When it comes to job creation, the Obama Administration has a pretty poor record-- that's no secret. It pitched an initial stimulus that was much too small, came back for a second round of stimulus that was also much too small, and really hasn't done anything about the debt overhang in housing that's continuing to drag economic growth. But, unfortunately, politics being what it is, the question isn't whether the Obama Administration is doing well-- it's whether the Republicans have a better alternative. And, after reading the transcript of the primary debate, the clear answer is that, at least from what they say, the answer is very clearly "no." So first, I'll go through some general thoughts, and then some specifics about what's wrong with each candidate.
What the Republicans don't seem to understand, across the board, is simple accounting identities. To be fair, Britain's Prime Minister, David Cameron, doesn't understand them either. It's very clear that a major drag on growth in the US is that consumers built up unsustainable debt burdens by borrowing against their houses. The big banks did the same thing. And, with tax revenues depressed, government has been running deficits (rightly, but ignore my commentary for a second). So, in essence, consumers and businesses have both been savings to pay down their debts. Government spending hasn't done nearly enough to fill that hole. But the Republican candidates, to a man, seem to think that government should be cutting spending, and that those spending cuts will somehow spur job creation. To understand how wrong that is, all you need to understand is simple arithmetic. The first truism is that debt is a zero-sum game: there's no such thing as "too much debt in the system"-- individuals can be overindebted, businesses can be overindebted, and governments can be overindebted. But every dollar of debt is offset by a dollar of lending-- you can't run up debt unless you find someone else to lend to you. Demand (and the size of the economy and job growth by extension), however, is not a zero-sum game. If, as the Republican candidates insist, government should be reducing the deficit (and paying down debt), and consumers should be paying down debt (which they obviously should be), and businesses should be paying down debt (which certainly happened over the last few years), then there's no place for demand to come from. To pay down debt, you need income. And to earn income, someone has to demand your labor (meaning spend money). And that means that someone has to be borrowing. Now, consumers are already overindebted, so consumer borrowing is a terrible idea. And it's hard to induce businesses to spend when demand is weak without creating expected inflation (go find a Republican presidential candidate to advocate higher inflation), so the only remaining candidate is the government. By putting people to work, they can pay down their debts, which allows them to spend more in the future once they have paid off their debts. This economic growth eventually bolsters government finances and allows the government to draw down its spending and pay down its debts. Unfortunately, none of the Republican candidates seem to understand this accounting identity. So instead we've got a bunch of candidates who insist that everyone needs to save more simultaneously and get out of debt at the same time. Which is a nice recipe for disaster.
Now, even though all of the candidates are a mess, the specifics are pretty bad too. To start with, we've got the Hermanator hawking his "9-9-9" tax plan, which sounds an awful lot like Domino's 5-5-5 pizza deal from back in the day. When the moderator pointed out that 9-9-9 wouldn't raise enough revenue to run the government, the Hermanator said everyone was using the wrong baseline. But, since he hasn't pointed out that baseline, I guess we're supposed to take him at his word. Good luck with that. It also doesn't help that the "expert" who came up with this idea isn't an economist at all-- it's a Wells Fargo wealth manager with an accounting degree. And not a high-level wealth manager, but the guy you go to if you want to plan your retirement. Which is a respectable profession and all, but most definitely doesn't qualify you to advise a presidential candidate on federal tax policy. It's the equivalent of a Starcraft junkie coming up with military strategy.
Then you've got Rick Perry. Somehow, he's gonna create 1.2 million jobs in the energy industry by "making America energy independent." But no one knows what the plan is, and no one's suggested they can make anything of it, so there's no there there. Then you've got Michelle Bachmann, who whined about Barney Frank a lot, but didn't offer anything in the way of ideas. Ron Paul gave a ramped-down version o his usual schpiel about the Fed-- just as silly and nonsensical as always. Jon Huntsman didn't offer much specific, but, reading between the lines, I think he's running as Obama with an R next to his name-- not stupid enough to actively harm the economy like most of the rest of the field, but not aggressive enough to make an active difference.
The last candidate worth mentioning is Romney. On issues, he brought up the usual Republican platitudes about regulation and not raising taxes, but I seriously doubt he'll actually end up following through. More likely, you can learn a lot about what he thinks by looking at his advisers, Glenn Hubbard and Greg Mankiw. Hubbard is the dean of Columbia Business School, so he's not a dumb guy. His policy views are pretty wrongheaded, but he certainly understands business. Mankiw is a Harvard economist who chaired George W. Bush's Council of Economic Advisers for awhile. On policy grounds, he's a somewhat tax-obsessed New Keynesian. In other words, he thinks tax rates matter more than most New Keynesians do, but in terms of the models he's using, he's starting from the same place as Paul Krugman and Joe Stiglitz. And he's recently advocated a higher inflation target to stimulate growth. This is a good idea not just to stimulate consumption, but also because it reduces the real value of debt, which in turn is kind of a good thing when we have a private debt problem. But, again, Mankiw is an academic and Romney is a Republican politician-- throwing out that platform will get him burned at the stake. But I do have far more confidence in Romney than in any of the other Republican contenders solely because he has real advisers who aren't inept.
The one thing that all the Republican contenders seemed to agree on was the need to get rid of Ben Bernanke. Ignore for a second the fact that Bernanke is probably the single biggest reason we didn't have a second Great Depression-- he's also a Republican who was appointed by George W. Bush, and a pupil of Milton Friedman's. The public lynching of Bernanke shows just how far the Republican Party's gone off the rails in the last 3 years. And that's scary.
No comments:
Post a Comment