It seems the Senate could have a really hot summer. Majority leader Harry Reid (D-NV) has reportedly threatened to “go nuclear” this July—meaning that Senate Democrats would move by majority vote to ban filibusters of executive and judicial branch nominees. According to these reports, if Senate Republicans block three key nominations (Richard Cordray to head the Consumer Financial Protection Bureau, Thomas Perez at Labor, and Gina McCarthy at EPA), Reid will call on the Democrats to invoke the nuclear option as a means of eliminating filibusters over nominees.

Jon Bernstein offered a thoughtful reaction to Reid’s gambit, noting that Reid’s challenge is to “find a way to ratchet up the threat of reform in order to push Republicans as far away from that line as possible.” Jon’s emphasis on Reid’s threat is important (and is worth reading in full).  Still, I think it’s helpful to dig a little deeper on the role of both majority and minority party threats that arise over the nuclear option.

Before getting to Reid’s threat, two brief detours. First, a parliamentary detour to make plain two reasons why Reid’s procedural gambit is deemed “nuclear.” First, Democrats envision using a set of parliamentary moves that would allow the Senate to cut off debate on nominations by majority vote (rather than by sixty votes). Republicans (at least when they are in the minority) call this “changing the rules by breaking the rules,” because Senate rules formally require a 2/3rds vote to break a filibuster of a measure to change Senate rules. The nuclear option would avoid the formal process of securing a 2/3rds vote to cut off debate; instead, the Senate would set a new precedent by simple majority vote to exempt nominations from the reach of Rule 22. If Democrats circumvent formal rules, Republicans would deem the move nuclear. Second, Reid’s potential gambit would be considered nuclear because of the anticipated GOP reaction: As Sen. Schumer argued in 2005 when the GOP tried to go nuclear over judges, minority party senators would “blow up every bridge in sight.” The nuclear option is so-called on account of the minority’s anticipated parliamentary reaction (which would ramp up obstruction on everything else).

A second detour notes simply that the exact procedural steps that would have to be taken to set a new precedent to exempt nominations from Rule 22 have not yet been precisely spelled out.  Over the years, several scenarios have been floated that give us a general outline of how the Senate could reform its cloture rule by majority vote. But a CRS report written in the heat of the failed GOP effort to go nuclear in 2005 points to the complications and uncertainties entailed in using a reform-by-ruling strategy to empower simple majorities to cut off debate on nominations. My sense is that using a nuclear option to restrict the reach of Rule 22 might not be as straight forward as many assume.

That gets us to the place of threats in reform-by-ruling strategies. The coverage of Reid’s intentions last week emphasized the importance of Reid’s threat to Republicans: Dare to cross the line by filibustering three particular executive branch nominees, and Democrats will go nuclear. But for Reid’s threat to be effective in convincing GOP senators to back down on these nominees, Republicans have to deem Reid’s threat credible. Republicans know that Reid refused by go nuclear last winter (and previously in January 2009), not least because a set of longer-serving Democrats opposed the strategy earlier this year. It would be reasonable for the GOP today to question whether Reid has 51 Democrats willing to ban judicial and executive branch nomination filibusters. If Republicans doubt Reid’s ability to detonate a nuclear device, then the threat won’t be much help in getting the GOP to back down. Of course, if Republicans don’t block all three nominees, observers will likely interpret the GOP’s behavior as a rational response to Reid’s threat. Eric Schickler and Greg Wawro in Filibuster suggest that the absence of reform on such occasions demonstrates that the nuclear option can “tame the minority.”  Reid’s threat would have done the trick.

As a potentially nuclear Senate summer approaches, I would keep handy an alternative interpretation.  Reid isn’t the only actor with a threat: given Republicans’ aggressive use of Rule 22, Republicans can credibly threaten to retaliate procedurally if the Democrats go nuclear.  And that might be a far more credible threat than Reid’s. We know from the report on Reid’s nuclear thinking that “senior Democratic Senators have privately expressed worry to the Majority Leader that revisiting the rules could imperil the immigration push, and have asked him to delay it until after immigration reform is done (or is killed).” That tidbit suggests that Democrats consider the GOP threat to retaliate as a near certainty. In other words, if Republicans decide not to block all three nominees and Democrats don’t go nuclear, we might reasonably conclude that the minority’s threat to retaliate was pivotal to the outcome. As Steve Smith, Tony Madonna and I argued some time ago, the nuclear option might be technically feasible but not necessarily politically feasible.

To be sure, it’s hard to arbitrate between these two competing mechanisms that might underlie Senate politics this summer.  In either scenario—the majority tames the minority or the minority scares the bejeezus out of the majority—the same outcome ensues: Nothing. Still, I think it’s important to keep these alternative interpretations at hand as Democrats call up these and other nominations this spring. The Senate is a tough nut to crack, not least when challenges to supermajority rule are in play.

