All Years Are Election Years

Tyler Cowen argues that "it is unfortunate that the subprime crisis exploded in an election year." Except, of course, that there's no election being held in 2007. The election year is 2008: Next year. And yet Tyler seems correct in principle. We were certainly in "election year" mode by the time the crisis hit. But that just shows how far we've come -- these days, essentially three years out of four are "election years" since the primary campaign unfolds so slowly over the year preceding the increasingly-early Iowa Caucus. The only real years that aren't "election years" are the ones in the 2005/09/13/17/21/25 cycle -- the other three are all election years.

That seems like a dreary and depressing outcome to me, but I'm not sure that there's anything wrong with it as such.

Comments

That seems like a dreary and depressing outcome to me, but I'm not sure that there's anything wrong with it as such.

The danger may be that most people just don't have the stamina or the masochism necessary to follow politics all the time. If the process of selecting candidates is basically over before most people are willing/able to start paying attention, that's a bad thing.

Or, more optimistically, maybe politicians and political junkies are wasting their time, and nothing really matters until voters start paying attention in the few weeks or months right before an election.

Posted by JB | December 16, 2007 3:26 PM

Um, isn't it obviously a problem when politicians are running for election all the time (or helping their friends do so) instead of actually governing and the press covers elections almost all the time instead of government. This seems deeply disfunctional.

Posted by ikl | December 16, 2007 3:36 PM

END THE CYCLE of endless electioneering---IMPEACH. Change RADICALLY the dynamics of this election cycle---Call Nancy Pelosi @1-202-225-0100 and DEMAND IMPEACHMENT.

Posted by Mike Meyer | December 16, 2007 3:39 PM

What everyone is missing, even Greenspan in his late week NPR interview, is that the mortgage credit bubble, especially in it's last two and most destructive years was not the result of monetary policy but was one of bank regulation.

The Fed under Greenspan virtually forgot about regulating banks in the perverse name of 'free markets'. Now the old coot has the nerve to blame human nature for bubbles. He is a self deluded fool or a criminal, take your pick.

Banks should never have been allowed to hold vast quantities of dodgy exotic debt paper off their books. They should never have directly funded mortgage loans that required no documentation, no down payment, optional payment of principal, and other things that became the norm. Nor should the great money center banks have been allowed to fund the mortgage mills the sprang up in every strip mall on every corner of the nation who had zero interest if their customers could ever make even one payment.

Banks should not have been allowed to hold so called AAA mortgage securities which depended upon the so called credit insurance that was attached to all these securitizations. MBIA, AMBAC and the rest of these 'insurance' companies have less than 1% of the capital necessary to back up their liabilities.

Bond ratings themselves while not under Fed perview are a huge pile of stool. Early this year a handfull of non financial corporations in the S&P 500 had AAA credit ratings, however 37,000 structured financial products carried a AAA rating. On it's face these ratings were insane if you just looked at the so called insurance on them.

Never mentioned in all this is the repeal of Glass Stegall. Tearing down the wall between the banking and investment arms of the great money center banks. That was in 99 by the way, can't blame Bush. Both parties are responsible for our mess and neither have the slightest inkling of what to do about it save somehow bailing out the financial world. This entire thing represents a political failure. When Clinton officially abandoned the Democratic principals of the New Deal after the 30 propaganda effort that enshrined 'free markets' it was a guarantee of bubbles, corruption, and the relentless chipping away of the middle class.

Posted by rapier | December 16, 2007 4:04 PM

By the way this isn't a subprime crisis. It is as Krugman says a solvency issue. The solvency of our financial system. He said this not originally or in a timely manner I might add.

The roots of all of this go to the dismemberment and then the elimination of Glass Stegall.

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

Every single problem you will be hearing about for the next several years springs right from the things Wall Street wanted and got.

The election is irrelevant to all this because there is not one single thing either party has in their ideological or policy quivers to address the fundamental issues.

Posted by rapier | December 16, 2007 4:29 PM

Walt Kelly addressed this fifty years or so ago in Pogo. A character asks Congressman Frog (paraphrased):

"What are you doing down here? Shouldn't you be up in Washington?"
"Well, I gotta get out an meet people, so's they vote for me."
"You mean that at the same time that you're (1) legsislating, you're also (2) campaigning?"
"Yup. And, to be honest, sometimes I'm so busy 2-ing that I tend to give 1-ing a bit of a miss."

