The Politics Of The Next Recession: How A Bust Could Impact The 2016 Elections


In this hyper-political age, perceptions about virtually everything from the weather to the Academy Awards are shaped by ideology. No surprise then that views on the economy and its trajectory also divide to a certain extent along partisan lines.

How the public perceives the economy will have a major impact on this year’s elections. That most are already discouraged cannot be denied;  the negative sentiment has propelled the rise of such seemingly marginal political figures as Donald Trump and Bernie Sanders. But will the economy prove a bother to the Democrats?

A lot depends on where you live and what you do. Much of the country is not doing so well; despite a strong two-year run in job creation, some 93 percent of U.S. counties still have not gained back all the jobs that they lost in the Great Recession, according to the National Association of Counties.

Yet many liberals believe the economy is shipshape. Paul Krugman, the progressive economist, hails the “Obama boom,” citing rising employment, some slight income gains and, at least until recently, a soaring stock market.

Krugman and others point to California, the epitome of true-blue virtues, as having what one progressive journalist calls a simply “swell” economy. Rarely mentioned is the fact that, for the past two decades, the state’s economy has more often underperformed national averages.

More serious still, the same state that boasts Silicon Valley also suffers the highest poverty rate in the nation. Overall nearly a quarter of Californians live in poverty, the highest percentage of any state, including Mississippi. According to a recent United Way study, close to one in three is barely able to pay their bills.

A slowing economy and weak stock market, in contrast, does offer some solace to Republicans, who clearly see a political opportunity. Even at its best, this has been a slow growth recovery and while the official unemployment rate has improved sharply, labor participation rates remain depressed by historical standards. Millions of young people remain in their parent’s homes as opposed to engaging the economy, buying homes, and getting onto adulthood.

The End Of The Asset Boom

America may not be in as bad shape as Republicans and conservatives like to insist. Certainly compared to Europe or Japan, we’re in great shape. While some doubt weakness in China really poses a danger to the U.S. – exports account for only 13% of U.S. GDP, after all, and China is not one of the largest markets for U.S. goods — David Stockman, among others, argues that China’s slowdown is due to a dangerous phenomenon that is present in the U.S. as well: a disastrous level of debt. Some Democratic economists like Larry Summers, as well as economic gurus such as Mohammed el-Erian, warn that we should at least prepare for the possibility of recession.

Certainly the China crisis threatens the trajectory of certain blue cities. Money from China and other parts of Asia has helped propel real estate markets in places like coastal California, New York and San Francisco. China has also been a major source of tourists and consumers for high-end electronic products that are at least designed and marketed here.

Similarly California’s tech boom also seems to have reached its apogee. The fact that Silicon Valley types have gotten rich appears to have done little for the average American, and done very little to improve productivity. With the market looking on with greater skepticism, several major players — Groupon, Yahoo, Twitter, for example — seem vulnerable. If a full scale bust is not imminent, a downturn in valuations, and likely employment, seems inevitable.

A slowdown in the Valley could place the blue bastions in an uncomfortable situation, exacerbating splits already evident in the Clinton-Sanders clash. The mega-profits enjoyed by sectors close to the Democrats, notably Silicon Valley, media and a large part of finance, have encouraged progressives to advance an ever more expansive, and expensive, liberal agenda. With billionaires stalking the streets of San Francisco, who could possible oppose a big boost in the minimum wage, family leave, massive transit projects and the provision of subsidized housing.

Progressives may detest the investor class that has gotten rich in the “Obama boom,” but they remain deeply dependent on them to finance their green and social agendas. California’s coffers have been filled in recent years largely by the huge rises in income and capital gains among the investor class, who are well represented in the Golden State. Similarly New York Mayor Bill de Blasio’s aggressive agenda for new housing and expansion of social programs depends largely on the continued looting of the economy by Wall Street.

The developing decline in asset values threatens the progressive agenda, and could set up a major battle between key progressive constituencies — rich liberals and those dependent on public sector spending. The fundamental incompatibility of ever-expanding pension liabilities and the provision of basic public services is becoming painfully clear in places like Chicago and Detroit, and smaller cities like San Bernardino and Stockton. More of blue America could join them if asset values continue to drop.

A nascent recession would almost certainly spark something of a civil war between the traditional left constituencies and the kind of business progressives one finds in Silicon Valley, Wall Street and the media industry. A first stage of this conflict is already emerging in California, where former San Jose Mayor Chuck Reed has been seeking to rein in the state’s unfunded $350 billion pension liability. Silicon Valley largely has backed Reed’s past efforts, which has elicited a fierce blow-back by the public employee unions and their political allies.