In "Why Aging and Working Makes us Happy in 4 Charts," Carol Graham describes a research paper in which she and co-author Milena Nikolova examine determinants of subjective well-being beyond traditional income measures. One of these is the relationship between age and happiness, a chart of which resembles, remarkably, a smile.

As Graham notes:

There is a U-shaped curve, with the low point in happiness being at roughly age 40 around the world, with some modest differences across countries. It seems that our veneration of (or for some of us, nostalgia, for) youth as the happiest times of our lives is overblown, the middle age years are, well, as expected, and then things get better as we age, as long as we are reasonably healthy (age-adjusted) and in a stable partnership.

The new post has three additional charts that showcase other ways to think about factors of happiness.

This week will bring a cornucopia of new data, an econo-nerd's dream. Unfortunately for some of us nerds, there won't be any releases on state and local government finances. (The Census Bureau generally has to wait for all states to report and, as you can imagine, some states are laggards.)

However, there will still be a lot in this week's numbers for those who follow state and local government finances, pay into state and local coffers, or consume predominantly state and local public services like education, roads, and health care. Here are a few trends worth watching:

First, Tuesday's March S&P/Case Shiller house price indexes will be important for states whose fortunes are tied to real estate, especially in the West and Southwest. Macroeconomic forecasters are predicting home prices will decline slightly compared to one year ago but continue to increase month-to-month, suggesting that perhaps the market has hit bottom.

That would be good news for the housing sector. However, research from Federal Reserve Board economists Byron Lutz, Raven Molloy, and Hui Shan suggests that any boon to state and local revenues would be minor. They calculate the housing bust per se generated only a $22 billion drop in taxes over three years, equivalent to roughly 3 percent of annual state and local revenues excluding federal funds.

Meanwhile, the latest Census data suggest that state taxes are growing, but at a pace that is slower than usual. More worrisome, the pace appears to be moderating. In recent weeks, California, New York, New Jersey, Pennsylvania, and Rhode Island have all reported taxes coming in below projections. Also, local property taxes are likely to remain in the doldrums for some time. They tend to respond to house price changes with a delay and thus just started showing the effects of the housing bust in late 2010. Property taxes recently turned positive again, but these gains are anemic by historical standards and likely caused by rate hikes in some jurisdictions rather than improving property values.

Next up this week are Bureau of Economic Analysis revisions to first quarter GDP. Macroeconomists will be attuned to how the revisions compare to advance estimates and what this portends for the recovery. They might also take note of whether these governments are detracting from growth - as they have done by an average of 0.2 percentage points in each quarter since 2008 - or contributing to it as usual. State and local watchers will be more focused on state and local spending, which unlike previous downturns, has declined in real per capita terms and not yet recovered.

That leads us to the biggest number to watch this week - Friday's jobs report. State and local employment is already down by 665,000 jobs or about 3.5 percent from its pre-recession peak. Recent trends suggest that cuts may be abating, but this total masks differences across subsectors - state education has been adding jobs while losses continue in all other subsectors, especially at the local level.

Ongoing state and local job losses also distinguish this recession from previous downturns in the modern era. This may be in keeping with the depths of this Great Recession. However, it's hard to imagine state and local residents aren't feeling the pinch of higher property tax burdens or lower services. To take one example, Governor Jerry Brown has proposed closing California's $16 billion budget gap by converting state employees to a four day work week and closing state parks. From a macro perspective, the fiscal tightening may be over. But that doesn't mean state and local governments aren't still a real drag.

Each year millions of low- to moderate-income Americans supplement their income by claiming the Earned Income Tax Credit (EITC) during tax season. Last year, 1 in 5 taxpayers claimed the credit and earned an average of nearly $2,400.

This tax season, some of those eligible for the EITC may also be able to claim, for the first time, a new credit created by the Affordable Care Act (ACA) to offset the cost of purchasing health insurance for lower-income Americans. It’s called the ACA premium tax credit.

To qualify for the ACA premium tax credit, filers need first to have an annual income that falls between 100 and 400 percent of the federal poverty line (between $11,670 and $46,680 for a single-person household in 2014). Beyond the income requirements, however, filers must also be ineligible for other public or private insurance options like Medicaid or an employer-provided plan.

Why the tax credit overlap matters

Identifying the Americans eligible for both credits is important because it sheds light on how many still need help paying for health insurance even after the ACA extended coverage options.

In a recent study of the EITC-eligible population, Elizabeth Kneebone, Jane R. Williams, and Natalie Holmes estimated what share of EITC-eligible filers might also qualify for the ACA premium tax credit this year.

Below, see a list of the top 10 states with the largest overlap between filers eligible for the EITC and those estimated to qualify for the ACA premium tax credit.* Notably, none of these states has expanded Medicaid coverage to low-income families after the passage of the ACA.

