I’ve been saying for several months that I would endorse one of the two main presidential candidates before the election and that “Donald Trump Should Withdraw from the Presidential Race” because of his personal sleaziness and that, in any case, I could not vote for him.
But it is worse than this. As the Wall Street Journal stated recently, “Mr. Trump would start out with more than half of the country disliking him, and most of his advisors lack governmental experience. Too many blunders or an early recession (especially one caused by trade restrictions) could cause voters to sweep out the GOP Congress in 2018, setting up a return to an all-progressive government in 2020.” In other words the disaster of 2009-2010, when President Obama had a filibuster-proof Congress, could easily happen all over again.
Mrs. Clinton has said that she wants, ”higher taxes, more spending on entitlements, more subsidies and price controls in ObamaCare, more regulations on business, more limits on political speech, and more enforcement of liberal cultural values on schools and churches.” The likely result of such an agenda would be more lost years of slow economic growth. And “the costs of slow growth are corrosive. Flat incomes lead to more social tension and political enmity. The fight to divide a smaller pie would get uglier in a country that once was accustomed to rising possibilities.” This is a highly conceivable result of four years of a Clinton presidency. Conclusion. I am not exactly enthusiastic about Mrs. Clinton. But she is predictable and much less risky than Mr. Trump. As long as the House of Representatives remains under Republican control, which is very likely, Mrs. Clinton will have to negotiate with it to implement much of her agenda. This could conceivably lead to bipartisan progress on such major issues as tax reform and entitlement cost control.
I am an optimist by nature. I am used to having things go well. If they’re not quite right, I try to imagine how they can get straightened out. I’m also a realist. As long as things are moving in the right direction, I am satisfied with the status quo.
Although my optimism is natural and intuitive, I find an intellectual justification for it in, for example, the work of Matt Ridley: “The Rational Optimist: how prosperity evolves.” He makes a persuasive argument that not only has the humane race made huge strides in recent times but that this progress is intrinsic to evolved human nature and is likely to continue indefinitely.
The British historian, Andrew Roberts, has a cogent essay in yesterday’s Wall Street Journal, “1776: Would You Like to Reconsider?”, expressing consternation about the horrible choice we have for president this year between vulgarity and corruption.
Mr. Roberts admonishes Republicans to:
Somehow find party leaders and candidates who confront people like Mr. Trump seriously from the start and do not coddle him in the vain hope that he’ll collapse.
Avoid having debates controlled by TV channels who want the GOP to split and the Democrats to win.
Avoid talking down America, even in an election year, which is likely to be misinterpreted abroad.
Drastically raise the percentages of support that guarantee a candidate a place in the debate in order to avoid too many candidates and moronically low standards of debate.
Figure out how to exclude candidates who have neither held public office nor held any previous significant (appointed) public position.
The Republican Party machine should have the last say on who is or is not a Republican and who can therefore stand under the Republican banner.
Of course, Mr. Robert’s suggestions are impractical because they are not sufficiently democratic! But he is pointing to a huge problem which must be addressed: Right now democracy, as a political system, is on trial and is “losing out to the ideas of totalitarian state directed corporatism that seems to be delivering much higher growth and much better leaders.” Question. Can democracy be saved with democratic methods?
With the presidential election tightening and Hillary Clinton still the favorite to win, more and more attention is being devoted to trying to figure out what will happen to the GOP after Donald Trump. William Galston from the Brookings Institute sees a three-headed Republican party:
Wall Street i.e. establishment (fiscal) conservatives.
Main Street i.e. small government conservatives who think that government is the main obstacle to growth.
Populists i.e. non-ideological working class people who feel left behind by the modern world.
The Wall Street Journal is analyzing the Trump phenomenon with a series of articles, “The Great Unraveling” based on an underperforming U.S. economy:
Technology has not led to broadly shared prosperity.
The Federal Reserve did not foresee the financial crisis and hasn’t delivered adequate growth.
Trade with China has put millions of Americans out of work.
