Status Quo Election And Another Lost Decade

With Blue Wave hopes disappearing, the U.S. election outcome effectively represents a status quo outcome -- regardless of the legal challenges to the Presidential election. The fiscal policy stance will be just loose enough to avoid a collapse scenario, but the threat of austerity to deal with "unsustainable" debt dynamics will always be on the horizon as soon as the economy shows any sign of life. This is a continuation of previous trends. Modern Monetary Theory (MMT) will likely continue its online presence, since it is offering one of the few plausible explanations of economic stagnation, and a way out.

It was perhaps a mistake to not rush out my book -- with a theme of discussing the relationship between stagnant growth and MMT -- ahead of the election. However, it looks like the outcome will not invalidate the assumptions behind the text. 

At the time of writing, the conventional wisdom is that Biden will eke out a minimal victory in the Electoral College, although court challenges will delay the final result. Meanwhile, it looks like the Republicans can hold their majority in the Senate, and effectively block most actions of the Biden administration. The path of least resistance is to paralyse government, forcing the Democrats to enact policies desired by the Republicans. This is a conventional view, so I will not go into details.

A Trump victory would just continue the current political alignment.

The economic establishment will continue with exactly the same monetary policy obsessed  stance, and accomplish nothing except to prop up the financial system. Everyone in the markets will be accusing them of "implementing MMT" because of the fiscal deficit/QE mix ("printing money to fund deficits"), while establishment figures will be denouncing MMT as being unsound.

From my perspective, this might help my book sales, but it means that people who do not understand MMT will be arguing with other people who also do not understand MMT. In other words, past trends continue.

It is possible that the Trillion Dollar Coin gambit might come into play, an idea developed by MMT supporters. This might give a Biden Administration a stick to use in negotiations, but I would be shocked if it were deployed — the call of a bipartisan deal is probably too strong.

Perhaps some external shock could force more radical economic shifts. Given that even the pandemic shock was not enough to generate inflationary pressures, I remain skeptical about the probability of such an outcome.

 
(c) Brian Romanchuk 2020