. Our strategic failure in Iraq will require a humiliating and potentially bloody withdrawal. The situation is Afghanistan is deteriorating. The financial system is in near-collapse. Medicare is on an unsustainable financial course. And President Bush's backloaded tax cuts for the wealthy are scheduled to expire in 2010, setting up the next president to be accused of raising taxes.

These are the kinds of circumstances that make one-term presidents. The Democrats may be excited about their prospects in 2008, but things will get a whole lot harder for whoever wins on Inauguration Day.

Comments

[Rob]

Brendan's recitation of Democratic talking points is, if nothing else, faithful. However, one particularly hyperbolic statement demands comment: "The financial system is in near-collapse."

Hardly. The U.S. financial system is very large, diverse and resilient. The stock market may have its ups and downs (When asked what the stock market would do, J.P. Morgan replied, "It will fluctuate."), the subprime mortgage market may largely disappear, the shareholders of Bear Stearns may lose most of their investment, a recession may hurt many companies' sales and earnings and force many restructurings, but the financial system as a whole remains very solid. "In near collapse"? Preposterous.