How does the US President manipulate the economy to win the election?
From the perspective of the history of the United States, the United States economy has a clear political and economic cycle, especially the presidential election cycle, and economic trends are crucial for re-election.
In 1980, President Carter failed to be re-elected due to the bad economic situation, and Reagan successfully entered the White House under the banner of tax reduction. Since then, he has been re-elected with economic reforms.
The successor, President Bush, experienced the Gulf War and enjoys great popularity, but he is not good at economics. For this reason, he also criticized Fed Chairman Greenspan for making the economy worse.
In 1992, during the re-election election, contender Clinton told Bush that "the stupid, the fundamental problem is the economy", harvested a lot of votes, eventually defeated the latter and became the new owner of the White House.
Since then, Clinton focused on economic reforms, reduced the government deficit, soared support, and easily re-elected. Clinton created eight years of long-term economic prosperity in the United States and laid the foundation for his successor, Bush.
Bush Bush expands the government's fiscal deficit to launch the Iraq war, the Afghanistan war, and global counter-terrorism; Fed Chairman Greenspan expands the currency to reduce interest rates and stimulate economic growth.
Bush Jr. is about to expire, the United States has a financial crisis. In 2008, Obama took the stage with the slogan of "change" and became the first African-American president in American history.
Obama implemented medical reform and financial supervision, but with little effect and a rapid expansion of the fiscal deficit. The real support for Obama's successful re-election was by Federal Reserve Chairman Ben Bernanke. His rescue policy has prevented the United States from falling into the Great Depression in this crisis.
Although the Great Depression was avoided, Obama, who has worked for eight years, did not achieve economic success. In 2016, intolerable American voters abandoned the establishment representative Hillary in the election and helped Trump counterattack.
Trump, a businessman, is good at economics. He has repeatedly emphasized "making the United States stronger." Three years later, Trump announced his re-election campaign, and the US economic ledger became a key ballot in the general election.
As three years ago, Trump showed the economic card again, at this time he seems more confident. Trump declared to the outside: "Our performance is probably the best of all first-term presidents. I think,I do more than any first president ever. "
Jin Ruiqi, former Republican Speaker of the House of Representatives, said: "If the economy remains strong, he is likely to be re-elected."
Three years of Trump ’s administration, the strong recovery of the US economy has bid farewell to the shadow of the economic crisis. Today, the US economy is growing at more than 3%, investment growth is strong, close to full employment, and inflation is controlled within 2%. In the Western worldAgainst the background of overall low growth, the U.S. economy is thriving, helping Trump re-election.
However, U.S. stocks are at the top of the financial cycle, U.S.-China trade is at a critical point, U.S. economic growth is declining, future uncertainties are increasing, and Trump's re-election situation is not clear enough.
Based on historical experience, the U.S. economy is showing an obvious general election cycle. As the election approaches, the president will certainly try to create a more favorable economic environment and create short-term economic prosperity. I hope that the Federal Reserve will lower interest rates, support rising stocks, increase employment, and control inflation.To support re-election.
So, every time the re-election is approaching, the Fed will be under pressure from the White House, just as Powell is now.
In February 2019, Trump said: "If the Democratic election wins, the stock market will fall by 10,000 points." In June, he told 61 million Twitter followers: "If you can't be re-elected, the stock market will have an epic crash.. "
Why did Trump link stocks with re-election and still show threats?
There are many iron laws in the US election, especially the re-election election. One of them is the law of stocks. The economy affects the election results, and stocks are a barometer of the economic situation. Stock trends are strongly related to the re-election of the president.
Twelve elections in American history, eleven times the stock market rose more than 20%. In this case, all presidents seeking re-election were successful.
This time Trump's turn.
Now that the US stock market has experienced a bull market for about a decade, it is at the top of a historical cycle. The stock price bubble is booming, and the risk of a technical correction in the stock market is increasing.
Except for God ’s blessing, what Trump can expect is to let the Fed stop raising interest rates. After Trump took office, the Fed just entered the cycle of rate hikes, and raised interest rates four times in 2018. At the fourth rate hike, U.S. stocksA flash of "waist", and financial markets were in a tumultuous moment. This annoyed Trump very much.
