What Would Have Happened if John McCain Won the Election?

If John McCain had won, and he had sticked to current Republican austerity dogma and done nothing to rescue or stimulate the economy in early 2009, what would have happened? We don’t have to guess. Because the conservative governments of Germany, France, the U.K. and elsewhere in Europe have provided us with our parallel universe:

Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.

And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.

Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.

For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

McCain’s likely prescription would have been more tax cuts, but I don’t see how he gets that through a Democratic Congress without stimulus, and I don’t see McCain agreeing to it, as he would have a revolt on his right. So the likely event would be: Congress does nothing. The deficit would actually then become more of a problem because without the stimulus, the economy goes into a depression, depriving the federal government of even more revenue, while many more services would be required. And then the Deficit Austerity Hawks would start crying and screaming.

The one good thing about this parallel universe: I don’t see a GOP House getting elected in 2010. So that would prevent massive austerity. But without the stimulus, we are in a Depression. And it is likely that McCain would be so unpopular that he wouldn’t run again, so that would set up a Hillary v. Palin matchup in the general.