Thanks largely to Donald Trump the Republican presidential candidates are not taking the best approach to winning the White House in November. Instead of arguing with each other about who is the toughest on immigration or who is the most anti-establishment, they should be focusing on one issue where Republicans could have a big advantage: how to speed up our slow economic growth. The Stanford economist, John Cochrane, makes very clear the value of doing this on his blog, The Grumpy Economist. Says Mr. Cochrane:
From 1950 to 2000 the U.S. Economy grew at an average rate of 3.5% per year. Since 2000, it has grown at only half that rate, 1.7%.
The average American is more than three times better off than his or her counterpart in 1950. Real GDP per person has risen from $16,000 in 1952 to over $50,000 today, both measured in 2009 dollars.
If the U.S. economy had grown at 2% rather than 3.5% since 1950, income per person by 2000 would have been $23,000 not $50,000.
Even these large numbers understate reality. GDP per capita growth does not capture the increase in life span – nearly ten years – or other improvements in the quality of life such as health and environmental gains which we have experienced.
Says Mr. Cochrane, “Next to this increase in the standard of living, nothing the candidates are talking about – monetary policy, Fed, fiscal stimulus, minimum wage hikes, pay equity, and so on, even comes close to what growth can bring ordinary Americans.” The important question then is how to speed up economic growth. Even though there are strong headwinds slowing down our modern economy, Mr. Cochrane has many excellent ideas on measures which can be taken to accomplish this. This will be the subject of my next post.
The Republican presidential candidates have been releasing tax plans and they have been analyzed by the nonpartisan Tax Foundation. It turns out that most of these plans lose revenue over a ten-year period even on a so-called dynamic scoring basis where the stimulatory effects of the plan are taken into effect. Such callous disregard for the huge annual deficits we are now running, and our huge accumulated national debt, is totally unacceptable especially from the political party which bills itself as being fiscally responsible. The left-leaning New York Times points this out yesterday in its lead editorial, “Why the Republican Tax Plans Won’t Work.” According to the NYT:
Tax Revenues will need to increase by 40% over the next 10 years just to keep federal spending even with inflation and population growth.
Further additional revenues will be needed to pay for health care for the elderly, transportation systems, climate change and likely increased interest payments on the national debt.
Thus taxes will have to go up and can only be imposed realistically on the wealthy who have had the biggest income gains in recent years.
Democratic presidential candidates do propose tax cuts but only for low- and middle-income Americans.
Democrats are calling for new taxes on financial transactions.
Democrats also propose to raise wages, support higher minimum wages, support unions and expand profit-sharing and employee ownership.
This is the program the Democrats will be pushing if they win the presidency next year. It has some attractive features but the likely overall outcome will be increased deficit spending, a rapidly increasing debt and a continued stagnant economy.
Meaningful tax and regulatory reform will both be needed to get the economy growing faster than the 2% average of the past six years. Any credible tax reform program simply must be at least revenue neutral so that, combined with spending restraint, it will put our national debt on a downward path.
“Risk is like fire: If controlled it will help you; if uncontrolled it will rise up and destroy you.” Theodore Roosevelt, 1858 – 1919
Just a few days ago I featured an Op Ed column in the New York Times “The Coming Climate Crash” by Henry Paulson, the former Secretary of the Treasury. He discusses global warming as an economic issue. The increasing number of severe storms, deeper droughts, longer fire seasons and rising sea levels it will cause will wreak tremendous economic damage on our country and the whole world as well. A new report, “Risky Business” produced by the Risky Business Project, elaborates much further on this theme. “The American economy is already beginning to feel the effects of climate change. These impacts will likely grow materially over the next 5 to 25 years and affect the future performance of today’s business and investment decisions in the following areas: coastal property and infrastructure (damaged by storm surges and higher sea levels); agriculture (disrupted by higher temperatures); energy (costs will go up to provide more cooling).”
In addition to the large scale economic effects referred to above, global warming will affect each of us in a very direct way. For example, in Omaha NE where I live, in just a few short years the current average of about 10 days per summer with a temperature over 95 degrees F, will increase to about 25 such summer days.
All of these effects are assuming that we continue on our present course of rapidly increasing CO2 build up in the atmosphere. We do have a choice in this matter. We can cut back but it will take a big effort to accomplish this. The whole world needs to cut back and it is up to the U.S. to lead the way.
Republicans need to step forward on global warming. It is highly irresponsible to say that any anti-carbon measures we take will just hurt our economy and ignore all of the harmful effects of proceeding on our present course. It is also irresponsible to say that we can’t act unless everyone else does too. If we are exceptional, and I agree that we are, then it is up to us to set an example for the whole world.
We need fiscal conservatives in office to address our very serious deficit and debt problems. But fiscal conservative have to win the trust of a wider group of voters to show that they are deserving of broader support.