Thursday, August 21, 2008

Obama and Economics

Via Tyler Cowen, a long, thoughtful article on Obama and the economy.

Excerpt:
To understand where Obama stands, you first have to know that, for 15 years, Democratic Party economics have been defined by a struggle that took place during the start of the Clinton administration. It was the battle of the Bobs. On one side was Clinton’s labor secretary and longtime friend, Bob Reich, who argued that the government should invest in roads, bridges, worker training and the like to stimulate the economy and help the middle class. On the other side was Bob Rubin, a former Goldman Sachs executive turned White House aide, who favored reducing the deficit to soothe the bond market, bring down interest rates and get the economy moving again. Clinton cast his lot with Rubin, and to this day the first question about any Democrat’s economic outlook is often where his heart lies, with Reich or Rubin, the left or the center, the government or the market.

Obama has obviously studied this debate, and early on during the flight to Chicago, he told me a story about Reich and Rubin. The previous week, Obama convened a discussion with a high-powered group of economists and chief executives. He was sitting at a conference table, with Rubin two seats to his left and Reich across from him. “One of the points I raised,” Obama told me, “is if you just use you, Bob, and you, Bob, as caricatures, the truth is, both of you acknowledge the world is more complicated.” By this, Obama didn’t simply mean that their views were more nuanced than many outsiders understood. He meant that both have come to acknowledge that the other man is, in part, correct. The two now occupy more similar ideological places than they did in 1993. The battle of the Bobs may not be completely over, but it has certainly been suspended.

Among the policy experts and economists who make up the Democratic government-in-waiting, there is now something of a consensus. They agree that deficit reduction did an enormous amount of good. It helped usher in the 1990s boom and the only period of strong, broad-based income growth in a generation. But that boom also depended on a technology bubble and historically low oil prices. In the current decade, the economy has continued to grow at a decent pace, yet most families have seen little benefit. Instead, the benefits have flowed mostly to a small slice of workers at the very top of the income distribution. As Rubin told me, comparing the current moment with 1993, “The distributional issues are obviously more serious now.” From today’s vantage point, inequality looks likes a bigger problem than economic growth; fiscal discipline seems necessary but not sufficient.

In practical terms, the new consensus means that the policies of an Obama administration would differ from those of the Clinton administration, but not primarily because of differences between the two men. “The economy has changed in the last 15 years, and our understanding of economic policy has changed as well,” Furman says. “And that means that what was appropriate in 1993 is no longer appropriate.” Obama’s agenda starts not with raising taxes to reduce the deficit, as Clinton’s ended up doing, but with changing the tax code so that families making more than $250,000 a year pay more taxes and nearly everyone else pays less. That would begin to address inequality. Then there would be Reich-like investments in alternative energy, physical infrastructure and such, meant both to create middle-class jobs and to address long-term problems like global warming.



The article also addresses the Republican/WSJ fearmongering about tax increases on the wealthy:
The second criticism is that Obama’s tax increases would send an already-weak economy into a tailspin. The problem with this argument is that it’s been made before, fairly recently, and it proved to be spectacularly wrong. When Bill Clinton raised taxes on upper-income families in 1993, his supply-side critics insisted that he would ruin the economy. As we now know, Clinton presided over the longest economic expansion on record, the fastest income growth most workers had experienced in a generation and the disappearance of the federal-budget deficit. His successor, Bush, then did exactly what the supply-siders wanted, cutting upper-income tax rates, and the results were much worse. Economic growth wasn’t quite as strong or nearly as widespread, and the deficit returned. At the very least, Clinton’s increases did no discernible economic damage. Rubin, citing academic work on tax rates, made the case to me that rates under an Obama administration would not be nearly high enough to stifle innovation.




And regarding McCain and the Republicans:
Republicans, on the other hand, have an economic strategy that may still sell politically. But is there much reason to think that it would lead to a very different result from Bush’s? There have now been two presidents in the last 30 years — Bush and Reagan — who cut taxes and promised that deficits would not follow. But the deficits did come, and they went away only after two other presidents — George H. W. Bush and Bill Clinton — raised taxes. It also seems fairly clear by now that tax cuts for the affluent do not necessarily trickle down to everyone else.

For Democrats who want to think the worst about their opponents, McCain’s reliance on these ideas may be affirming. But it’s really a shame. For the time being, only one party is applying the lessons of history to the country’s biggest economic problems. There is no great battle of new ideas, and that can’t make it more likely that those problems will be solved.

