Overshooting is better than undershooting

Eric Levitz’s election postmortem is worth reading in its entirety. But (since I assume we all know that Dobbs was a major net negative for the GOP) I think this is worth emphasizing:

After the 2008 financial crisis, Democrats decided to enact a stimulus that the party’s own economists considered inadequate, in deference to concerns about the national debt. As a result, the unemployment rate remained near 10 percent when voters went to the polls for the 2010 midterms.

In 2021, Democrats decided not to repeat their mistake. Even before Biden took office, Congress had already enacted historically large relief bills, which had prevented the COVID crisis from triggering a depression. Nevertheless, with the virus still rampant, Democrats decided to err on the side of providing American households and state governments with excessive financial support, over the objections of many economists and commentators.

This was probably an unwise allocation of legislative capital. Given that Joe Manchin’s tolerance for new government spending proved highly limited, Democrats probably should have allocated more of the $1.9 trillion American Rescue Plan’s funds to permanent programs and high-impact public investments, rather than one-off checks.

Still, the Democrats’ approach now looks much more politically defensible than it did 24 hours ago. For over a year now, polls have consistently found overwhelming disapproval of the economy and discontent with rising prices. This led proponents of full employment (like myself) to despair. In our view, paying for the real economic costs of the pandemic through inflation, rather than mass unemployment, was the just thing to do. It distributes the material burdens of the COVID shock more equitably instead of concentrating it on the most disempowered members of the labor force. But for precisely this reason, it appeared to be politically toxic: Since everyone feels the sting of rising prices, while only a minority of the public suffers from high unemployment, voters looked poised to punish Democrats for prioritizing tight labor markets over low prices.

If voters did this, however, the punishment looks awfully mild. Although there are many other variables that could explain the divergent outcomes, Democrats did far worse in the “low inflation, high unemployment” environment of 2010 than in the “high inflation, low unemployment” one of 2022.

It is possible that the Biden economy makes voters cranky without rendering them desperate for change. Yes, prices are annoyingly high. But wages have almost kept pace with them and jobs are abundant. It’s plausible that these conditions conferred a sufficiently strong sense of material security to prevent many swing voters from reflexively demanding change. (The fact that the GOP’s only explicit plan for reducing inflation is heinously unpopular might have also helped.)

There’s no question that, if we knew then what we know now, the ARP would have involved less stimulus and more future spending (although it should also be noted that Manchin and Sinema were very likely to be more open to short-term relief than longer-term programs.) But both substantively and politically, it is much better to err on the side of higher inflation rather than higher unemployment. The absolutely catastrophic midterms Dems suffered in 2010 — 63 lost House seats, and an absolute crushing at the state level, despite having the most gifted Democratic politician of the generation in the White House — still has major implications today. As with foreign policy, to his credit Biden learned the right lessons here.