Today’s WSJ, “Republicans Rode Waves of Populism until They Crashed the Party,” describes the transformation of the Republican party all the way from Richard Nixon’s southern strategy, Pat Buchanan’s anti-immigration appeal in 1992, the Tea Party uprising in 2009 and 2010 until today’s populist rebellion against the establishment.
The map above shows the huge political realignment which has taken shape between 1996 and 2012 and is undoubtedly even more pronounced in 2016. The main question for me is whether and to what extent the three main Republican factions can come together on important policy issues such as immigration and trade:
Immigration. In the last debate Mr. Trump said that after the border is secured, and the “bad guys” are deported, then we’ll figure out what to do with the rest of the undocumented immigrants. This suggests a workable approach to the illegal immigration problem.
Trade. The challenge is to figure out how to make the proposed Trans Pacific Partnership trade agreement compatible with the interests of working Americans.
Conclusion. Regardless of the outcome of the November 8th election, Donald Trump has had a huge effect on American politics. Whichever party is most successful in appealing to the core working-class Trump voters will have a huge advantage in the 2020 elections.
With Donald Trump dropping in the polls, whirling out of control and unwilling to withdraw from the race, my attention now turns to Hillary Clinton and what she is likely to do as President. I divide this discussion into good news and bad news.
First the good news:
A leading democratic economist, Larry Summers, is on record as strongly supporting faster economic growth. However, he seems to think that public investment (i.e. more public spending) is the best way to achieve this.
The House of Representatives is likely to remain in Republican hands after the 2016 election, even if the margin of control is reduced. The Republican House has an excellent plan to boost economic growth and presumably will be able to bargain for pro-growth policies.
Unfortunately, the current Clinton tax plan is anti-growth. As analyzed by the Tax Foundation, her plan would:
Give individuals with an AGI over $5 million a 4% tax surcharge. Taxpayers with an AGI of $1 million or more would pay a 30% minimum tax (Buffett Rule). Carried Interest would be taxed at ordinary income rates. Short term capital gains would be taxed at higher rates up to 39.6%. Most itemized deductions would be capped at a tax rate of 28%. Taxes on small businesses and startups would be reduced.
Lead to a 2.6% overall lower level of GDP which would lead to lower levels of wages and jobs.
Raise $1.4 trillion in new revenue over the next decade on a static basis which would only really produce $663 billion because of slower growth.
Devote all of the new revenue to new spending programs and therefore achieve no deficit reduction and more likely an increase in annual deficits.
Conclusion. The Clinton tax plan has some attractive features such as reducing taxes on small business. But overall it would slow economic growth in the name of reducing income inequality. A Republican House in the new Congress would likely be able to bargain for a much better plan.
Like many other fiscal conservatives I have been overlooking Donald Trump’s moral failings in hopes of electing a president who would be able to disrupt our current economic stagnation and move the U.S. towards faster growth which is the only way to achieve broad-based prosperity. But at some point we all have to say that enough is enough and the appearance last week of the video with lewd remarks about women is the tipping point for me. Even though I can no longer support or vote for Mr. Trump, I would like to summarize where I agree (and disagree!) with him on various issues. In decreasing order of importance:
Massive Debt. Mr. Trump at least talks about our almost $20 trillion national debt (and large annual deficits) even though he has made no proposals to deal with this problem. Mrs. Clinton has shown even less interest in this issue.
Tax Reform. Mr. Trump wants to lower tax rates for both individuals and corporations in order to stimulate economic growth. This is a very good idea as long as the tax rate cuts are made revenue neutral by closing loopholes and shrinking deductions. The Republican House has an excellent plan, “A Better Way” to accomplish just this. Hillary Clinton talks far more about economic inequality than about growth.
Regulatory Reform. Mr. Trump specifically mentions both the ACA and Dodd/Frank as being harmful to economic growth whereas Mrs. Clinton defends them.
