How to evaluate the Democrats’ midterm defeat? It is a bad result at the upper range of expectations. It marks the almost complete collapse of the southern Congressional Democrats outside of African-American and some Hispanic districts. There will be few Democrats left representing districts that voted for McCain in 2008, noteworthy also were the comfortable Republican victories in swing states such as Missouri and Iowa. In the Senate the Republicans were hampered by their candidates Delaware was the most notable example but Nevada was another and also I suspect California where Carly Fiorina ran too far to the right. Nor was the result simply a tale of unhappy white guys, the Democratic victory in West Virginia showed that this could be overcome. The Democrats were very lucky to hold the Senate. Come 20102 there will 21 Democratic Senators up for election and only 10 Republicans, many of the 21 Democrats would be in very serious trouble on the results from yesterday. Was it just the economy? Mostly but with some qualifications. The administration’s ostentatious centrism on cultural issues demobilized some voters, but economic libertarianism did strike a chord with many voters. Initiatives such as health reform, the stimulus and TARP (which the Republicans distanced themselves from despite having voted for it under Bush) were seen by many voters as examples of government extravagance. A major driver of opposition to health reform is concern about its perceived cost. Was there a way of supporting the financial system that would not have been as unpopular as TARP and which would have more effectively increased lending? An Australian commentator notes:
the US banking system remains badly broken. In particular, the role of bank credit creation in monetary policy is still not working. Despite the funds pumped into banks by the Fed, bank credit is still shrinking. In the June Quarter total bank credit fell from $9.53 trillion to $9.38 trillion. US banks still have $970 billion in their accounts at the Fed — up from $20 billion before the collapse of Lehman Brothers, but they won’t lend it out to firms and households. No wonder Bernanke is preparing the ground for another $1 trillion of quantitative easing. Bank lending to US small business that is not backed by property (non-mortgage lending) has fallen 28% since the end of 2008. Bank lending to large firms has also fallen substantially in the GFC, but they have more than made up for it with extra borrowing in the corporate bond market. It is small businesses in the US that are experiencing a rapidly shrinking supply of bank credit. The picture is no better for lending by finance companies which has fallen 12% since late 2008 and continues to fall quarter by quarter.
Matt Yglesias provides a counter of sorts:
the much-loathed core of TARP—the injection of government funds into insolvent banks—is going to earn a substantial profit. Losses will be attributable to efforts to use money to save the auto companies and to assist homeowners. Main TARP—the bank bailout—isn’t going to cost you anything. For a program that’s attracted such widespread derision, that’s pretty remarkable. Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever? What other programs can you name that garned support from Nancy Pelosi and George W Bush, helped people millions of people, and had a negative cost to the government? And yet people think it’s horrible, in part because the public sphere has utterly failed to defend it.
I see parallels between American politics now and Australian politics in the 1990s, after Labor’s severe 1996 defeat many voters were disappointed with the Howard government and either swung back to Labor or supported the populist right. I suspect that the sniff of victory, and the lessons of the Senate result, will encourage Republican elites to mobilize against Sarah Palin. Yet this will hardly be a victory for ‘moderation’ the Republicans will continue their march to the right, if anything a battle against Sarah Palin could be very useful to Mitt Romney, Tim Thune or Tim Pawlenty (or another white guy) it would signal (largely falsely) to swing voters their ‘moderate’ credentials. Economic themes are front and centre in the repubclian appeal because they strike a chord with voters but social conservatism remains a crucial pillar of the conservative cause. Undoubtedly some Republicans do want to shrink government to 19th century levels, but imperial ambition and the popularity of entitlement programs mean this will never happen. To simplify crudely the economic libertarians will get continued low taxation, the social conservatives will get nativism and homophobia and the neo-conservatives will get imperial aspiration. There are tensions within the conservative movement, however these are wildly overestimated by liberals, but they are united by a distaste for liberalism. The end result will be a fiscal crisis resolved by extremely regressive tax increases. Still despite everything the US has uniquely productive economy. A lesson for the left? Many American liberals tended to assume that their existed a natural left-wing majority on economic issues that would emerge only if cultural politics could be cleared out of the way. The experience of the Obama administration counts against this.