Matt Yglesias writes on “the bitter politics of stagnation”:

Steep recessions and sluggish subsequent growth have a really negative impact on the wealth and incomes of a wide range of people. That includes wealthy finance guys and jobless young people and underwater middle class homeowners and everyone. And the natural human instinct when you wind up with less pie than you thought you could reasonably expect is to assume that the people in charge gave your pie to someone else. So Wall Street feels that run-amok populism has impoverished them (relative to expectations) for roughly the same reasons that Obama’s liberal critics feel that his constant succor of the banksters has impoverished them—everyone is poorer than they thought they were going to be. Instead of a politics dominated by divvying up the gains of economic growth we’ve had a politics dominated by allocating massive losses of wealth. Nobody is a sufficiently skilled politician to play that game without alienating lots of people.

This reminded me of Jay Cost’s recent essay on “The Politics of Loss” in National Affairs:

For generations after World War II, both parties agreed implicitly upon a great American share-out: The fantastic growth of the American economy gave politicians in both parties the enviable task of deciding how the annual surplus would be divided, meaning that everybody could be a winner. Republicans could cut taxes and dabble in generous social-welfare benefits; Democrats could distribute generous social-welfare benefits and dabble in tax cuts; both parties could push for an overpowering military; and all the while the annual budget deficit stayed more or less within a tolerable range. It was a true win-win, with political disagreements largely fought over which side would win more.
Even as the balance of power in Washington shifted back and forth after World War II, the share-out endured. And this durability helps explain why the domestic policies of presidents from Dwight Eisenhower to George W. Bush have often seemed interchangeable, regardless of party. John Kennedy, Lyndon Johnson, and Bill Clinton all cut taxes; Eisenhower, Richard Nixon, and Bush all expanded the social-welfare state. The purists at the two ends of the ideological spectrum were usually unhappy, but the broad middle of the country — where elections are always won or lost — was pleased. Thus a political equilibrium was reached and preserved, more or less, for 50 years.
In our time, however, this balance has been upset not only by the severity of the most recent recession, but also by the weakness of the recoveries that have followed the downturns of the past decade. Evidence would suggest that the great American growth machine is sputtering, with forecasts auguring middling growth next year (around 2%), essentially continuing the unimpressive trend of the past decade. And this economic torpor strikes at the worst possible moment: The Baby Boomers — an outsized generation that came about because of the post-war era’s unparalleled prosperity — are now starting to collect on the generous promises that politicians made when they were just children.
The days when lawmakers could give to some Americans without shortchanging others are over; the politics of deciding who loses what, and when and how, is upon us. Neither party yet fully understands the implications of this shift, which means both parties risk being caught unprepared when the economic slowdown forces profound changes in American politics. The great American share-out is coming to an end — and, with it, the rules and norms of our politics that several generations have taken for granted.

In Cost’s view, the end of the share-out contributes to a number of phenomena, including the intensification of ideological polarization and the broader coarsening of our politics. There was a time when robust economic growth allowed for public social expenditures to grow while taxes remained relatively low. Those days are over, at least for now. This means that keeping taxes low will require either a profound rethinking and restructuring of public social expenditures. Leaving public social expenditures to grow on more or less their current trajectory will entail steep tax increases. Finding some halfway point will be extremely difficult, as the incentives to engage in compromise are weak if egalitarian liberals and market conservatives both think they can “run the table,” i.e., if they both think they can control the levers of power.

Yet Cost warns that “the bitter politics of stagnation,” in Yglesias’s words, are particularly problematic for the political right. When a rising tide lifts all boats, egalitarian appeals tend not to resonate. When it does not, or when it does not to a sufficient degree, economic populism is aligned with loss aversion in a powerful combination:

When prosperity is lacking, however, liberal Democrats have the upper hand. For instance, in examining the presidential election of 1948, the typical political-science model attributes Harry Truman’s victory over Thomas Dewey to the strength of the post-war economy. But the real story is much more complicated. In fact, the farm economy was struggling in 1948; farm wages had flattened and net farm income had actually declined. But though their lot had worsened under Truman, Midwestern farmers — despite historic ties to the GOP that traced back to the 1850s — actually supported the incumbent. Why? The president seized upon the efforts of congressional Republicans to cut federal farm subsidies, and traveled all over the Midwest warning that, when the next recession hit, farmers would need the heirs of F.D.R. to protect them from vicious, Hooveresque Republicans. The strategy worked: Truman did markedly better in the Midwest than F.D.R. had four years earlier, winning Colorado, Iowa, Ohio, Wisconsin, and Wyoming — all of which Roosevelt had lost in 1944.
There is a lesson here for conservatives. The GOP’s emphasis on free markets inevitably tilts fiscal policy toward capital owners, at least in the short term. This is not because the Republicans have always been “the party of special interests,” as the fiery Truman once put it, but because Republicans believe that the private sector’s allocation of capital is the most progressive force in the world — and that it will produce broad prosperity if given enough time. If that widespread prosperity is not forthcoming, however, the political appeal of the conservative argument collapses, and Republicans suddenly appear to be a party of plutocrats, robbing the poor to pay the rich.

Cost’s concern is that the resulting increase in clientelism and dependency will undermine republican government, and so he ends his essay by arguing (uncontroversially) that restoring growth is of vital importance, particularly to the right.

One wonders if Cost’s line of thinking will spark or renew interest in market monetarism among conservatives and libertarians.