Nationally, an estimated 7.5 million people (4.2 million “tax units”) are likely eligible for both the ACA premium tax credit and the EITC. Nearly 1.3 million of those tax units are from the following ten states.

1. Florida

Overlap: 22.5 percent / 405,924 tax units
State-based exchange? No Expanded Medicaid coverage? No

2. Texas

Overlap: 21.4 percent / 513,061 tax units
State-based exchange? No Expanded Medicaid coverage? No

3. South Dakota

Overlap: 20.5 percent / 15,124 tax units
State-based exchange? No Expanded Medicaid coverage? No

4. Georgia

Overlap: 19.8 percent / 186,020 tax units
State-based exchange? No Expanded Medicaid coverage? No

5. Louisiana

Overlap: 19.6 percent / 86,512 tax units
State-based exchange? No Expanded Medicaid coverage? No

6. Idaho

Overlap: 19.3 percent / 28,855 tax units
State-based exchange? Yes Expanded Medicaid coverage? No

7. Montana

Overlap: 18.9 percent / 18,138 tax units
State-based exchange? No Expanded Medicaid coverage? No

8. Wyoming

Overlap: 18.4 percent / 7,276 tax units
State-based exchange? No Expanded Medicaid coverage? No

9. Utah

Overlap: 18.1 percent / 42,284
State-based exchange? No (Utah runs a small businesses marketplace, but it relies on the federal government for an individual marketplace) Expanded Medicaid coverage? No

10. Oklahoma

Overlap: 18.0% / 63,045 tax units
State-based exchange? No Expanded Medicaid coverage? No

* For the purposes of this list, we measured the overlap in “tax units,” not people. One tax unit equals a single tax return. If a family of four together qualifies for the ACA premium tax credit, they would be counted as one tax unit, not four, since they filed jointly with one tax return.

Walk Score®, a new Web site popular with urbanists and environmental advocates (www.walkscore.com), rates neighborhoods by their walkability--basically the ease of meeting daily needs on foot. The higher the Walk Score®, the more walkable a place is.

Beyond its utility, however, the rise of Walk Score® is another indicator that how the American Dream lays out on the ground has been fundamentally changing over the past 10 to 15 years. Dallas in general and downtown Dallas in particular is well on its way to accommodating this new version of the American Dream, but more needs to be done.

The Ozzie and Harriet drivable suburban vision of the American Dream is being supplemented by the Seinfeld vision of "walkable urbanism." Led by late-marrying young adults and empty-nester baby boomers, many households are looking for the excitement and options that living and working in a walkable urban place can bring. Current demographic trends promise continued demand.

A recent Brookings Institution survey of the largest 30 metro areas in the country identifies the 157 walkable urban places that play a regionally significant role, such as concentrations of employment, education, professional sports, entertainment and housing. It ranked these metros on their per capita number of walkable urban places. Washington, D.C., was first, followed by Boston, San Francisco, Denver and Portland.

The top 15 metro areas had the vast majority, 85%, of these walkable urban places, though only two-thirds of the surveyed population. This showed that the top 30 metros are dividing between haves and have nots: metropolitan areas that have many walkable urban options and those that are lagging. Additionally, two-thirds of these 157 places had rail transit, demonstrating the importance of rail transit to the emergence of walkable urbanism.

A surprising finding of the survey is that while downtowns are a major location of walkable urbanism, downtown adjacent places are exploding in number and size. Places like Lincoln Park in Chicago, Dupont Circle in Washington, D.C., and the Pearl District in Portland, Ore., are booming alongside their resurgent downtowns.

A major benefit of walkable urban development is that its keeps and attracts young adults to the metro area, many of whom willingly trade crushing car commutes for walkable places to live and work. Walkable urban places seem to attract the well educated, the so called "creative class." Even the nascent revival in downtown Detroit has seen 83% of new residents arriving with a college education, compared to 26% of the national population.

While the Dallas metro ranked only 25th of 30 in the Brookings' survey, there are reasons to believe your destiny is to become a major concentration of walkable urban places. That reasoning starts with your investment in Dallas Area Rapid Transit light rail and the Trinity Railway Express commuter rail. This is being followed by aggressively encouraging high-density zoning around rail stations and in downtown adjacent locations. The combination of rail transit and high density zoning is essential to allow the private real estate community to respond to the pent-up market and economic demand of walkable urban development.

Finally, it is crucial to manage the various walkable urban places that either exist or are evolving. The role model in the Dallas area is the DowntownDallas organization, which provides security, signage and strategic direction for downtown.