Trump has repeatedly bombarded the Federal Reserve “interest rate hikes too fast” and “federal interest rates are too high.” In 2019, some central banks around the world gradually opened the door to rate cuts.
Actually, the U.S. President will use various means to create a good economic environment during his term of office, improve the chances of re-election, or help his party candidate run.
This created the political cycle of the US economy, typically the presidential election cycle.
Political economic cycle, first proposed 1943 by Finnish economist Kaleski . Kaleski believes that a partisan government is likely to use political means to intentionally create a recession, thereby reducing workers' bargaining.Ability.
In 1947, economist Ackerman pointed out that the presidential election cycle affects economic policies and economic cycles, and improves the theory of political business cycles.
In the 1960s, the public choice school represented by Buchanan believed that the analysis of political behavior and the analysis of economic behavior should be the same. Politicians also act for their political purposes, and the president's goal is to maximize his re-election.
In order to ensure election, politicians will manipulate macroeconomic policies to affect macroeconomics and obtain short-term benefits for voters, thereby forming a certain economic cycle. This is essentially a behavior of buying voters. Therefore, government behavior should be considered asEndogenous variables in the economic system.
U.S. Political economic cycles are generally divided into two types :
One is partisan political economic cycle.
The two parties in the United States compete with each other, and the two parties have always had different governing ideas and economic policies.
The Democratic Party emphasizes government intervention economically, levies taxes on the rich, and advocates providing public welfare such as education, medical care, employment security, and preference for culture and technology industries. It is called "liberalism."
The Republican Party advocates small government and liberalism economically, advocates deregulation and tax cuts, and prefers the industry and energy industry. It is called "conservatism."
Different governance ideas and economic policies of the two parties have a huge impact on the size of the deficit, monetary policy, public goods, social welfare and large enterprises.
Since 1857, the U.S. political cycle Federal Government and Congress experienced Republican dominance from 1857-1932, Democratic domination from 1933-1952, Transition period from 1953 to 1968, Republican domination from 1969 to 1992, and 1993 to 2016Democratic-led transformation .
The two parties are in power, causing the US economy to show obvious "partisan traces" and a political cycle.
Democrats often increase taxes on the rich when they are in power, and provide large-scale social benefits. The deficit is generally low and then high, and loose monetary policy support is not necessarily needed. For example, Franklin Roosevelt, Kennedy, Johnson, and Obama are all Democrats.People, they have implemented government interventions, greatly improved social welfare, and promulgated laws and regulations related to social security.
Republicans like tax cuts and deregulations when they are in power. They are more tolerant of large companies, collect less taxes, and increase the size of their deficits. Generally, they need to issue government bonds and loose monetary policy. Reagan, Bush Jr., and TrumpBoth are Republicans, and they have implemented massive tax cuts and relaxed market controls. They have both created huge fiscal deficits and are heavily dependent on large-scale government bonds and the Federal Reserve ’s liquidity.
During the Democratic Obama administration, the United States increased financial supervision, increased social welfare, and increased its fiscal deficit.
After Trump took control, in accordance with the Republican Party ’s consistent governing philosophy, implemented large-scale tax cuts, relaxed market controls, and revised the Dodd-Frank Act signed by Obama.
The second is the political economic cycle of the general election.
Every election, especially during re-election campaigns, the president uses economic policy to intervene in economic trends and submit a beautiful economic transcript to voters to increase re-election opportunities.
Specific practices include: intervention in the Federal Reserve policy, implementation of loose monetary policy, stimulation of employment growth and economic growth; implementation of tax reduction measures to improve social welfare.
In 1975, the economist Nordhaus received the 2018 Nobel Prize in Economics for his contribution to climate economics proposed an opportunistic political economic cycle.
Nordhaus pointed out that before the election, opportunist decision makers mainly the president and policy makers would reduce the unemployment rate by stimulating the economy, and the inflation costs caused by this policy may not appear in the future.A temporary low inflation and low unemployment economy is conducive to the support of voters.
