More On That McCain Speech Last Night
We all know John McCain is not a thrilling speaker, but I REALLY liked some of the themes McCain hit on last night, and I’m very hopeful he will keep developing them. Let’s look a little closer:
I will leave it to my opponent to argue that we should abrogate trade treaties, and pretend the global economy will go away and Americans can secure our future by trading and investing only among ourselves. We will campaign in favor of seizing the opportunities presented by the growth of free markets throughout the world, helping displaced workers acquire new and lasting employment and educating our children to prepare them for the new economic realities by giving parents choices about their children’s education they do not have now.
I will leave it to my opponent to claim that they can keep companies and jobs from going overseas by making it harder for them to do business here at home. We will campaign to strengthen job growth in America by helping businesses become more competitive with lower taxes and less regulation.
THIS is a theme where the Republicans can make great strides in the general election: trade. Populism has been an electoral loser since at least the end of the Depression, and though it may play well in the Rust Belt, that’s because we haven’t educated the voters on the benefits of trade.
The single greatest policy step a politician can make in the area of economics is to promote economic growth. That may sound like a no-brainer, but listen to the Democratic candidates as they talk of renegotiating NAFTA, one of the most successful trade agreements of all time (and one that occured during a Democratic administration!). That is not how you promote economic growth – that’s how you kill it.
Lower taxes, less regulation, free trade and not protectionism (sorry, ‘fair trade’ – it’s just that I believe in truth in advertising) – these have always been Republican values, indeed, American values. With their shameless pandering in the Rust Belt (and don’t forget, Pennsylvania is yet to come!), the Democrats have provided us with a wonderful opening to hit themes that have always been very beneficial to Republican candidates.
To give just one example of how we can develop this further – we needn’t campaign on new tax cuts. With the wars in Iraq and Afghanistan and the current deficit, one could argue convincingly that this is irresponsible currently. We need only convince Americans of what is, in fact, true – that if we let currently existing tax policy in the form of the Bush tax cuts expire, as many will in 2010 without extensions, this will be, in effect, one of the largest tax increases in history.
John McCain faces an uphill battle in 2008 – he’s old, he’s not photogenic, and he faces a party that is energized and motivated after eight years of an unpopular Republican president who launched an unpopular war…but he is not helpless. He has a strong personal story, a great record of service, a huge amount of respect on both sides of the aisle and in the press – and he has some issues that can break heavily in his favor, if they are articulated well and hammered home constantly.
I firmly believe that trade is one of them – not in spite of the current economic woes, but because of them. We won’t get out of this slowdown/possible recession by throwing up protectionist walls. If nothing else in life is certain, you can take THAT to the bank…
*sigh* The enormous deficits the current Administration is racking up are ALREADY one of the largest tax increases in history. I know for a fact that you’re familiar with Econ 101, so you get this. That money has to come from somewhere. That we’ve cut taxes on ourselves and funded two wars with debt simply means that we’ve raised taxes on the next generation. That is certainly irresponsible, as you begin to point out, but it’s equally irresponsible not to do something to increase revenue now.
That the media allows Republicans to get away with this kind of baiting and switching is just plain absurd.
Y’know, I once did a spreadsheet calculation of the percentage increases in the national debt under Republican and Democratic adminstrations in the post-WWII era. The discrepancy was pretty startling.
I should try to dig it out. It makes you shake your head in wonder at the “tax ‘n spend” moniker that gets attached to the Democrats.
No doubt the deficit is high and a problem, but it is a spending problem that can most effectively be fixed by reducing spending. If you increase the tax rate on business they will leave for less costly areas of operation. The only tax-based solution is to raise individual rates – dramatically.
Ryan and Jacques- Just to be clear…. you’re actually arguing that the real “tax” is *not* taxing??
I’d be with you if you wanted to argue that the total burden an administration is putting on America is their total spending rather than just the tax bill — that’s true. Debt is a burden.
But taking money *right now* is just as much of a burden as taking it later with interest…
And if you’re looking to judge how different administrations have done on total spending, the one issue that dwarfs all others is entitlements. Even the defense budget that gives us the strongest and most advanced military the world has ever known pales in comparison to what we spend on Social Security and Medicare. Not Republican programs.