Posted by James | December 16, 2007 4:40 PM

What everyone is missing, even Greenspan in his late week NPR interview, is that the mortgage credit bubble, especially in it's last two and most destructive years was not the result of monetary policy but was one of bank regulation.

This is far too simplistic. Both are responsible to a signficant degree. The run on real estate happened not just because the stock market looked unsafe, but also because interest rates were dropped too low for too long. Eventually this mania should have petered out, like all bubbles do. However, due to poor regulation, banks were able to continue the boom with riskier and riskier financing. That is why the types of loans get scarier and scarier as you move closer to present day, and why we still haven't seen the really scary stuff (NINJA option ARMs) blow up yet.

Furthermore, the Fed's monetary policy is reprehensible because they provide a drop in interest rates for a measly 5% drop in the stock market. They will have absolutely no ammunition left to do anything when things actually get bad. We aren't even done with the first quarter and the Fed is about to fully shoot its wad.

Posted by Walker | December 16, 2007 4:57 PM

I disagree with Tyler. I think it's extremely fortunate that this disaster is unfolding in an election year because this disaster is the Republicans' fault. They need to be stripped of power, and elections are the only way to do that.

The Republican Congress and the Republican President failed to protect consumers against risky mortgages. Alan Greenspan, the Republican chairman of the Federal Reserve, somehow didn't notice that unregulated, high rolling mortgage lenders were causing massive inflation in the housing market. In fact, Greenspan actively contributed to the inflation by encouraging borrowers to take out those same, bad loans. Greenspan failed to prevent this disaster, actively contributed to it, and failed to help clean up afterwards. Greenspan's complete denial of responsibility is just the ultimate mark of a Republican.

The Republican breakdown of consumer protection has caused an unprecedented disaster for the macroeconomy. The sooner they are stripped of power, the better.

Posted by Jalmari | December 16, 2007 6:45 PM

The danger may be that most people just don't have the stamina or the masochism necessary to follow politics all the time. If the process of selecting candidates is basically over before most people are willing/able to start paying attention, that's a bad thing.

Or, more optimistically, maybe politicians and political junkies are wasting their time, and nothing really matters until voters start paying attention in the few weeks or months right before an election

I think it's a little of both. In the NFL the games played from now to the SB matter the most. But, if you have not been preparing since March/April, well before the spotlight hits you, the games played now don't matter at all.

Posted by Kolohe | December 16, 2007 6:46 PM

For the House, it still means about 50% of its work time will be spent on the phones or at events where their job is to beg for money.

For Senators, the percentage of begging time is less.

For Presidential candidates - mostly Senators and governors - it can mean more than 50% of your term will be spent fundraising, part for the presidential run and part for your next re-election run.

Frm a Libertarian perspective, it's a positive cause it keeps them from constantly passing new laws. But the amount of money that's required from the corporate world creates a constant lean away from taxation with representatio, and towards fascism.

That doesn't strike me as not a problem.

Posted by Kevin Hayden | December 16, 2007 6:49 PM

Speaking of the Feds monetary policy is in itself an oversimplification to the degree that it implies that the Fed really controls money.

As a preamble all money is created by credit. I know most will never understand that. Sorry.

The Fed does somewhat still have a large influence over bank lending however banks are now a secondary player in supplying credit. Or rather I should say they were. Wall Street became the largest source of systematic credit through the magic of securitization. Banks became a secondary player in credit creation and thus money creation.

According to the textbooks when the Fed raises it's discount (and now Fed Funds Target) rate it sends signals to the banks to slow lending. From June 04 to June 06 the Fed raised it's target rate in many steps from 1% to 5.5%. How did the system respond? Total Credit Market debt outstanding rose from about $35 trillion to about $40 trillion. Yes, Trillion. Continuing a flood of credit the likes of which has never been seen nor could possibly ever have been imagined. The entire period of Fed so called tightening saw not even a hint of tighter credit availability or demand.

Monetary aggregates M1 and M2 showed only modest growth, extending the decade old trend. However M3 continued to explode.

