I found a post that LM posted in the community yesterday very interesting. I decided to share it with friends who are not in the community, so that everyone can take a look.
First of all, this article is an extended analysis of lm's reply to a post he made last year.
Specific details:
Last year I discussed the R word (recession). This isn’t a doomsday post, just something to think about.
This observation touches on a pattern in American politics, where economic downturns and shifts in political power between Democrats and Republicans often cyclically alternate. Such shifts can be explained by several factors involving the interaction between ideology, economic conditions, and voter preferences. Here are the reasons why these cycles repeat:
1. Business cycles and accountability
In the United States, economic crises and recessions often lead to changes in political power. When one party stays in power for a long time, it usually takes the blame for economic difficulties, even if the causes are complex and multi-layered.
For example, the economic problems faced by Lyndon B. Johnson and later Jimmy Carter led voters to associate the Democratic Party with inflation and stagflation. In these circumstances, many voters turned to the opposition party in search of stability and growth, and Republicans like Nixon (and later Reagan) took advantage of this.
2. Divergent economic policies and ideologies
The two major political parties in the U.S. often pursue very different economic policies. Democrats tend to support government intervention and social programs, which can appear costly or ineffective during economic downturns.
Republicans typically promote a market-oriented, growth-focused approach, including tax cuts and deregulation. That approach may appear more attractive after a period of stagnation. Nixon, and later Reagan, capitalized on that dynamic as voters grew tired of stagnation.
3. Inflation and stagflation as a “Democratic problem”
The 1970s saw an unusual economic phenomenon: stagflation, a period of economic stagnation and high inflation. This posed special challenges because typical measures to curb inflation, such as raising interest rates, could further undermine growth. Stagflation occurred under Democratic presidents such as Johnson and Carter, leading to its association with Democratic policies.
This association often pushes voters toward Republicans during tough economic times, seeing them as more likely to take a "tough" approach to economic policy, as Nixon and, later, Reagan did.
4. Economic inequality and populism
Economic crises tend to exacerbate existing inequalities, making populist rhetoric more appealing. Both parties have adopted populist rhetoric at different times to win over voters. Republicans like Nixon focused on law-and-order rhetoric and economic populism, which resonated in uncertain times.
In contrast, the Democratic Party has typically advocated for social reform and redistributive policies. However, during times of severe economic challenges, such as the 1970s, voters viewed these policies as ineffective or even harmful, leading to a political shift.
5. Expectations and political disillusionment
Voter expectations play a key role. The public often has high expectations for government solutions to economic problems. When these expectations are not met due to the complexity and slowness of economic solutions, voters may seek alternatives.
Democratic presidents like Johnson who implemented sweeping social programs like the Great Society were sometimes seen as drivers of economic problems, deemed too costly or inflationary. That disappointment opened the door to a shift toward Republican leadership, which was often seen as more focused on efficiency and fiscal restraint.
Summarize
These cycles reflect a complex interplay between public sentiment, economic conditions, and the ideology of the ruling party. The periodic transition of power between Democrats and Republicans during economic crises is not a coincidence but part of a historical pattern. American voters respond to economic hardship by turning to new leadership for change, which perpetuates the cycle.
lm's post clearly breaks down the causal chain of "economic recession → voter attribution → party label → power change", especially the politicization of inflation, which accurately echoes the current policy differences of the Federal Reserve - Powell was questioned by the market for "lack of consistency" for failing to cut interest rates quickly.
Yesterday's market was very boring, so I won't talk about it much, nothing surprising. Today, the key event will be the release of PCE inflation data. The detailed analysis of this event and the impact of community traders have been detailed, so just go and have a look.