The future of the Dallas metro area is linked to your ability to provide both more walkability options and expanded offerings of existing walkable urban places. There should be 15-20 more places like downtown Dallas, downtown Fort Worth, Uptown, Plano Town Center and Addison Circle for the region to meet the pent-up demand for walkable urbanism.

Building those additional walkable urban places will continue the economic development miracle that has been Dallas metro for so many years and it will increase your Walk Scores® as well.

An economic analysis of a sample of neighborhoods in the Washington, D.C. metropolitan area using walkability measures finds that:

• More walkable places perform better economically. For neighborhoods within metropolitan Washington, as the number of environmental features that facilitate walkability and attract pedestrians increase, so do office, residential, and retail rents, retail revenues, and for-sale residential values.

• Walkable places benefit from being near other walkable places. On average, walkable neighborhoods in metropolitan Washington that cluster and form walkable districts exhibit higher rents and home values than stand-alone walkable places.

• Residents of more walkable places have lower transportation costs and higher transit access, but also higher housing costs. Residents of more walkable neighborhoods in metropolitan Washington generally spend around 12 percent of their income on transportation and 30 percent on housing. In comparison, residents of places with fewer environmental features that encourage walkability spend around 15 percent on transportation and 18 percent on housing.

• Residents of places with poor walkability are generally less affluent and have lower educational attainment than places with good walkability. Places with more walkability features have also become more gentrified over the past decade. However, there is no significant difference in terms of transit access to jobs between poor and good walkable places.

The findings of this study offer useful insights for a diverse set of interests. Lenders, for example, should find cause to integrate walkability into their underwriting standards. Developers and investors should consider walkability when assessing prospects for the region and acquiring property. Local and regional planning agencies should incorporate assessments of walkability into their strategic economic development plans and eliminate barriers to walkable development. Finally, private foundations and government agencies that provide funding to further sustainability practices should consider walkability (especially as it relates to social equity) when allocating funds and incorporate such measures into their accountability standards.

The Great Recession highlighted the need to change the prevailing real estate development paradigm, particularly in housing. High-risk financial products and practices, “teaser” underwriting terms, steadily low-interest rates, and speculation in housing were some of the most significant contributors to the housing bubble and burst that catalyzed the recession. But an oversupply of residential housing also fueled the economic crisis.

However, a closer look at the post-recession housing numbers paints a more nuanced picture. While U.S. home values dropped steadily between 2008 and 2011, distant suburbs experienced the starkest price decreases while more close-in neighborhoods either held steady or in some cases saw price increases. This distinction in housing proximity is particularly important since it appears that the United States may be at the beginning of a structural real estate market shift. Emerging evidence points to a preference for mixed-use, compact, amenity-rich, transit-accessible neighborhoods or walkable places.

Download » (PDF)

Downloads

• Download paper

Editors’ Note: The phenomenon Donald Trump has created has become something larger than him, and something far more dangerous, writes Bob Kagan. This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called “fascism.” This piece originally appeared in The Washington Post.

The Republican Party’s attempt to treat Donald Trump as a normal political candidate would be laughable were it not so perilous to the republic. If only he would mouth the party’s “conservative” principles, all would be well.

But of course the entire Trump phenomenon has nothing to do with policy or ideology. It has nothing to do with the Republican Party, either, except in its historic role as incubator of this singular threat to our democracy. Trump has transcended the party that produced him. His growing army of supporters no longer cares about the party. Because it did not immediately and fully embrace Trump, because a dwindling number of its political and intellectual leaders still resist him, the party is regarded with suspicion and even hostility by his followers. Their allegiance is to him and him alone.

And the source of allegiance? We’re supposed to believe that Trump’s support stems from economic stagnation or dislocation. Maybe some of it does. But what Trump offers his followers are not economic remedies—his proposals change daily. What he offers is an attitude, an aura of crude strength and machismo, a boasting disrespect for the niceties of the democratic culture that he claims, and his followers believe, has produced national weakness and incompetence. His incoherent and contradictory utterances have one thing in common: They provoke and play on feelings of resentment and disdain, intermingled with bits of fear, hatred and anger. His public discourse consists of attacking or ridiculing a wide range of “others”—Muslims, Hispanics, women, Chinese, Mexicans, Europeans, Arabs, immigrants, refugees—whom he depicts either as threats or as objects of derision. His program, such as it is, consists chiefly of promises to get tough with foreigners and people of nonwhite complexion. He will deport them, bar them, get them to knuckle under, make them pay up or make them shut up.