Blue And Red, Reinforced

A recession would change many things, but not enough to challenge Democratic dominance in California, New York and other parts of the “blue wall.” Unemployment could double and Hillary Clinton — perhaps even Bernie Sanders — could win these places in a walk. After all, Jerry Brown was elected and then re-elected when California’s economy was still struggling to recover. Theoretically, the cost of energy, the lack of water for farms, and a decaying infrastructure should provide an opening for Republicans, but as middle income families continue to move elsewhere, the shift to a single, childless, minority and immigrant demographic makes any successful GOP makeover all but impossible.

Instead of pushing them to the GOP, a recession could further radicalize the Democrats but not upset their control of dark blue states. But the deepening decline in the real tangible economy — energy, manufacturing, agriculture — could prove a boon to the GOP in much of the rest of the country.

Before the decline in oil prices many areas in the middle of the country enjoyed a gusher in energy jobs, providing high wage employment (roughly $100,000 annually, exceeding compensation for information, professional services, or manufacturing). Due largely to energy, states such as Texas, Oklahoma, North Dakota have enjoyed consistently the highest jobs growth since 2007, and were among the first states to gain back all the jobs lost in the recession.

Of course, tough times in red states like Texas, Oklahoma, Louisiana and North Dakota will only pad Republican gains. But there are other, contestable heartland states — Ohio and Pennsylvania, in particular — that also benefited from the expansion of fracking, which created whole new markets for manufactured products like pipes and compressors. Similarly, the administration’s directive to crack down on coal plants could be problematic for Iowa, Kansas, Ohio, Illinois, Minnesota and Indiana, which rank among those most reliant on coal for electricity. Not surprisingly much of the oppositionto the EPA’s decrees come from heartland states.

Right now virtually every Great Lakes state, except Illinois, enjoys unemployment rates below the national average and several, led by the Dakotas, Minnesota, Nebraska and Iowa, boast among the lowest in the nation.

But with energy, agriculture and manufacturing slowing down, the prospects for the middle of the country have turned increasingly sour. A manufacturing decline might not matter much to New York, where the sector accounts for barely 5 percent of state domestic product but industry accounts for 30 percent of the economy in Indiana, 19 percent in Michigan. If the current trends hold, the case for the “Obama boom” in this vast swath of America may be further weakened.

To the problems of regulation and market turbulence, manufacturing economies are also threatened by the rising value of the dollar, which threatens the Rust Belt’s prime exports and bolsters competitors, both in Europe and Asia. After all, manufactured goods are the leading export in much of the upper Midwest while food exports, also hard-hit by the hard dollar, dominate many Great Plains economies. In 2012, a recovering Rust Belt was critical to President Obama’s victory; a weakened industrial economy could make Republicans more competitive in the region, particularly if they nominate an electable candidate.

Will A Recession Create A New Politics?

Until the stock swoon, few commentators focused on the political implications of what very well may be an emerging recession. After all, if coal miners in West Virginia lose their livelihoods, it hardly effects the lifestyle of Capitol bandits a couple of hours away, and eliminating oil jobs in Bakersfield doesn’t cramp the style of tech moguls who don’t ever get their hands dirty. But with the stock market in sharp decline, the affluent may soon be feeling some of the angst felt by many middle and working class people during the “Obama boom.”

Indeed because President Obama’s policies are so identified with progressivism, a recession now could undermine support for his bank-friendly, super-green policies. The chimera of green jobs never had much reality, but low energy prices inevitably weaken the renewable sector. In times of asset inflation, losses on the farm, the factory, the mine or the drilling platform can be dismissed as part of “disruption” and progress, but what happens if other linchpins of the economy, notably tech and finance, begin to wobble as well?

If nothing else, a weaker economy will accelerate the increasingly populist tone of the Democratic Party, as epitomized by Senator Bernie Sanders’ remarkable rise. The kind of neo-liberalism epitomized by the Clintons rested on financial support from Wall Street, Silicon Valley and media companies. This support has become something of a liability for the former Secretary of State.

But the most important political impact of a slowdown or new recession, will be in the heartland, where elections are often won. Yet logic seems on a holiday in a Republican Party which seems to feed on resentment but produce little in the way of practical solutions. Indeed front-runners like Donald Trump and Ted Cruz thrive not by addressing economic growth but focusing instead on anxieties relating to immigration, Islamic terrorism and cultural change. Amidst an incipient recession, or at least a serious slowdown, after a weak recovery, Republicans should be able to make some gains, but to do so they have to give some glimmer of having the chops to turn the economy around.

Joel Kotkin is executive editor of and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by Gage Skidmore [CC BY-SA 3.0], via Wikimedia Commons



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Even without recession Trump has good chance

Because the employment and wage problems caused by current trade and immigration policies are long-term, not short, and the groups most affected (inner-city blacks, Hispanics, working-class whites) know it. Trump's appeal cuts across party and racial lines and will bring people to the polls who rarely if ever vote Republican (or vote at all). In other words we may be seeing a fundamental realignment in American politics, the kind of thing that only happens once in a century or so.

Of course this may just be wishful thinking on my part.