It /Could/ Happen Again

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Might Democrats retain control of the White House through 2032? When I ventured that possibility the other day, EP’s sagacious copy-editor observed that one party had won three consecutive terms only once in the 70 years since Harry Truman left office in 1951 – during the dozen years after Ronald Reagan was elected in 1980, reelected in 1984, and succeeded by vice president George H. W. Bush in 1988.

I’ve been thinking ever since about why it might happen again. I know, I said I planned to write for a while mostly about economic topics, but what’s more economics than this?

It is not easy to recall how unlikely a Reagan’s victory seemed in the months running up to the 1980 election. True, he had served two terms as governor of California, but he had run unsuccessfully for president twice – he’d announced at the last minute in 1968 before running again, in 1976. His right-wing instincts were so little trusted by the Republican Party’s Establishment that Henry Kissinger sought to persuade him to accept former President Gerald Ford as his running mate. He was 69 years old, an additional factor against him.

Similarly, Reagan’s policy initiatives – big tax cuts for the well-to-do, a willingness to tolerate the Federal Reserve Board’s high interest rates, deregulation for everyone, and an expensive confrontation with the Soviet Union – were thought to be dangerous and, at least by the Democrats, were expected to fail. Not much about America’s future was clear in 1980, except the widespread dissatisfaction with President Jimmy Carter. (Former Republican John Anderson was on the 1980 ballot as an Independent, too – Reagan still would have won if he weren’t, but it wouldn’t have been the landslide it turned out to be.)

Then two years into Reagan’s first term, the economy took off, inflation fell, financial markets boomed, and China entered global markets. Over the course of the decade, the Cold War ended, and the government of the Soviet Union collapsed. Vice President Bush succeeded Reagan and fought a successful war in Iraq. Bush was defeated in 1992 because of a lack-luster economy, but the next twenty-four years – the presidencies of Bill Clinton, George W. Bush, and Barack Obama – were dominated, one way or another, by the “Washington Consensus” on economic policy that had formed during the Reagan years.

What similarities does Joe Biden share with Reagan? His candidacy was unexpected, for one thing; twice before Biden had run for president and failed to come close, in 1988 and 2008. At 78, Biden was even older than Reagan when elected. Most important, after nearly fifty years in the Senate, Biden is thoroughly wed to a movement, if that turns out to be what is unfolding, that has been in the making for as long or even longer than his service to it.

What movement? If Reagan’s gospel was that government was the problem, Biden’s credo seems to be that government spending is the solution to a variety of present-day problems – a fraying social safety net, deteriorating infrastructure, diminished US competitiveness in global markets, and diminished opportunity. Gerald Seib, political columnist for the news pages of The Wall Street Journal, made a similar point to the one I’m making here the other day when he observed that not since Reagan’s presidency has a new administration opened with “a gamble as large as the one in which President Biden is now engaged” – an effort to change “not just the policies but the path of the country” with borrowed money.

Why might voters’ minds have changed in significant numbers about such fundamental matters as their enthusiasm for taxing and spending? Experience is one reason: Free markets and austerity failed to redress the problems they promised to solve. Indeed, they seem to have made them worse. Changing circumstances are others. Global warming has become manifest. A new kind of cold war, this one with China, has emerged. And the Republican Party is deeply divided.

A shift of opinion on this scaled scale would, of necessity, entail a massive realignment of financial markets. As it happens, I have been reading The Day the Markets Roared: How a 1982 Forecast Sparked a Global Bull Market (Matt Holt Books, 2021), by Henry Kaufman. Kaufman was the authoritative Salomon Brothers economist whose forecast, on August 18,1982, that interest rates would soon begin dropping ignited a stock market rally that hasn’t ended to this very day (the Dow soared a record 38.81 points to 831.24 by the end of the day). Towards the end of his book, Kaufman mourns what he sees as a system of capitalism giving way to a system of “statism,” especially as the US Treasury Department and the Federal Reserve System come under collaborative management in pursuit of White House goals. There is plenty more to be borrowed, he says — certainly enough to readjust in the future the currently skewed rates of return among stocks, bonds, and commodities. Financial markets might yet sigh

Saying how the battles of the next ten years might play out would be a foolish venture. Forecasting who might be the Democratic and Republican Party nominees in 2024 and 2028 is considerably more pointless than guessing who will meet in the Super Bowl  next year since there are far more variables involved. But there is nothing foolish about acknowledging the existence of tides of public opinion that ebb and flow. Reagan’s presidency was a “triumph of the imagination,” wrote former New York Times reporter Richard Reeves, in 2005. Might someone say the same of Biden in 2045?