That this tough-guy, get-mad-and-get-even approach has gained him an increasingly large and enthusiastic following has probably surprised Trump as much as it has everyone else. Trump himself is simply and quite literally an egomaniac. But the phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

[T]he phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

Republican politicians marvel at how he has “tapped into” a hitherto unknown swath of the voting public. But what he has tapped into is what the founders most feared when they established the democratic republic: the popular passions unleashed, the “mobocracy.” Conservatives have been warning for decades about government suffocating liberty. But here is the other threat to liberty that Alexis de Tocqueville and the ancient philosophers warned about: that the people in a democracy, excited, angry and unconstrained, might run roughshod over even the institutions created to preserve their freedoms. As Alexander Hamilton watched the French Revolution unfold, he feared in America what he saw play out in France—that the unleashing of popular passions would lead not to greater democracy but to the arrival of a tyrant, riding to power on the shoulders of the people.

This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called “fascism.” Fascist movements, too, had no coherent ideology, no clear set of prescriptions for what ailed society. “National socialism” was a bundle of contradictions, united chiefly by what, and who, it opposed; fascism in Italy was anti-liberal, anti-democratic, anti-Marxist, anti-capitalist and anti-clerical. Successful fascism was not about policies but about the strongman, the leader (Il Duce, Der Fuhrer), in whom could be entrusted the fate of the nation. Whatever the problem, he could fix it. Whatever the threat, internal or external, he could vanquish it, and it was unnecessary for him to explain how. Today, there is Putinism, which also has nothing to do with belief or policy but is about the tough man who singlehandedly defends his people against all threats, foreign and domestic.

Successful fascism was not about policies but about the strongman, the leader (Il Duce, Der Fuhrer), in whom could be entrusted the fate of the nation.

To understand how such movements take over a democracy, one only has to watch the Republican Party today. These movements play on all the fears, vanities, ambitions and insecurities that make up the human psyche. In democracies, at least for politicians, the only thing that matters is what the voters say they want—vox populi vox dei. A mass political movement is thus a powerful and, to those who would oppose it, frightening weapon. When controlled and directed by a single leader, it can be aimed at whomever the leader chooses. If someone criticizes or opposes the leader, it doesn’t matter how popular or admired that person has been. He might be a famous war hero, but if the leader derides and ridicules his heroism, the followers laugh and jeer. He might be the highest-ranking elected guardian of the party’s most cherished principles. But if he hesitates to support the leader, he faces political death.

In such an environment, every political figure confronts a stark choice: Get right with the leader and his mass following or get run over. The human race in such circumstances breaks down into predictable categories—and democratic politicians are the most predictable. There are those whose ambition leads them to jump on the bandwagon. They praise the leader’s incoherent speeches as the beginning of wisdom, hoping he will reward them with a plum post in the new order. There are those who merely hope to survive. Their consciences won’t let them curry favor so shamelessly, so they mumble their pledges of support, like the victims in Stalin’s show trials, perhaps not realizing that the leader and his followers will get them in the end anyway.

A great number will simply kid themselves, refusing to admit that something very different from the usual politics is afoot.

A great number will simply kid themselves, refusing to admit that something very different from the usual politics is afoot. Let the storm pass, they insist, and then we can pick up the pieces, rebuild and get back to normal. Meanwhile, don’t alienate the leader’s mass following. After all, they are voters and will need to brought back into the fold. As for Trump himself, let’s shape him, advise him, steer him in the right direction and, not incidentally, save our political skins.

What these people do not or will not see is that, once in power, Trump will owe them and their party nothing. He will have ridden to power despite the party, catapulted into the White House by a mass following devoted only to him. By then that following will have grown dramatically. Today, less than 5 percent of eligible voters have voted for Trump. But if he wins the election, his legions will comprise a majority of the nation. Imagine the power he would wield then. In addition to all that comes from being the leader of a mass following, he would also have the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military. Who would dare to oppose him then? Certainly not a Republican Party that laid down before him even when he was comparatively weak. And is a man like Trump, with infinitely greater power in his hands, likely to become more humble, more judicious, more generous, less vengeful than he is today, than he has been his whole life? Does vast power un-corrupt?

This is how fascism comes to America, not with jackboots and salutes (although there have been salutes, and a whiff of violence) but with a television huckster, a phony billionaire, a textbook egomaniac “tapping into” popular resentments and insecurities, and with an entire national political party—out of ambition or blind party loyalty, or simply out of fear—falling into line behind him.

Editors’ Note: The phenomenon Donald Trump has created has become something larger than him, and something far more dangerous, writes Bob Kagan. This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called “fascism.” This piece originally appeared in The Washington Post.

The Republican Party’s attempt to treat Donald Trump as a normal political candidate would be laughable were it not so perilous to the republic. If only he would mouth the party’s “conservative” principles, all would be well.

But of course the entire Trump phenomenon has nothing to do with policy or ideology. It has nothing to do with the Republican Party, either, except in its historic role as incubator of this singular threat to our democracy. Trump has transcended the party that produced him. His growing army of supporters no longer cares about the party. Because it did not immediately and fully embrace Trump, because a dwindling number of its political and intellectual leaders still resist him, the party is regarded with suspicion and even hostility by his followers. Their allegiance is to him and him alone.