Bush has been pretty awful on reducing spending (including passing a Medicare prescription drug benefit…), but at least he made a try at Social Security reform. While the left screamed and yelled and tried to pretend there was no problem.
Anyone think Hillary or Obama have a plan for Social Security other than raising the tax?
That’s an answer that doesn’t even address the question.
Sure, spending is always a problem. These are two halves of the same coin. But let’s be clear: For most of the last seven years, Republicans have been running the show. And they have resolutely refused to cut spending in any discernible way. What they’ve done is cut taxes and let the debt start to rack up. That’s considerably less responsible than leaving both taxes and spending the same. Your choices seem to be “tax and spend” or “don’t tax but still spend”. I’m more than a little tired of conservatives pretending that they’re interested in cutting federal spending. They had their chance, beginning in 1994, and have proven themselves to be complete and utter frauds.
As for whether taxes are a burden, I realize this is an argument that conservatives long ago put on their terms and there’s no way out of it. But come on. Government does things for us. Social Security, Medicare, *national defense*, education, farm subsidies (that’s right – even liberals don’t think all government spending is good). We have to pay for these things, and I don’t see why it makes sense for us to punt the receipt to other people when we’re the ones benefitting from them. Especially given that so much of the debt we’re spending into right now is for a war that *we* started.
On Social Security: what kind of plan do we need other than raising the tax? Heck, why even raise the tax? Just raise the cap on how much income gets taxed. It’s been done before and the republic seems to be in pretty good shape. While we’re at it, let’s raise the retirement age. Presto change-o, Social Security is fixed. Raving about how it’s going to break the bank and “fixing” it by privatizing it and completely eviscerating the program are nice soundbites, but they’re hopelessly silly.
“Your choices seem to be “tax and spend” or “don’t tax but still spend”.” Couldnt agree more. Lets try “dont tax and cut spending” that seems to be the option everyone is looking for. Pork is out of control, pet projects are out of control, lets end them.
“Government does things for us. Social Security, Medicare, *national defense*, education, farm subsidies” Maybe you can explain which one of these programs has been a success. Cause I dont see one. So maybe taking some off of the list instead of adding more is a good idea after all.
Wow, Im glad you found that easy fix. If I remember right taxes would have to be raised somewhere around 30% per individual to cover social security and Medicare. Think of the impact that would have on the economy and government programs. Thats not even including the corruption and government programs that would surely be juiced out of it. Lets see how working class folks would respond to it then. Tax the living hell out of me and then give me a portion of the money back when I retire, thanks a bunch. While your at it tell me to work another five or ten years so I can continue paying that tax. Its not any easy fix problem or it would have been fixed decades ago. The fact is that its going to take a lot of compicated maneuvering involving cutting the programs, cutting spending on useless projects and boosting the economy to create more tax revenue that will in turn create less of a need for such programs.
I didn’t find that spreadsheet (will have to recreate it, when I have an idle afternoon). But I did find the other one I did at the same time: Real GDP growth under Republican and Democratic Administrations.
Updating it to include the Bush years, we get:
Since 1945, annual Real GDP growth under Republican Administrations: 2.7%
Since 1945, annual Real GDP growth under Democratic Administrations: 3.3%
If we look at more recent performance, the disparity is even worse:
Since 1960, annual Real GDP growth under Republican Administrations: 2.7%
Since 1960, annual Real GDP growth under Democratic Administrations: 4.2%
The bottom line was (and is): Republican Administrations pile on the National Debt, and depress Real GDP Growth. Democrats show greater fiscal responsibility, and grow the economy at a significantly faster rate.
Jacque,
Your samples are too small. Even since ’45 there aren’t enough administrations to eliminate random variation. Further, you can’t just show correlation – you need to posit a causal mechanism (for GDP growth, that is – there’s no defense on the debt issue). For example, think about the ’90s – if you needed to pick the one person who had the most responsibility for the GDP growth for that decade, would you really pick Clinton and not, say, Bill Gates? Or, hell, the Walton family? I’m pretty sure that most economists will tell you that given the fairly narrow bands into which tax rates and debt actually fall in the U.S., GDP growth is (from the point of view of the President) basically exogenous.
