It's Policy, Stupid

Why James Carville's Prescriptions for the Democrats Is so Vacuous

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One Sentence

It’s the economy, stupid.

supposedly won Bill Clinton the White House in 1992. That, at least, is James Carville’s take. He coined the sentence in directing Clinton’s campaign, pushed the campaign to focus on the economy, and, in victory, was well positioned to “explain” his masterstroke.

Carville just penned a NY Times column entitled, “I was wrong about the 2024 election. Here’s Why.”

Carville’s answer,

It’s the economy, stupid.

In other words, had Harris focused more on the economy and less on Trump, abortion, and other issues, she’d be the incoming president. As for the next election, Carville has the answer,

It’s the economy, stupid.

“We live or die by winning public perception of the economy. Thus it was, thus it is, and thus it forever shall be.”

“It’s Ross Perot, Stupid” ?

Maybe Carville, who I love from afar (Who can’t love this guy based on his patois alone?), drank too much of his Kool-Aid back in 1992. Maybe he’s drinking too much now.

Yes, the economy was in the dumps in 1992. (See the chart below.) Median real household income had declined by 5 percent since Bush, the First, took office. But Clinton won only 43 percent of the vote. Ross Perot ran an off-again, on-again third-party campaign but still captured a massive 19 percent of the popular vote. Observers differ about Perot’s election impact, but having two people gang up on GH was likely decisive.

I’m particularly nostalgic toward Perot who passed in 2019. He campaigned, in part, on our nation’s need to do Generational Accounting. Along with economists Alan Auerbach of Berkeley and Jagadeesh Gokhale of CATO, I developed Generational Accounting, which calculates the lifetime net tax bill facing today’s young and future generations.

The bill was massive then. It’s humongous today once one combines all the on-the-books and off-the-books debts we are dumping in our kids’ laps. Perot’s focus on fiscal profligacy, not the economy, made clear that the fiscally conservative Republican in the race, GH, was anything but.

Going after a clear, substantive, terrible problem and doing so in depth, a problem that GH had let worsen, arguably elected Clinton who then proceeded to indenture future generational to a far greater degree. Yes, Clinton reduced on-the-books debt substantially relative to GDP. But outside of the public eye, he dramatically expanded off-the-book debt. For example, Uncle Sam’s unfunded Medicare obligation rose by one quarter in this first term.

Why was everyone in the dark? Like now, the government refused to do generational accounting or a simplified version called fiscal gap accounting, which the European Union has been doing for decades. There was one short exception. GH’s administration asked me and Alan Auerbach to provide a generational accounting analysis deep in the Appendix to what turned out to be GH’s final budget document.

The budget plus Appendix has multiple volumes. But deep in one of the last appendices was our presentation. Alan and I had flow repeatedly down to DC to work with OMB on the presentation. When the Budget appeared, the NY Post wrote a huge headline story about our analysis. Ross Perot apparently read the Post. I recall him giving a televised speech during the campaign, with him sitting at a desk, opening up the huge budget appendix and pointing to our analysis. When Clinton took office, OMB asked us to repeat the analysis. Again, multiple unpaid trips for long weekends at OMB. It was all set for the printer, but Clinton’s new OMB personnel censured the presentation literally the day before the budget went to the printer.

The next opportunity to include generational accounting (GA) in the budget was under GW. Treasury Secretary Paul O’Neill asked now Wharton economist, Kent Smetters, and Jagadeesh, to prepare a fiscal gab and GA analysis for inclusion in the 2003 Budget of the President — scheduled for release in early 2003. The two assembled a team and worked meticulously for a year on the analysis. Then VP Dick Cheney got wind of the project. On December 7th, yes, Pearl Harbor day, Cheney fired O’Neill. The next day the project was shut down. Kent and Jagadeesh, to their lasting credit, resigned and published their analysis months later via, I believe, the American Enterprise Institute.

Btw, Senator Thune, the new Majority Leader, together with Senator Kaine tried, in 2013, to pass The INFORM ACT (the Intergenerational Financial Obligations Reform Act). Over 1,200 economists, including 17 Nobel laureates signed a letter supporting the bill. The letter and all the signatures and affiliations were printed in a full-page ad in the Times. Here’s a column I wrote for the NY Times describing the massive support of the economics profession for the bill.

The bill never made it to a vote, but Thune is now in a position to make it happen. The bill forces OMB, GAO, and CBO to do Generational Accounting and Fiscal Gap Accounting annually and in evaluating every major piece of fiscal legislation.

This has been a long digression to make clear that focusing on even just one substantive issue can matter to a party’s fate. I didn’t listen to all of VP Harris’ speaches, but of the ones I heard, she seemed unable to string together more than three sentences of substance on anything.

In any case, does Carville’s prescription for the Democratic party’s resurrection — focus on the overall economy — make sense?

It Wasn’t the Macro Economy

When Carville references the economy, he seems focused on the macro economy. But the overall economy did just fine under Biden. Hence, Harris couldn’t make the economy the problem. Plus, it was her (and Biden’s) macro economy.

Take a look at the chart below of real GDP per capita. Apart from COVID, per capita GDP — every country’s basic living-standard measure — rose during both the Trump and Biden administrations at roughly the same 1.8 percent annual rate.

It’s Inequality, Stupid

Harris could have made inequality her major focus. All she needed to do was put the above chart side-by-side with the chart below. It shows that median weekly real earnings have risen by only 10 percent over the past 45 years!