And the source of allegiance? We’re supposed to believe that Trump’s support stems from economic stagnation or dislocation. Maybe some of it does. But what Trump offers his followers are not economic remedies—his proposals change daily. What he offers is an attitude, an aura of crude strength and machismo, a boasting disrespect for the niceties of the democratic culture that he claims, and his followers believe, has produced national weakness and incompetence. His incoherent and contradictory utterances have one thing in common: They provoke and play on feelings of resentment and disdain, intermingled with bits of fear, hatred and anger. His public discourse consists of attacking or ridiculing a wide range of “others”—Muslims, Hispanics, women, Chinese, Mexicans, Europeans, Arabs, immigrants, refugees—whom he depicts either as threats or as objects of derision. His program, such as it is, consists chiefly of promises to get tough with foreigners and people of nonwhite complexion. He will deport them, bar them, get them to knuckle under, make them pay up or make them shut up.

That this tough-guy, get-mad-and-get-even approach has gained him an increasingly large and enthusiastic following has probably surprised Trump as much as it has everyone else. Trump himself is simply and quite literally an egomaniac. But the phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

[T]he phenomenon he has created and now leads has become something larger than him, and something far more dangerous.

Republican politicians marvel at how he has “tapped into” a hitherto unknown swath of the voting public. But what he has tapped into is what the founders most feared when they established the democratic republic: the popular passions unleashed, the “mobocracy.” Conservatives have been warning for decades about government suffocating liberty. But here is the other threat to liberty that Alexis de Tocqueville and the ancient philosophers warned about: that the people in a democracy, excited, angry and unconstrained, might run roughshod over even the institutions created to preserve their freedoms. As Alexander Hamilton watched the French Revolution unfold, he feared in America what he saw play out in France—that the unleashing of popular passions would lead not to greater democracy but to the arrival of a tyrant, riding to power on the shoulders of the people.

This phenomenon has arisen in other democratic and quasi-democratic countries over the past century, and it has generally been called “fascism.” Fascist movements, too, had no coherent ideology, no clear set of prescriptions for what ailed society. “National socialism” was a bundle of contradictions, united chiefly by what, and who, it opposed; fascism in Italy was anti-liberal, anti-democratic, anti-Marxist, anti-capitalist and anti-clerical. Successful fascism was not about policies but about the strongman, the leader (Il Duce, Der Fuhrer), in whom could be entrusted the fate of the nation. Whatever the problem, he could fix it. Whatever the threat, internal or external, he could vanquish it, and it was unnecessary for him to explain how. Today, there is Putinism, which also has nothing to do with belief or policy but is about the tough man who singlehandedly defends his people against all threats, foreign and domestic.

Successful fascism was not about policies but about the strongman, the leader (Il Duce, Der Fuhrer), in whom could be entrusted the fate of the nation.

To understand how such movements take over a democracy, one only has to watch the Republican Party today. These movements play on all the fears, vanities, ambitions and insecurities that make up the human psyche. In democracies, at least for politicians, the only thing that matters is what the voters say they want—vox populi vox dei. A mass political movement is thus a powerful and, to those who would oppose it, frightening weapon. When controlled and directed by a single leader, it can be aimed at whomever the leader chooses. If someone criticizes or opposes the leader, it doesn’t matter how popular or admired that person has been. He might be a famous war hero, but if the leader derides and ridicules his heroism, the followers laugh and jeer. He might be the highest-ranking elected guardian of the party’s most cherished principles. But if he hesitates to support the leader, he faces political death.

In such an environment, every political figure confronts a stark choice: Get right with the leader and his mass following or get run over. The human race in such circumstances breaks down into predictable categories—and democratic politicians are the most predictable. There are those whose ambition leads them to jump on the bandwagon. They praise the leader’s incoherent speeches as the beginning of wisdom, hoping he will reward them with a plum post in the new order. There are those who merely hope to survive. Their consciences won’t let them curry favor so shamelessly, so they mumble their pledges of support, like the victims in Stalin’s show trials, perhaps not realizing that the leader and his followers will get them in the end anyway.

A great number will simply kid themselves, refusing to admit that something very different from the usual politics is afoot.

A great number will simply kid themselves, refusing to admit that something very different from the usual politics is afoot. Let the storm pass, they insist, and then we can pick up the pieces, rebuild and get back to normal. Meanwhile, don’t alienate the leader’s mass following. After all, they are voters and will need to brought back into the fold. As for Trump himself, let’s shape him, advise him, steer him in the right direction and, not incidentally, save our political skins.