One of the typical cases is the intervention of the Federal Reserve in the 1970s when Nixon sought re-election .
Nixon came to power in 1968, and two years later he appointed his political ally, Burns, as chairman of the Federal Reserve, who was once Nixon's economic adviser.
In 1972, Nixon sought re-election. Before the election, Nixon put pressure on Burns, hoping that the Fed would increase employment by cutting interest rates and stimulate economic growth.
A recording from the Office of the President of the United States shows that on October 10, 1971, President Nixon met with Burns, and Nixon expressed to the latter concerns about the loss of reelection campaign, claiming that the "liquidity problem" was simply nonsense "just bullshit".
Burns felt pressure at the time. He believed that the current monetary policy did cause "excessive liquidity" in banks. But Nixon believes that the current money supply is not growing fast enough.
A month later, on November 10, Burns called Nixon to tell the President that the Federal Reserve has reduced the discount rate to 4.5%. Burns emphasized that the Federal Reserve ’s monetary policy will “continue to support economic expansion” and agree with NixonProposition that it is necessary to stimulate economic growth before the general election.
In the following three months, two recordings showed that Burns agreed to Nixon's request to increase the money supply growth rate, but Nixon expressed dissatisfaction with the money growth rate and instructed his subordinates to urge Burns.
The recording on February 14, 1972 showed that Nixon expressed to Berns that he was concerned about the delay in the implementation of monetary policy. He believed that the election was approaching and the money supply should be increased quickly. Nixon also informed Burns that after April 1972Berns is free to pursue monetary policy because he believes that monetary policy after April will not show up before the November election.
Data show that before the 1971-1972 elections, the federal funds rate fell significantly, generally below 5%, far below the level of 1969-1970. During Nixon's reelection campaign, M2 rose sharply, increasingThe speed is generally maintained at more than 12%, which is much higher than around 1970 below 6%.
In 1972, the year of Nixon's reelection, monetary expansion stimulated the economy to rise in the short term, and real GDP growth reached 5.3%; the unemployment rate also declined, from 5.7% to 5.3%; the impact of currency expansion on inflation has a time lag,The inflation rate is 3.31%.
Relying on Burns ’currency expansion, in a short period of time, high economic growth, relatively low unemployment, and relatively low inflation were achieved, and Nixon successfully re-elected.
However, after Nixon's reelection, Burns' currency expansion disadvantages began to appear, and a large amount of liquidity in the market pushed inflation to rise rapidly. The oil crisis broke out in 1973, and the US economy fell into a general stagflation crisis. The economic growth rate in 1973 can still be maintained5.6%, but in 1974 and 1975 it fell cliff-down to -0.5% and -0.2%, meanwhile, the inflation rate rose to 11% and 9.1%, and the unemployment rate hit record highs.
During the stagflation crisis, President Nixon stepped down because of the "Watergate Incident", and the above recordings were exposed. Nixon was criticized by the media as a "political speculator", just in line with Nordhaus's opportunistic political economic cycle-for re-electionManipulating the macro economy, pressure on the Federal Reserve to expand the currency, and eventually created a stagflation disaster.
Berns, an academically renowned economist, has been criticized as the "most contemporary politicized" Federal Reserve Chairman, and is too obedient to Washington's political needs.
So, in the US election year, the economy may enter the election cycle, and the president will use political means to stimulate short-term economic growth. Even if the president is not re-elected, US party politics will find ways to stimulate the economy or make decisions that are conducive to party re-election.
For example, 2008 was the year of the presidential election and Bush Jr. expired. In support of the Republican re-election, he explicitly told the then Federal Reserve Chairman Bernanke and Treasury Secretary Paulson that he did not want to rescue private companies at the time mainly referring to LehmanBrothers. The Republican campaign plan clearly states: "We do not support the government to rescue the private sector." However, Bernanke and Paulson joined forces to rescue Bear Stearns and the "two bedrooms", making the Republican campaign passive.
This year, Trump is facing a re-election test. Can he intervene in the economy, pressure the Fed to cut interest rates, ensure that US stocks run at a high level, and maintain low inflation and unemployment?
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