Trans-Pacific Partnership trade deal. Mr. Trump opposes both TPP and NAFTA. Fair trade deals create more jobs than they destroy. Furthermore they produce lower priced products for everyone which boosts the economy. Wage insurance and better retraining programs will help those who lose their jobs due to foreign competition.
Immigration Reform. We need to solve our illegal immigration problem and Mr. Trump would probably be able to accomplish this, one way or another.
Conclusion. At this point it is pretty clear that Mrs. Clinton will be our next president. If the Republicans retain control of the House of Representatives, and she is willing to work with them, there is at least a chance to make progress on the growth issue.
The readers of this blog know that I focus on what I consider to be the two biggest problems affecting our economy: 1) slow growth averaging just 2% per year since the end of the Great Recession and 2) our massive debt now equal to 75% of GDP (for the public part on which we pay interest) and predicted to keep growing steadily under current policy.
I have also made it clear that I am not pleased with the economic policies of either of the two main candidates for president, Hillary Clinton or Donald Trump. Whichever one of them is elected, our best hope for the future is that she or he will have to work with the Republican House of Representatives which has an excellent plan, “A Better Way,” for renewal. But, of course, the next president will take up where Barack Obama has left off. The current issue of the Economist has an essay, “The Way Ahead,” in which Mr. Obama identifies several challenges:
Boosting productivity growth. The above chart from his essay shows how much productivity growth has declined in the last ten years. He claims that the corresponding lack of investment is caused by an anti-tax ideology which rejects new funding for public projects, which in turn can be blamed on a fixation on deficits in spite of our skyrocketing debt problem. The House plan correctly identifies tax and regulatory reform as what are needed for progress.
Combatting rising inequality. An expanded Earned Income Tax Credit will definitely help here but mainly what is needed is overall faster economic growth.
Insuring that everyone who wants a job can get one. Wage insurance and better retraining programs for laid off workers are good ideas. But again, faster economic growth is what is really needed.
Building a resilient economy which is primed for future growth. Mr. Obama says that “America should also do more to prepare for future shocks before they occur.” This is exactly why we urgently need to start shrinking our debt now before the shock of higher interest rates leads to huge increases in interest payments on our rapidly growing debt.
Conclusion. Let’s give Mr. Obama credit for avoiding another depression after the Financial Crisis. But his poor policies are to blame for the very slow rate of recovery ever since.
As a fiscal conservative, I am worried about our nation’s future. The public debt (on which we pay interest) is now 75% of GDP, the highest level since right after WWII, and growing steadily. Furthermore, our economy has just barely recovered from the Great Recession and is expanding too slowly to revive widespread prosperity. Neither of the two main presidential candidates, Hillary Clinton nor Donald Trump, is talking seriously about our huge debt and neither has a credible plan to boost economic growth.
Already entitlement spending (Social Security, Medicare and Medicaid), and interest payments on our debt, use up 2/3 of all federal tax revenue. And spending on each of these entitlement programs is growing faster than the economy as a whole. Interest rates will eventually rise from their current rock bottom level. When this happens, interest payments on our growing debt will increase rapidly.
In 2032, just 16 years from now, spending on entitlements and interest payments is projected to consume all federal tax revenues, assuming a steady 18% of GDP level for tax revenue.
There are three possible ways to offset this bleak picture:
Speed up economic growth. This should, of course, be possible but it will take a major shift in thinking to accomplish.
Increase federal tax revenue. Suppose that federal tax revenues were raised by 1% of GDP, or $180 billion per year. This would at least temporarily put our debt on a downward path (as a percentage of GDP). But it would be very hard to accomplish politically. Mrs. Clinton, for example, has proposed raising taxes by $100 billion per year which she wants to spend entirely on new programs rather than reducing our annual deficits.
Reform entitlement programs. This is by far the best way to address our debt problem, and the only effective way in the long run. But, again, it will be very hard to accomplish politically.
Conclusion. If the U.S. cannot get its debt and slow growth problems under control, it risks losing its status as the world’s major superpower. This would be a calamity for both our own national security and the peace and stability of the entire world.