There was absolutely no measurable effect due to the Feds so called tightening. If your policy tools have no effect then how in the hell can you call what they base their moves on policy? The Greenspan Feds 'policy' was to replace banks as the engine of credit growth. Letting the 'free market' of the financial world take over most credit creation. (Note the above Glass Seagall article on how Greenspan was an enthusiastic supporter of abandoning the seperation of Wall Street broker dealers from their banking arms)

There is no Fed monetary policy anymore, except more. They are praying for more credit demand and more supply. The entire Greenspan period could rightly be called an experiment in moral hazard. Most believed the experiment would be a success. It still might be for the very very top of the heap but for the vast majority of Americans it is going to prove to be a dismal failure.

Posted by rapier | December 16, 2007 6:50 PM

Tyler Cowen, with a little more information than MY, wasn't really talking about 2007, but looking just a little ahead.

It is the middle of December, after all. I am not even sure the subprime crisis has exploded yet, IIRC the worst of ARMs resets come in the fall of 2008. The recession, and there will be one, has barely started. The financial crisis will be several times worse in 2008, and may not even hit its deepest trough in 2008, but early in 2009. The candidates better be very well prepared.

I think I said at Ezra's that the timing is tragic for Edwards and maybe for the country. Uf the primaries were six months from now, he would win both the nomination and election in a landslide. We are gonna needs Edwards in 2009. Clinton will sell us all to Wall St, and Obama will sell us to his Republican buddies.

Posted by bob mcmanus | December 16, 2007 6:55 PM

I reread MY's post, and I just need to repeat:

It hasn't hit yet, Matt. It has barely begun. You think this is the crisis? Kid ain't ever seen a serious recession in his lifetime.

5 years from now none of the homebuilders will be around, and when those bankruptcies start...

It has barely started. The crisis will be in an election year.

Posted by bob mcmanus | December 16, 2007 7:08 PM

My city councilmen are elected in 2005/09/13/17/21/25 so there are no non-election years for my neighborhood.

Posted by Brian | December 16, 2007 8:01 PM

Every so often in the blogosphere a discussion gets going on what constitutional amendment would be a good idea. To me, by far the worst thing in the Constitution that's realistically fixable is the two-year terms for the House. They're shorter than in any other democracy and, as this post points out, they result in there being no meaningful non-election years except for the year in which, typically, a new President is just finding their feet. Four-year terms for the House!

Posted by william | December 16, 2007 8:42 PM

Yet another reason to end the Presidency

We wouldn't have these quadrennial Presdidential election campaigns that last two years, if we didn't have Presidents. Even just returning the Presidency to its Constitutionally prescribed impotence and irrlevance would be sufficient to achieve this worthy end.

Posted by Glen Tomkins | December 16, 2007 11:04 PM

Since we are all making outrageous predictions about the future of the economy, I'll make one! There won't be a recession that "troughs" in 2008 or 2009-instead, everything will be peachy as ever, with steady economic growth all the way through the election cycle. On what basis do I make this prediction? Why, absolutely no basis at all! Let's see whose guess pans out.

Posted by gerontion | December 17, 2007 3:10 AM

That seems like a dreary and depressing outcome to me, but I'm not sure that there's anything wrong with it as such.

[snark] That's the problem with constitutional democracy--the darn voters keep thinking they ought to have a say in policy decisions[/snark]

Posted by rea | December 17, 2007 5:48 AM

Without the fixed-term rule, election campaigns would be much shorter - in the UK an election can be called at any time, the only limit being that there must be one at least every five years. But the campaign can be as short as three weeks from announcement to polling day!

Posted by ajay | December 17, 2007 5:57 AM

Remembering that three of four years in the US are election years is relevant to MY's comment in the Bali post about US action on climate change "Still, to an almost frightening extent everything hinges on the election." Democrats who want to impose some costs on their constituents to slow climate change ( i.e. not all Democrats) will have to win a lot of elections in the next 20 years to make even a start on this. Sounds unlikely to me.

Posted by otto | December 17, 2007 6:41 AM

Of course it's an issue when every year is an election year: it means that you get lowest-common-denominator politics, promises of ponies from all sides, and peril-sensitive sunglasses against scary reality.

It's bad enough that House members are begging for their re-election coffers the day after they're sworn in. Combine that with massive districts, and it's rationed down to about 10 seconds per constituent per term.

But the wonders of perma-lection also got you the joint resolution squeeze in 2002, because too many Dems were shit-scared of the sad truth that Americans Like Wars. (At least, at the start.)

Posted by pseudonymous in nc | December 17, 2007 7:52 AM