Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Government Works Better When Divided

Politics / US Politics Nov 25, 2018 - 03:21 PM GMT

By: Steve_H_Hanke

Politics

The results of the U.S. mid-term elections were good news for not only the winners, but for most Americans. Yes, the federal government works better when divided, not unified. The 116th Congress—with the House of Representatives controlled by the Democrats and the Senate and White House under Republican command—may work better than the unified 115th Congress did.

The idea and evidence supporting this somewhat counter-intuitive idea was first presented to me many years ago by my good friend and collaborator, the late William A. “Bill” Niskanen. Bill was sharp as a tack. Indeed, he was one of Secretary of Defense McNamara’s “Whiz Kids” during the Kennedy-Johnson years. At the ripe old age of 29, Bill had a civilian rank equivalent to that of a brigadier-general. Bill was one to speak his mind, too. His sharpness and outspokenness occasionally landed him in hot water. Famously, while operating as the director of economics at Ford Motor Company in the mid-1970s, Bill publicly opposed U.S. government restrictions on the imports of Japanese automobiles, demonstrating why the restrictions would hurt Ford. For that infraction, Bill was sacked.


I worked with Niskanen in many different settings: first, at the U.S. Office of Management and Budget in 1971, then at the University of California, Berkeley in the early 1970s, then on President Reagan’s Council of Economic Advisers, and finally at the Cato Institute—where Bill was chairman. Over the years, Bill repeatedly expounded on his case for a divided government. He often made that case to the high priests of both the Republican and Democratic parties. This, of course, annoyed them to no end. But, facts are facts.

In making the case for a divided government, Niskanen played three cards. First, the likelihood of entering a major war is much lower with a divided than a unified government. In the 20th century, all major wars have been entered into during periods when the President and Congress were of the same party. Interestingly, the Democrats have been the war party. Indeed, all the major U.S. wars lasting more than a few days, with the exception of the Iraq War, were undertaken when Democrats occupied both the White House and Congress.

Niskanen’s second card concerns major reforms. They have a better chance of being sustained when enacted with bipartisan support by divided governments. Remember Reagan’s revolutionary tax reforms of 1981 and 1986. They came to life during divided governments. Both of those tax reforms have largely survived, as have many other major reforms that were the products of divided governments.

The third card is government spending and the size of government spending relative to GDP. The real rate of growth in (inflation-adjusted) federal spending tends to be lower with divided governments. Consequently, the size of government, measured by the ratio of government outlays to GDP, shrinks—the ratio becomes smaller. This pattern is shown in the table below.

Percentage Point Changes in U.S. Federal Outlays, as a Percent of GDPProf. Steve H. Hanke

A divided government is a necessary but not sufficient condition for government “shrinkage.” Indeed, every instance of government shrinkage since World War II has occurred during a period of divided government. The shrinkages transpired during the Eisenhower, Nixon, Reagan, and Clinton administrations, as indicated in the table above by the green highlight. Although these four administrations all cut government’s share of GDP, President Clinton was the King of the fiscal squeeze. Indeed, he was the King by a huge margin. Clinton cut government’s share of GDP by a whopping 3.9 percentage points over his eight years in office. President Nixon’s six years in office yielded a distant second place, with a 1.8 percentage point drop in the federal government’s slice of GDP.

Some argue that Clinton’s fiscal squeeze was largely the result of the so-called “peace dividend”—the post-Cold-War military drawdown. Well, Clinton did benefit from the peace dividend, but as shown in the table above, the majority of Clinton’s cuts came from reductions in non-defense expenditures. Crucially, the driving force behind many of these non-defense expenditure reductions came from the other (read: Republican) side of the aisle, under the leadership of Speaker Gingrich.

Why was the Clinton-Gingrich fiscal restraint so extraordinary? Well, Speaker Gingrich might have been a Republican firebrand, but he was a smart Speaker who knew how to maneuver. And, President Clinton was a smart operator, too. Indeed, he did not acquire the attribution “Slick Willy” for nothing. These two operators knew all about the art of the deal. Their deals would keep the U.S. out of new major wars, produce major reforms, and cut back the scope and scale of government. The result was a long economic boom.

Today, with the 116th Congress, we will have a divided government—a condition for government to work better than usual. While President Trump and the new Democratic Speaker of the House will probably not be able to trump Clinton and Gingrich, they might be able to strike deals. And, there is already a glimmer of hope on the horizon. Just this past Saturday, the Wall Street Journal headline read: “Trump Offers Help Securing Votes for Pelosi in Speaker Race.” The President went so far as to say, “I can get Nancy Pelosi as many votes as she wants in order for her to be the Speaker of the House.” That’s what I call starting on the right foot. After all, Pelosi looks to be the favorite to lead the Democrat-controlled House.

By Steve H. Hanke

www.cato.org/people/hanke.html

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2018 Steve H. Hanke - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in