“Come again? Output per worker more than doubled during those years, but the real wage of typical workers hardly budged? That’s outrageous. I’m the typical worker. The economy is booming over time and half of us are getting nowhere?”

You got it.

This isn’t red versus blue economics. This is long-term American economic disease — severe malaise, as Jimmy Carter would have put it. How did Harris address the decades-long frustration of the bottom half? She offered joy. Better, surely, than “Let them eat cake,” but profoundly deaf.

Just Imagine

Suppose Harris had focused on our actual country with its ever rising inequality, its exploding official debt, its failed education system, its dysfunctional and insolvent Social Security system, its outrageously expensive, incredibly inefficient, and thoroughly insolvent heath care system, its lock-the-poor-into-poverty tax/benefit system, its built-to-fail, rapacious banking system, its on-the-take judiciary, its horrific fiscal expropriation of young and future generations, its …

Further imagine that Harris had offered out-of-the-box, bipartisan solutions for addressing each of these problems. People would have listened. People would have taken her seriously. Many of the nation’s colored people — the reds and the blues —would have started turning purple. Everyone would have said, “Gee, this is easy. We have the choice between someone who makes sense, but smiles insufferably, and someone who makes nonsense and lies incessantly.”

Didn’t happen. Harris couldn’t cogently articulate the Biden Administration’s excellent short-term macroeconomic success let alone meaningfully address the nation’s worsening, decades-long microeconomic/structural problems. Instead, she channeled Trump and made things up, particularly price gouging causing high food prices, for which she presented not a shred of evidence.

Then she copied Trump’s supremely stupid — Don’t tax tips.— proposal. (Doing so will, by the way, hurt service workers, on balance, as they won’t have access to the generous Social Security benefits afforded low-wage workers who do pay taxes. It will also lead to a massive increase in the underground, as in non tax-paying economy.) In the end, everyone realized that a vote for Harris was a vote for same-old, same-old. Better someone who knows nothing about everything than everything about nothing.

First Fire the Lawyers

Shakespeare, in Henry the IV, put this in far stronger terms. But Harris’ economics team, as I’ve been told by reputable sources, comprised lawyers, not economists — people who thought she could win on slogans, including this zinger: When we fight, we win. What she should have said, We’ve got problems. I’ve got answers.

The Only Way to Have a Conversation Is to Change the Conversation

Here’s Carville’s stategy for Democrats:

While Democrats have next to no chance of passing a bold, progressive economic agenda in the next four years, what we can do is force Republicans to oppose us. We must be on the offensive with a wildly popular and populist economic agenda they cannot be for.

Does anyone, even Carville, know what this means? Does it mean surpassing Italy’s debt-to-GDP ratio? Does it mean sustaining Social Security in its current form? It’s already $63 trillion in the red. Does it mean continuing to spend 18 percent of GDP on healthcare in exchange for 21st best outcomes when Sweden spends 11 percent and scores 4th? Does it mean adding yet more welfare programs to the 500 plus existing federal and state programs that are telling one-in-three low-wage workers that they’ll lose over 60 cents in benefits for every extra dollar they earn? Does it mean under-educating generation after generation while blithely watching U.S. PISA test scores fall through the floor? Does it mean raising the minimum wage to $50 an hour? Does it mean letting defense spending continue to fall relative to GDP? (The share is now under 3 percent.) Does it mean … ?

The only way Democrats can get into the conversation is to change the conversation. They need to propose reforms that are so far outside the box that the Republicans and the public will be forced to sit up and listen. Here are some examples.

Propose

• Adoption of the INFORM Act

• Medicare For All, but the Republican version, i.e., Part C, but subject to strict restrictions on geographic and other forms of cherry picking

• Implementing a nationwide electronic medical-records system

• Freezing the Social Security System, paying off all accrued liabilities, implementing a fully funded Personal Security Account System with no-cost collective, identical investment in a single index of all listed stocks, bonds, REITS, and other legitimate securities (NOT BITCOIN). Participation would be mandatory. Participants would have their account balances transformed into inflation-protected pensions at retirement with a guarantee that one’s balance was never less than one’s contributions adjusted for inflation. Wall Street would play zero role and earn nothing from this new system, which could literally be run on my laptop. This reform is akin to the Singapore provident fund.

• Replacing the entire federal tax/transfer system with a progressive cash-flow consumption tax that is demographic-group specific

• Requiring all banks and other financial corporations to operate strictly as equity-financed mutual fund companies, which, by definition, can never to go belly up. This would permanently end the financial sword of Damocles overhanging our built-to-fail, trust-me banking system.

• Providing free online education for all K-12 courses that teachers, parents, and students can access from the DOE’s website

• James, come up with some more.

To conclude, Democrats need to be the party of new ideas, not the party of no ideas or, like their opponents, the party of bad ideas. And, since I’m neither a Democrat nor a Republican, let me provide the same advice to the incoming Reds. The only way you can avoid shooting our economy in the head by imposing massive tariffs on our largest trading partners, cutting the corporate tax to 15 percent, eliminating (not indexing) the taxation of Social Security, ending taxes on tips, and the list goes on, is to propose, not the New Deal, but the Real Deal — fundamental reforms starting with those listed above, which the Democrats will be unable to immediately reject and the public will love. In short, our economy can be better red than dead.