The Right is Wrong and the Left is Not Right

I like to think of myself as a political moderate.  And, it must be true since I managed to irritate both conservatives and liberals with my last post, Good, Better, Best... Never Let It Rest.

Oh, I got a few “atta boys”.  “Nice job, John”  “Keep it up”, etc.  However, overwhelmingly, I got the type of response I was hoping not to. 

It boils down to this:  the Right believes that Obama is a Socialist and that there can be no compromise with that element.  The Left rationalizes Obama’s record of economic non-achievement by citing irrelevant examples. 

Well, in the interest of continuing to irritate both sides, let me just say it:  The Right is Wrong and the Left is Not Right. 

There is an emerging monologue among those on the Left.  They postulate that government should raise taxes, invest in infrastructure and that somehow private enterprise will invest in R&D and create jobs.  One respondent asserted that “trickle down” doesn’t work but that “trickle up” does.  Their example is the 1950’s, a decade of the highest growth in our history coincident with the highest tax rates in our history.  I like to point out that “correlation is not causation”.  That high growth coincided with high taxes does not mean that taxes don’t reduce growth.  But, that seems to fall on deaf ears.

The major objection I have to this line of thinking is that no one wants to believe the data.  And, the data show that government spending does not get a financial return.  The “multiplier effect” where a dollar of capital investment gets 2 dollars in return has been shown to work with private investment but not with government spending.  There have been numerous studies demonstrating this result.  I will point out just one.

Liberal economist, Christine Romer, President Obama’s first Chair of the Council of Economic Advisors, wrote "The Macroeconomic Effects of Tax Changes" while she was an economics professor at University of California at Berkeley in 2007.  She concludes, in part, that “tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment.”

Investment has a multiplier effect on GDP and improves employment prospects.  True, robust growth in the 1950’s was coincident with high tax rates.  It is also true that robust growth in the 19th Century was coincident with NO income tax. 

Now, I am not saying we should reduce taxes or even that we shouldn’t increase taxes.  I am simply saying we need to understand the impact of taxes and ask ourselves how much growth we are willing to sacrifice for the government we want. 

Conservatives for their part advocate further tax reduction.  The Supply Side theories of Arthur Laffer were the underpinning of Reagan’s economic policies and they have served us well.  They are right.  They served us well for about 20 or 25 years.  However, in the last decade middle class wages have stagnated while the costs of healthcare and education have skyrocketed. 

As for “trickle down economics”…  Well, there is no such proven economic theory.  It’s more of a political phrase than an economic theory.  And, lately, not much is trickling down. 

Governance is more than just economics.  In colonial times, our founding fathers recognized the need to address the common good, the need to place each selfish and separate interest in the context of the “res publica”, literally the “public thing”. 

Conservatives need to recognize that government should play a role in helping its people through the transition to a global economy and liberals need to recognize that we need a sustainable financial platform to provide for it.

In his Sunday Op-Ed piece, author and New York Times columnist Tom Friedman advocated that we focus on supporting entrepreneurship and suggested “…we should aspire to be the world’s best launching pad because our work force is so productive; our markets the freest and most trusted; our infrastructure and Internet bandwidth the most advanced; our openness to foreign talent second to none; our funding for basic research the most generous; our rule of law, patent protection and investment-friendly tax code the envy of the world; our education system unrivaled; our currency and interest rates the most stable; our environment the most pristine; our health care system the most efficient; and our energy supplies the most secure, clean and cost-effective.”

Our political debate should be about how to achieve the objectives so concisely presented in Friedman’s column.  Instead we have, thus far, been treated to more of the same unproductive, partisan nonsense that has caused us to fail to address our long term challenges since the turn of the century.  Is it any wonder that an increasing number of voters identify themselves as independents.?

Obama and Romney are serious, intelligent people with a sincere desire to advance the American cause and very different approaches to doing so.  I can only hope that the presidential debate will turn to that discussion.

WHO WILL LEAD?

            Recommended reading:

                        The Center on Budget and Policy Priorities

                        The Microeconomics Blog

                        Proceedings of the National Academy of Sciences of the United States