Ryan,
I don’t know, man . . . I can’t think of a better example of passing obligations on to the next generation than Social Security and Medicare. Not that I support running up debt – I do not – but let’s look at the big picture: in 45 years, what’s going to be taking a bigger bite out of the average worker’s paycheck – servicing Iraq War debt, or funding our adjacent condos in Florida? There are plenty of high-quality reasons to dislike debt, but given SS, Medicare, and the other obligations we’re going to be dropping in their laps, “think of the CHILDREN!” rings pretty hollow, I think.
Steves,
Raising taxes on corporations will send some out of the country, but that’s a pretty small issue, I think. The bigger problem is that corporate taxes are (functionally) sales taxes – businesses pass, IIRC, over 70% of the cost of the tax on to consumers in the form of higher prices. Why Democrats often support raising corporate tax rates (rather than individual rates, or rates on individual return to capital) is beyond me.
CKS, that solution isn’t going to be tried. We gave the entire apparatus of government to conservatives for 6 years (12 if you start counting in 1994), and they cut essentially nothing. Whatever may be true of conservative ideology, it’s a simple fact that conservative practice is completely fraudulent on this point. If conservatives are unwilling to cut spending, I will at least elect people who will spend the money on worthwhile projects (read: not pointless, reputation-devastating wars).
I think all of those programs have been a success. Even farm subsidies, which I would rather not have at all, have certainly served their purpose of propping up American farmers. Medicare provides insurance – to old people, who have the hardest time getting it from the market – with significantly less overhead than private insurers, Social Security cushions against risk and allows for more innovation, our national defense keeps us pretty damn safe, and our education system has turned out one of the world’s most productive workforces. I will be the first to agree that every one of these things can be improved, but not a single one of them is anything like a failure.
As for Social Security, you would do well to disentangle Social Security from Medicare. For starters, they’re completely different programs that do completely different things. Second, Social Security is financially (more or less) fine; Medicare, we agree, is not. The amount of tax increase we would need in order to pay for Social Security in perpetuity is just plain not that large. And telling people to work for a few more years is, I don’t know, realistic. Life expectancy is significantly higher than when Social Security was created, so it’s only reasonable to raise the retirement age. Here’s a suggestion: let’s just tie the retirement age to life expectancy so we don’t have to have silly debates every time the program needs some adjustment. And do please stop acting so entitled: you’re starting to sound like a liberal.
TWL: Dear God, enough about Social Security. I have no idea why so many people insist on pretending that Social Security is some kind of enormous crisis-in-waiting. It isn’t.
Medicare is a serious problem that needs serious fixing. So let’s fix it. You want to think of the children, let’s do that. How about by raising taxes right now? That seems to be a start.
The BEA data goes all the way back to 1930.
Since 1930, annual Real GDP growth under Republican Administrations: 2.1%
Since 1930, annual Real GDP growth under Democratic Administrations: 4.6%
I’m sorry if that’s not a long enough baseline for you. (Many will object that including the Great Depression is unfair to Republicans, so I picked the post-war years to remove that effect.)
As to causation, sure there are lots of factors that contribute to the growth of the Economy, and which party occupies the White House is only one of them.
But the Gates’s and Waltons have been around through both Republican and Democratic Administrations. The same can be said of every other factor I can think of: over the long haul they average out between Republican and Democratic Administrations. The difference between Republicans and Democrats (averaged over as much as 77 years) remains, however, and is significant.
Oh, and if you want my guess for the causal mechanism, it’s the position championed by Clinton’s Treasury Secretary, Robert Rubin: piling up deficits raises long-term interest rates, making it harder for businesses to raise Capital, and thus depressing GDP growth.
The reason I put together these two spreadsheets (one now lost) was to illustrate this point.
I’m just saying, Jacques, that a lot of it is exogenous. I used the ’90s as an example because of the tech boom, but look, there just was a tech boom. That’s the major reason for the high growth. So, toss the ’90s from your averages, because the excess growth was obviously not caused by Clinton.
Then go to any other administration and see if you can spot an exogenous cause of high/low growth. If so, drop that administration, too. Let me know what you’re left with (this is the problem with a small sample) . . . or provide an actual reason that growth would (prima facie) be higher under Democrats. Because, again, even if you did have enough observations to form a good sample, correlation does not imply causation.