17 comments:

Ezzie said...

Wow. The mind-blowing ignorance of how economics works in this is astounding.

G said...

That would begin to address inequality.

What inequality? Seriously, what is this refering to?

Jewish Atheist said...

ezzie,

You're making it a habit of making dismissive comments without any explanation whatsoever. Tyler Cowen's a professional, libertarian economist who linked to the article approvingly and called it "thoughtful."

Is he "mind-blowingly ignorant" about how economics works??


g:

What inequality? Seriously, what is this refering to?

The fact that virtually all of the recent gains in the economy have gone to the richest, while most American families are making less than they did in 2000.

Jewish Atheist said...

And is Warren Buffet "mind-blowingly ignorant" about how economics works as well?

Holy Hyrax said...

Since when is the rich getting richer something bad? Why is this an issue of equality? Sure, I am making less money. But its mostly due to my own choices. I live in an expensive area. I decided to work in a job where I job where I don't make as much money as the smart business man.

Why is fear mongering always put on the right.

Jewish Atheist said...

Since when is the rich getting richer something bad?

It's not. The problem is that everybody else is being left out of the country's economic growth.

Holy Hyrax said...

how are they being left out?

Jewish Atheist said...

They're making less than they did in 2000.

Holy Hyrax said...

but how are they being left out of economic growth?

Jewish Atheist said...

Well that's what the whole discussion is about, isn't it? It sounds like the Democrats believe it's because most of the tax cuts went to the rich, so all of the economic stimulus that resulted went to the same. As we learned with Reagan, it doesn't really trickle down.

Obama wants to fix that by bringing taxes back to the progressive level that it was during Clinton and possibly a little more so. The hope is that the economy would boom again, the deficit would go down, and the bottom 60% would get a big piece of the new boom.

Anonymous said...

The only reason why they are left out of economic growth is due solely on the basis that they do nothing to do more from themselves. It doesn't trickle down become some people refuse to improve themselves. Those that did, greatly benefited. But then you can't force anyone to seek better education no more than you can force an employer to pay a person more for doing the same mindless job.

A wal-mart greeter who stays a wal-mart greeter is never going to. But that doesn't mean you should tax those who have become successful, who have created wealth on the grounds that the poor are still poor.

Putting taxes on the rich will make them eliminate jobs: or they'll outsource them like they have been doing. Taxing the successful will actually limit the progress of economic growth in this country, and consequently, seriously cut out the piece of a new boom that the poor could have earned.

Jewish Atheist said...

The only reason why they are left out of economic growth is due solely on the basis that they do nothing to do more from themselves.

I know Republicans like to think that the rich deserve their money and the poor deserve to be poor, but do you have any evidence for that claim?

Putting taxes on the rich will make them eliminate jobs: or they'll outsource them like they have been doing. Taxing the successful will actually limit the progress of economic growth in this country, and consequently, seriously cut out the piece of a new boom that the poor could have earned.

We're just talking back to returning to Clinton levels or slightly higher. The things you claim would happen did not happen then and would not happen now.

Comrade Kevin said...

We love the short-term fix in this country, which unfortunately creates the long-term ill.

asher said...

It is interesting that the economy did so well under Clinton and Reagan when neither of them had a clue about economics and did nothing to create the situation. Reagan cut taxes and waited for something to happen. Clinton was forced to balance the budget by an ultra conservative Republican Congress.
When will you realize that politics and the president has very little to do with how the economy is doing? Nothing the presidents in the 1920's did created the Great Depression and nothing FDR did helped to end it.
If anything it made things worse.

The two biggest expenses in the US budget are what? Democrats are trying to convince us is the military expenditures. Republicans are always complainining about the waste in the Department of Education which should never have even been created. Actually the two biggest expeditures are ....guess...Medicare and Social Security. Both of these entitlement programs should bankrupt the country in the next 40
years which means that most of the readers of this blog won't be able to take advantage of either of them. What we gonna do then?

Jewish Atheist said...

asher:

There's a strong correlation between income growth and the party of the president.

Holy Hyrax said...

>I know Republicans like to think that the rich deserve their money and the poor deserve to be poor, but do you have any evidence for that claim?

evidence for what?

Jewish Atheist said...

HH:

I was asking for evidence for this claim:

The only reason why they are left out of economic growth is due solely on the basis that they do nothing to do more from themselves.