What these people do not or will not see is that, once in power, Trump will owe them and their party nothing. He will have ridden to power despite the party, catapulted into the White House by a mass following devoted only to him. By then that following will have grown dramatically. Today, less than 5 percent of eligible voters have voted for Trump. But if he wins the election, his legions will comprise a majority of the nation. Imagine the power he would wield then. In addition to all that comes from being the leader of a mass following, he would also have the immense powers of the American presidency at his command: the Justice Department, the FBI, the intelligence services, the military. Who would dare to oppose him then? Certainly not a Republican Party that laid down before him even when he was comparatively weak. And is a man like Trump, with infinitely greater power in his hands, likely to become more humble, more judicious, more generous, less vengeful than he is today, than he has been his whole life? Does vast power un-corrupt?

This is how fascism comes to America, not with jackboots and salutes (although there have been salutes, and a whiff of violence) but with a television huckster, a phony billionaire, a textbook egomaniac “tapping into” popular resentments and insecurities, and with an entire national political party—out of ambition or blind party loyalty, or simply out of fear—falling into line behind him.

In his presidential campaign in 1928, Herbert Hoover promised to help impoverished farmers by increasing tariffs on agricultural products; after the election, he also asked Congress to reduce tariffs on industrial goods. In April 1929, well before Black Thursday, U.S. Representative Reed Smoot, a Republican from Utah, introduced a bill that passed the House in May. The bill increased agricultural and industrial tariffs at levels that had not been seen for a century. This was a relatively benign beginning of what would become one of the most tragic policy measures of the 1930s. Within a few months of the bill being passed in the Senate as the Smoot-Hawley Tariff Act, other countries in response raised their own trade barriers, which started a vicious circle of contracting world trade flows and economic activity, and rising unemployment from 1930 to 1933.

There are three main lessons from the policies mentioned above: 

1. “Beggar-my-neighbor” policies are bad.
2. Bad policies can have tragic consequences.
3. Beware of benign measures that can ignite uncontrollable chain reactions.

Indeed, these lessons have been in every policymakers’ mind since the Lehmann Brothers failure. In fact, the creation of the G-20 was a spectacular effort by the major economies of the world to cooperatively answer the challenges raised by the most severe financial crisis since the 1930s. The G-20 coordinated the management of strong macroeconomic policies, including huge deficits and easy monetary policies. These were bold decisions but not radical, and those who condemned government intervention have been rebutted by the urgency of these measures. And it is now widely acknowledged that these unconventional measures successfully avoided the transformation of the Great Recession into another Great Depression.

In the U.S., the recovery is at best shaky, unemployment is artificially reduced by the growing number of discouraged workers who have stopped looking for work, and the median income is dramatically lagging.

Today, there are reasons of hope that have been eloquently described by Roger Altman [1]: it can be argued that in the U.S., and to a lesser degree in Europe, the crisis has inspired significant reforms that have pushed the economy closer to a sound and sustainable growth trajectory. However others rightfull so object that enormous challenges are still facing the populations and their respective governments. The price paid for curing the damages of the global financial crisis is extremely high everywhere. In the U.S., the recovery is at best shaky, unemployment is artificially reduced by the growing number of discouraged workers who have stopped looking for work, and the median income is dramatically lagging. In Europe, austerity is the name of the game in every country except Germany and despair is growing among the populace. Japan has been stuck for two decades in deflation. Many citizens around the world feel that the efforts have gone too far, yet the benefits and retribution have benefitted too few. Electoral frustrations are on the rise as demonstrated in Italy where Mario Monti’s wise policies have been followed by the success of the Five Stars Movement of Beppe Grillo. Italy turning ungovernable is a bad sign for democracies. Could we see a comeback of desperate national policy experiments like the ones that democracies were progressively pushed to adopt after facing insurmountable difficulties in the early 1930s?

Now, a really radical policy experiment is already taking shape in Japan with the introduction of what has been named “Abenomics” after the name of the newly-elected prime minister, Shinzo Abe. It has taken only one election and one nomination at the head of the Bank of Japan to really revolutionize monetary policy. This revolution can be qualified in two ways, one benign, one threatening.

There is first reason to rejoice. After two decades of failed policies, it’s finally good to see bold politicians ready to do whatever it takes to extract Japan from its deflationary trap. Should Mr. Abe succeed, he would unclench the domestic brakes to economic growth, which deflation has so lengthily opposed: declining prices in effect are discouraging consumption (goods will be better and cheaper tomorrow, why spend now?) and investment (facing massive excess capacity of production and weak final demand, why invest now?). The new mission of the governor of the Bank of Japan is to raise inflationary expectations to 2 percent, which would make Japan converge with the world average inflationary trend and monetary policy. Demand would restart and Japan would contribute to an improved global economic outlook. This is the view that the IMF chief recently endorsed. As expected, Mr. Kuroda last week unveiled a much more aggressive package of quantitative easing than what we have previously witnessed, with a view to double the monetary base. Japan’s central bank will buy more long-term government bonds, pushing private investors to invest more in risky assets. Since the election, the Nikkei has risen 34 percent. Different polls and surveys suggest that the public is positively reacting to Mr. Abe’s promises.