Ryan,
I didn’t say Social Security was a looming crisis. I just said that it would cost a lot – more, for instance, than servicing the last eight years worth of debt. As such, any talk of burdens being punted to future workers should probably start with the major burdens, not the “damn, there’s a pebble in my shoe” burdens.
Or to put it another way: if we want to retire, we should pay for it ourselves . . . by saving. Notice that this is a normative claim, not a positive one. We can totally force future workers to pay for us and it won’t destroy America. We can punt part of the cost of the war to them, too, without any massive economic effects. It will just be wrong.
Jacques,
Sorry, missed your reply . . . I’m going to argue (cribbing from much smarter people who have made the same arguments) that Rubin was wrong. First, while it is a plausible theory, in reality long-term interest rates don’t seem to track debt very well (they’ve been quite low the last few years, for example). Second, the ’90s growth started before Clinton was succesful at cutting the deficit, so it seems like the two probably weren’t related. And third, debt should, if anything, cause higher short-term growth (though it’s almost certainly bad in the long run) – this is a pretty standard economic result.
Oh, and just to be clear, I’m not trying to argue that Republicans are better as regards growth. Just that, given how really narrow the fluctuation is in American tax rates and debt, the President just doesn’t have that much power over the economy. He’d have to jack effective rates up a lot, or run up WWII-size debts, before the effect really started showing up. Otherwise, GDP growth is basically a function of population growth, new technology, and human capital accumulation.
Can I quote you, next time someone makes the assinine argument that rolling back the Bush tax cuts will cripple economic growth in this country?
Of course. The economy, for the most part, merrily chugs along, oblivious to who is in the White House. But, to the extent that it matters at all who is President, the Economy does perform modestly, but significantly better under Democrats.
You can say that’s a 77-year statistical fluke, or try to explain it away as a series of special circumstances in which Democrats (consistently) just got lucky.
But there it is …
Well, this is why I love this blog…I disagree with more than half of what has been said here today, but it’s all said so well! The D’08 regulars may be small in number, but dammit, they’re high on IQ…
I will say I agree with Jacques about one thing: it was politically courageous for Bill Clinton to bite the bullet and take Rubin’s advice on deficit reduction. Government borrowing crowds out more productive borrowing, and Clinton deserves credit for at least a portion of the 90′s boom (though I also agree that the tech boom made Clinton’s economy look a lot better than it turned out to be, once the euphoria and overly exuberant stock prices collapsed).
But Jacques, you make a lot of the past GDP figures under Republicans and Democrats – but what of the present candidates and their call for renewed protectionism? We’ve had extensive give-and-take on this in other threads, and I know you and I are more alike than different in our stance towards free trade. The point of my post was not to look back, after all, but to look forward to campaign themes – and I maintain that if the Democratic candidates continue to spout protectionist drivel, they have given John McCain an opening that he can take serious advantage of…
I expressed, elsewhere, my disappointment with the Democratic candidates’ pandering on trade policy. And I don’t have much to add to the position I outlined.
But, if you want my prediction as to what a Clinton or Obama Administration’s Trade Policy will actually look like, I think it will look very much like the policy of the previous Clinton Administration.
As to McCain’s economic policy, I’m not so confident. He used to be a Deficit Hawk (and voted against the Bush tax cuts). More recently, he seems to have drunk the supply-side Kool-Aid (Tax cuts today, tax cuts tomorrow, tax cuts forevah !)
Perhaps that’s the pandering that he has to do, to secure the nomination in today’s GOP. Perhaps he actually intends, once in office, to turn the tide of fiscal irresponsibility that has marked the current Administration.
But, the guy who’s said
and
is not the person I’m going to bet on to turn the tide of the numbers cited above (note to self: must recreate that national debt spreadsheet; it was even more impressive than the GDP spreadsheet).
Jacques-
You seem to have an awful lot of faith there. Clinton and Obama are both running as adamantly opposed to everything that Bill Clinton did right. Perhaps they are just lying, but I wouldn’t be sure.
And on spending, both are saying openly that they will dramatically increase spending if elected. McCain is saying that he will fight to cut spending, and you even appear to agree that he has a solid record as a deficit hawk to back this up.
So, why exactly would you expect Clinton or Obama to be better on spending than McCain, when even they would disagree with you?
