I’m as hopeful on the Macro outlook as I’ve been in a long time. Nursing hope we might actually be able to grow/inflate our way out of the current macro mess we are in. That implies an overheating economy for the next few years. That would be good for stocks. More important, it would avoid the shipwreck of a “secular stagnation” deflationary doom spiral etc…
Q: You’re in an elevator with Donald Trump, Vladmir Putin, and Mitch McConnel. You have a pistol. It only has two bullets in it. What do you do?
A: Shoot Mitch twice to make sure he’s dead…
(note) Illustrative only. I sincerely hope no-one ever shoots Mitch. Way too much of that talk these days.
“The Democrats” didn’t gain power with Georgia’s Senate election. Power actually shifted to to a (dwindling but thankfully still extant) group of generally right-wing-leaning centrists. This is extremely good news for the economy. The Senators below are likely to actually listen to Jay Powell and Janet Yellen when they tag team the message “we really do need more direct Federal Spending now.”
- Joe Manchin – Nominally a Democrat but a 1990’s era Republican in policy terms.
- Susan Collins – R Maine.
- Mitt Romney R Utah
- Kirsten Synema D (AZ) – Not a progressive by any stretch.
- Lisa Murkowski R AK
Even more important, power shifted away from Mitch McConnell. It isn’t that “moderates win” as much as “Mitch no longer can gum up the works.”
The last 6-12 months have seen a growing chorus of the Fed, IMF, and mainstream non-political economists practically begging for Fiscal Stimulus. Seeking to stave of a deflationary spiral. That has fallen on deaf ears in a lot of places in Congress.
The “problem” (if you are Mitch McConnell) is that stimulus implies an economic boom in ’21 and ’22 leading to overheating and (much-needed) inflation. That would be great for America, but bad for Republican’s prospects in the 2022 and 2024 elections.
We know Mitch would have gladly sabotaged America’s economic future to improve his prospects of holding power. Why? Because he did it before. This 2011 Atlantic article has aged very well – describing him as a “strict obstructionist” McConnell was clearly setting up a repeat of the Obama-era “my job is to make him a one term President” playbook. We know he was headed down that path. It doesn’t matter if Mitch didn’t know or didn’t care that would risk a deflationary spiral. My bet would be on “doesn’t care.“
McConnell has now lost the power to bury bills he doesn’t like. Even bills “his” Senators might want to (or feel obliged to) vote for. Look at how he buried the $2,000 stimulus checks last week (while a chorus of vulnerable Senate Republicans pledged fingers-crossed support knowing they’d never face a clean up/down vote). That is a great example of Mitch’s negative power. That power has shifted to Mitt Romney et al.
Schumer still has to keep those centrists happy. They hold the real deciding power. He won’t be able to get a Medicare for All bill through. But Schumer gets to decide what bills come up for vote and that is HUGE. As an example, a clean bill authorizing that $2,000 check would be a tough thing for most Republican Senators to vote “against.” Or a clean bill raising the minimum wage to $15. Also tough to vote “against.” McConnell’s was brilliant at side-stepping those sort of votes. Schumer can force those awkward votes. As long as the content isn’t too radical, they will likely pass.
“Infrastructure” is the obvious win here. I am still perplexed as to why we never got that promised “Infrastructure” package over the last 4 years. It seemed like a political no-brainer and a pork-barrel bonanza that should have gone through on Day 1. My guess is that the Republicans couldn’t come to an internal consensus on how to proceed AND didn’t want to pass any sort of bill that needed (and would have gotten) substantial Democratic support. That failure measures the (deep) depth of Republican dysfunction. Regardless, a big Infrastructure spending bill likely will happen now with lots of projects earmarked for Utah, Arizona, Maine, Alaska, and West Virigina.
This isn’t about “who wins” politics. It is about “we all win or lose” economics. We know how to handle inflation. We know that deflation is much harder to control. Until yesterday, we’d risked steering (or really drifting) into deflation. With Mitch gleefully pulling us towards the rocks – consolidating his power at the expense of our misery. Diminishing that deflationary risk is HUGE.
Realized this is my first post since October. I’ve actually been (gasp) working pretty hard. It also felt like the world didn’t need more political commentary during the election. The post-election economics weren’t clear until last week. I will be posting more regularly in 2021.