Is success already underway? That would be good news for Japan and for the world. But it is clearly too soon to celebrate because this virtuous circle can simply fail to happen. No central bank until now has ever tried to raise inflationary expectations and no one knows if this can turn to be a practical and manageable reality. Inflationary expectations could also easily turn out of control. Before exercising traction on the economy, they could impose higher interest rates that would have devastating consequences for the Japanese Treasury in the management of a huge public debt (more than twice the size of the GDP). But there is something worse than the risk of Abenomics having poor or adverse domestic consequences.

The other side of Abenomics is currency management, a much less propitious theme for a government to communicate in the weeks leading up to the IMF Spring Meetings in Washington. This aspect of the policy is not only bold, it’s actually radical. As a candidate, Mr. Abe made extremely clear that he was willing to help the manufacturing sector by depreciating the yen and that monetary policy would be designed with this goal in mind. Remember that Japan, despite all its woes, remains a formidable exporter with an external surplus close to ¥650 billion in February (approximately $6.5 billion). As my fellow economists at Brookings have recently shown [2], the Japanese bilateral surplus with the U.S., which is $23 billion according to reported trade statistics, would dramatically increase by 60 percent and reach $36 billion if measured in added-value terms. Mr. Abe’s message was well received by investors who quickly after the election started to short the yen. As a result, the yen has slumped 21.5 percent in the past five months— the worst (or the best?) performance among the currencies of the developed economies. Following last week’s announcement that the Bank of Japan was really acting to debase monetary policy, the yen weakened beyond 99 yen per dollar and dropped against 15 major currencies.

A weakening yen also poses challenges for China, complicating the China’s strategy to reach its 8 percent target growth for this year; it could also trigger huge capital flows into China destabilizing the delicate control of financial stability

This is where Mr. Abe and Mr. Smoot cross ways: both are local politicians inspired by the difficulties facing their countries; both are willing to use every available policy tool to soften these difficulties; neither is willing to shock the global economy, which has never been the case when arguing in favor of protectionism or competitive devaluations. But these measures are nonetheless radical because they have the potential to ignite uncontrollable chain reactions. South Korea for one already declared itself very concerned by this aggressive policy, which is totally understandable. For instance, when Toyota and Sony take some advantage of Abe’s policy, the ones that would likely be first to suffer are Hyundai and Samsung. South Korea has vital interests at stake and, over In the last five months, it has been struggling with a pernicious appreciation of its currency. A weakening yen also poses challenges for China, complicating the China’s strategy to reach its 8 percent target growth for this year; it could also trigger huge capital flows into China destabilizing the delicate control of financial stability; SAFE, the financial institution that manages China’s huge official reserves, last week published its yearly report for 2012. Commenting on the global environment, the report emphasized that “a yen’s depreciation can’t solve Japan’s structural problem, … [but] could turn out of control and trigger a suspicion about its sustainability,… and finally have dangerous spill-over-effects”[3]. Chinese officials at the Boao Forum also expressed similar concerns.

We still don’t know the end. Hope is that we could see the positive interpretation of a bold Japanese policy experiment contributing to a better functioning world economy. Experience should nonetheless make us cautious. What the movement by the Bank of Japan does is to increase an already huge excess liquidity, inundating global markets. In addition, the Japanese government has added a dangerous touch of currency manipulation. Both aspects should be alerts for the IMF rather than too quickly fuel the artificial satisfaction of promises regarding higher inflationary expectations and increased domestic demand. In the end, competitive devaluations always prove inefficient and dangerous because they inevitably provoke reactions and retaliations. “Currency wars” have made headlines from time to time in the recent years but these were skirmishes. This time it could be for real, and this should be a major concern for the United States. It is a great thing that Japan recently expressed interest in joining the Trans-Pacific Partnership, but these are words with long delayed potential results. A more constructive and immediate task is to continue the cooperative global approach of exchange rate policies and to strongly discourage any temptation of national radical policy experiments. This should be a central issue next week during the IMF Spring Meetings in Washington.

[1] Roger C. Altman: “The Fall and Rise of the West”, Foreign Affairs, January-February 2013

[2] Kemal Dervis, Joshua Meltzer and Karim Foda: “Value-Added Trade and its Implications for International Trade Policy”, Brookings Opinion, April 2, 2013

[3] http://www.safe.gov.cn/resources/image/076044004f1fb34a9da59ff675a23beb/1365377817854.pdf?MOD=AJPERES&name=2012年中国国际收支报告.pdf