Thoughts on Economics
by Tom Donelson on April 25, 2011 at 8:36 AM
The rally cry for Bill Clinton's first Presidential campaign was, “It’s the economy, stupid!” Conventional wisdom is that when voters decide who will be the next President, it is the economy that decides. For Republicans, the key to winning the 2012 elections begins with winning the argument, what kind of America do we want to live in?
The reality is that for the past two years, what recovery that has occurred is due to the Federal Reserve easy money policy, but there is a limit to shoveling money from helicopters before ithe side effects become pronounced.
In a world dominated by the dollar, when the dollar declines; commodity prices rise. Ben Bernanke is between a rock and hard place for Quantitative easing has been the engine of economic growth as everything else the Obama administration has done works against economic growth. Threats of higher taxes, trillion dollars of stimulus spending, an essential government takeover of healthcare adding trillions to future spending, and the EPA threatening to institute cap and trade via regulation all threatens not only future growth but has inhibited present growth. The reality is that what recovery that has occurred pales in comparison to other past recoveries and the truth is if the Obama administration failed to pass a healthcare package or a trillion dollar stimulus, we would be in the midst of a major recovery, lower debts and lower deficits. The biggest chance for a Republican victory is economic thinking. Obama is not the brightest bulb when it comes to economic thinking, but he does get an A for demagoguery and many times demagoguery works. Obama’s idea of soaking the rich (shared sacrifice) and no cuts in Medicare has polled well.
This brings me to how Republicans should discuss the economy. When Republicans talk budget cuts, they talk budget cuts, but it is just as important to talk economic growth. When talking soaking the rich, just remind your opponent that there is a bipartisan agreement from Obama's own budget commission to Ryan, left to right, that any marginal tax reforms means lower marginal tax rates in exchange of reducing deductions. Tax rates matter in producing economic growth. Remind your opponents that it is no accident that the three best months of employment for Obama occurred after the deal to maintain the Bush tax rates along with additional business and individual tax cuts. Case closed, Obama;s ideology loses on taxes in the real world.
Don’t forget that lower tax rates mean more economic activity, which means more government revenues and lower deficits, why is that so hard to understand? And when does $250,000 equate to being a millionaire? With another year of dollar declining in value and soon a million dollars won’t be enough to live off. We will have to carry our dollars in a wheelbarrow to pay for groceries.
Obama tells us that we can just have the same rates as the rich did during the Clinton years and weren’t those great years? Yeah but to repeat Clinton years, you have to cut the budget in real terms and as a percentage of the total economy, cut capital gains tax, reform entitlements (remember welfare reform which reduced the welfare roll and cost), balance the budget, and least I forget, pass a ton of free trade agreements. So tell me Mr. Obama, are you going to cut capital gains tax, doesn’t your budget proposal means more spending and higher deficits, are you ready to repeal Obamacare, and how many free trade agreements are you pursuing? So where is your proposal for a balanced budget? So why don't I like the idea of raising the marginal tax rates on the rich, but I might trade that for a capital gains tax cut, entitlement reforms, restriction of spending and a few free trade agreements along with the repeal of Obamacare, if this President proposed it. Don’t count on it.
How many times over the past week have we read Republicans are going to cut Medicare, evil Republicans, but wait a minute, didn’t Obamacare cut Medicare by a half a trillion dollars to fund the rest of Obamacare? Yes it did. The reality is that Obamacare is far more vicious in its treatment of the elderly, and besides Paul Ryan's plan, only affects those under 55 whereas Obamacare's maltreatment of seniors begins sooner. While Obama demagogues Republicans, seniors get the shaft.
Summary - make it a debate about economic growth and you can win the debate. Reagan won the tax debate and I would suspect that polls in his days showed the same thing, tax the rich was popular but results do prevail. When his policy initiated a three decade growth spurt, much of the discussion about taxing the rich fell by the roadside. Good policy trumps all!