Economics used to be about the facts.
Sure, we’ve long known that partisanship influences how people think about the economy.
For instance, Democrats tend to view the economy more positively when a Democrat is in the White House. Republicans do the same thing.
But as political polarization grows more extreme in the U.S., there are indications that Americans of different parties—both in the electorate and political office—are looking at the same facts and seeing profoundly different realities.
Case in point; After Donald Trump’s electoral college victory made him America’s President-elect, economic optimism soared among Republicans. The share of Republican respondents expecting the economy to be better in 2017 shot up to 75 percent in the wake of the election, after being measured at 29 percent in June. Democrats optimism about the economy over the next year sank from 35 percent to 15 percent.
“Polarization makes it harder to have more consensus on what the state of the economy is,” said David Samuels, a political science professor at the University of Minnesota.
By traditional measures, the U.S. economy is in fairly decent condition as President Barack Obama prepares to leave office in January. After peaking in October 2009 at 10 percent, the unemployment rate declined to 4.6 percent in November, the most recent month for which we have data. Job growth has been incredibly steady, with the U.S. generating new jobs for 74-consecutive months, the longest on record. Inflation remains low. Corporate profits are high. And there are even some signs that wage growth is starting to pick up too.
That’s not to say that U.S. is a realm of fairness and economic prosperity for all. It isn’t.
The Great Recession was one of the deepest in recent memory and did severe damage to millions of Americans. Recent increases in wage growth, have done little to reverse decades of growth inequality. And certain sectors of the economy, like the energy industry, have been hammered by extreme swings in the prices of commodities like crude oil in recent years. Labor force participation rates are at decades-long lows, as the workforce ages and some are permanently left behind.
Of course that’s nothing new. America’s economy always has winners and losers. And isolated pockets of the country can be doing quite well—see Silicon Valley during the Great Recession—even amid a broad downturn, and vice-versa.
But what is new is how starkly different Americans view the economy, based on their political preferences.
“There is good evidence that partisanship has become a stronger influence on how the public evaluates both the economy and the president. So people’s perceptions are now arguably more immune from actual economic trends,” said John Sides, a professor of political science at George Washington University. “Instead, people will say the economy is doing well or poorly — and credit or blame the president accordingly — simply based on whether their party controls the White House.”
Watch a VICE special report on bipartisanship, “A House Divided,” Friday, Dec. 9, at 10 p.m.
It wasn’t always this way. In the decades after World War II, under both Democrats and Republicans, a series of grey-suited, nondescript officials steered the economy according to the guidelines set out by John Maynard Keynes, who argued, among other things, that the role of government was to moderate economic downturns with deficit spending.
The Keynesian Consensus was as good as its name, with figures who were seen as extremely conservative subscribing to essentially same philosophy of economic policy-making as liberals. By 1971, even Republican President Richard Nixon was declaring publicly, “I am now a Keynesian in economics.”
That consensus began to breakdown in the 1970s, as rampant inflation and weak growth eroded confidence in the experts who were supposed to be running the economy. That set the stage for the Reagan-era focus on tax-cutting and deregulation and a much smaller role for government in the economy.
But even Reagan was willing to moderate his views with an eye toward conventional economic policies. While he cut taxes deeply early in his administration, he later raised them when budget deficits great too large, for example.
But if recent history is any guide, we may be about to embark on an erratic and volatile period for economic policy-making.
For instance, as the U.S. was wobbling out of the worst of the Great Recession in 2011, the recovery remained deeply fragile. The Federal Reserve was trying to prop up the economy with low interest rates. But after the shock of the financial crisis and recession, government spending remained an important economic crutch.
Even so, the Republican-controlled Congress threatened not to raise the U.S. debt ceiling, as it sought to negotiate increased austerity from the Federal government. Effectively, that amounted to a threat to default on payments to U.S. creditors. (While spending is controlled by Congress in the budgetary process, raising the debt ceiling allows the government to borrow the money in financial markets needed to roll over government obligations.)
A deal was ultimately struck. But not before choking off needed fiscal spending in the aftermath of the recession, spooking financial markets, denting consumer confidence and prompting Standard & Poor’s to strip the U.S. of its triple-A credit rating. Among other things, S&P cited its view that “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened.”
Other “safe spaces” for economic technocrats are also increasingly coming under attack. During the financial crisis, Federal Reserve Chairman Ben Bernanke—appointed as a Republican under President George W. Bush—saw his efforts to support the economy attacked as “treasonous” by GOP Presidential hopeful Rick Perry in 2012. Efforts to “audit the Fed” also moved from the right wing fringes to the Republican mainstream. More recently, as a candidate, Donald Trump accused current Fed chair Janet Yellen of trying to help President Obama by keeping interest rates low. “She’s obviously political and doing what Obama wants her to do,” Trump said.
There’s also a rational argument to be made that Republicans in Congress haven’t been trying to help the economy at all under President Obama. It was in 2010, as the economy was still incredibly weak, that soon-to-be Republican Senate Majority Leader Mitch McConnell said, “The single most important thing we want to achieve is for President Obama to be a one-term president.”
If that, rather than improving the economy, was his top priority, there would be little incentive to support economic growth, given that the weak economy would be viewed as Obama’s responsibility rather than that of the Republican Congress.
The best evidence on how much of the Republican tactics in recent years was based on actual belief in how the economy works, or just partisan obstruction, will be how the Republican-controlled Congress behaves with a Trump administration in the White House. Will a Republican Congress make a stink over raising the debt ceiling? Will it insist on smaller deficits?
“Is it ideology? Are they truly opposed to increasing debt? Or is it just pure party?” said John Kane, a doctoral candidate in political science at Stony Brook University who has written about political accountability for the economy. “We’ll find out soon enough.”