Last point. On the GDP growth under different administrations — I think it’s important to note that the economic results in the first year or even two of an administration usually have much more to do with the previous administration than with the new one (to the extent that they’re a result of anything politicians do). At the very least you should wait until an administration has passed a budget (eight months in) if not until that budget starts happening (twelve months in) before giving them the credit or blame for the results. And I’d argue that the economy moves even more slowly than that.
This change makes the difference between, for example, giving Jimmy Carter credit for an annualized 2.2% growth in per capita GDP (thanks to the strong growth in 1976 and 1977) or blaming him for a slight loss in per capita GDP due to the strong losses in 1979 and 1981… And again with judging Bill Clinton’s effect on growth, limiting the measurement to his exact term in office gives him none of the blame for the 2000/2001 recession — during most of which George W Bush was trying to get elected and then to get his economic team confirmed by Congress.
Also… it’s not clear that the first derivative is the right measure. Look more closely at Jimmy Carter’s growth record: (using year-to-year growth in real per capita GDP)
1976 +3.6%
1977: +4.5%
1978: +2.0%
1979: -1.4%
1980: +1.5%
The point is Carter clearly presided over a very poor time in the U.S. economy, and you can see economic growth tanking over his term. But simply measuring the total growth wouldn’t capture this at all.
Finally, it seems pretty obvious that the major depressor of real GDP growth through the ’70′s was OPEC — 1973, 1974, and 1979 — the three years of OPEC oil crises — are the only years in that decade to show losses, and they’re quite dramatic, with 4.75% growth from 1972 to 1973 plummeting to a 1.4% loss from 1973 to 1974… While price controls probably exacerbated this effect… it’s hard to argue that the taxing or spending habits of the Nixon, Ford and Carter administrations were to primary driver of GDP growth.
(** Note: all GDP data taken from http://www.measuringworth.com/usgdp/?q=hmit/gdp
Further note: what I’m calling 1979′s real per capita GDP growth is the percentage difference between the rpcGDP in 1980 and 1979 **)
I thought I had been following their policy proposals pretty carefully. I must have missed something.
But they, at least, have put forward plausible proposals for paying for their new spending.
He used to be a deficit hawk. He seems, however, to have completely caved on that, and, in recent years, has become just another cut-taxes-and-spend Republican.
Carter was not in office in 1976, so Ford gets credit for that year. I was using year-to-year growth in real GDP,
1977 +4.6%
1978 +5.6%
1979 +3.2%
1980 -0.2%
1981 +2.5%
rather than per-capita GDP. So my numbers are a little higher (but not, as far as I can see, in a way that would favour Democrats over Republicans or vice versa).
Done my way, average annual real GDP growth for the Carter years was 3.3%.
If you want to ascribe the first year of each Administration to the previous one, then Ford gets 1977, and Carter gets 1981. This lowers his average to 2.8%
But, if you’re going to do that, you need to apply it to Republicans as well. If you do the same for GHW Bush, his average annual growth rate drops from 3.2% to 2.3%.
Overall, it’s a wash. Democrats still outperform Republicans by a significant margin.
I should take the opportunity to correct the numbers for 1930-2007. I screwed that formula up when I added the GW Bush years. The correct numbers are:
Since 1930, annual Real GDP growth — Republican Administrations: 1.8%
Since 1930, annual Real GDP growth — Democratic Administrations: 4.9%
But, again, that ascribes the Great Depression to the Republicans, which I suppose is unfair.
If you think there’s a fairer way to do this calculation, I’d be happy to hear it. But let’s apply it to the whole time-series, not just cherry-picking particular Administrations. As TWL and I discussed, you can ascribe all sorts of exogenous factors to explain the GDP growth (or lack thereof) in any particular Administration. It’s only when you look at the whole series that a (remarkably consistent) picture emerges.
(All my number come from the Commerce Department’s Bureau of Economic Analysis)
Well, let me just chime in once more and say that our good friend Jacques, a most learned man, has once again done his homework and made a mighty contribution to the thread…BUT I still say none of this analysis of the past, impressive though it may be, has much bearing on my central point: the Dems are running on out-and-out protectionism, and as such, they are very vulnerable on trade once they get past the primaries and into the general…
I finally got around to crunching the rest of those numbers (in particular, the deficit numbers). Anyone still interested can read about them here.