Tag: economic issues

On Election Eve…

With Tuesday’s election widely predicted to bring a near-historic shake-up of the political establishment, here are some things we can say for certain even before the first results are tallied:

  1. This election will be a win for economic conservatives, not social conservatives.  Not surprisingly given the economic climate, economic issues dominated the campaign, with social issues barely registering.  This was particularly helpful for Republicans, since economically conservative, socially moderate suburban voters, who backed Democrats in 2006 and 2008, switched to Republicans this year. There is a lesson here for Republicans in the future.
  2. In the months leading up to the election, we have heard a great deal about the so-called “civil war” in the Republican Party.   As it turns out, there wasn’t one.  Despite some spirited, even bitter, primary fights, Republicans of all stripes were able to unify around a common opposition to the Obama agenda.  But having achieved electoral success, Republicans will now be forced to confront the serious divisions in their party: tea partiers vs. the GOP establishment; economic conservatives vs. social conservatives; budget hawks vs. neoconservatives.  The “civil war” will be back with a vengeance.
  3. Voters will choose Republicans in this election because they aren’t Democrats.  It doesn’t mean that voters have fallen in love with the Republican party.  In fact, polls show that Republicans remain only slightly more popular than used car salesmen—or Democrats.  At best, voters are willing to give Republicans one last chance.  If they don’t deliver, it will be a long, long time before they get another one.
  4. No issue hurt Democrats as much as the health care bill.  It wasn’t just that voters hate the bill—they do—but that it crystallized the average American’s antipathy to a government that was too big, too costly and too out of touch.  Voters will declare that they don’t want government running health care…and come to think of it, they don’t want government running much else either.

Amusing, but Tragically Accurate, Video on Ag Subsidies from the U.K.’s Taxpayers Alliance

It is unclear whether European Union agriculture policy is more absurd or less absurd than American agriculture policy. Both systems reward special interests. Both systems distort markets. Both systems deprive people in the developing world. Both systems are bad news for taxpayers. The real issue is whether it is possible to reverse these terrible policies. Maybe a bit of satire will do the trick. Our friends at the Taxpayers Alliance in England have put together a video which uses humor to explain the absurdity of Europe’s so-called common agricultural policy.

After watching this video, I’m feeling a bit envious. My mini-documentaries on economic issues (see examples here, here, and here) have received some good feedback, but perhaps we could change more minds in America by using mockery instead of wonkery.

Obama’s Spending Theory

President Obama focused on budget and economic issues in his press conference last night. One concern raised by reporters was that federal deficits were exploding and that Obama’s big spending plans would seem to make the problem worse.

Obama’s response was essentially that higher spending reduces the debt problem, which would strike most people as paradoxical to say the least:

Here’s what I do know: If we don’t tackle energy, if we don’t improve our education system, if we don’t drive down the costs of health care, if we’re not making serious investments in science and technology and our infrastructure, then we won’t grow [the economy by] 2.6 percent, we won’t grow 2.2 percent. We won’t grow. And so what we’ve said is, let’s make the investments that ensure that we meet our growth targets that put us on a pathway to growth as opposed to a situation in which we’re not making those investments and we still have trillion-dollar deficits.

First note that Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Government spending on infrastructure, education, science and energy are already at high levels. For example, infrastructure spending today is as high as it was during the 1950s, and higher than it has been in recent decades. If government worked efficiently—as liberals believe it does—then all the highest-valued uses of taxpayer money would already be funded. At the margin, the only place for Obama’s new spending would be on low-value items of less economic importance.

Thus, Obama’s new college subsidies might induce some added young people to attend college, but most of those people are probably pretty marginal students because the high-quality students are already going to college. The marginal students might pick up some added skills, but at the cost of higher tax burdens and less economic output in the years when those folks are out of the workforce. Liberals assume that more spending on any activity they are interested in, whether public or private, is always better, but the real goal of economic policy is to find the optimum because all spending has a cost. (And the optimum level of government spending on most things is pretty darn low, or zero, in my view).

Obama is essentially claiming that even with federal, state and local spending at about one-third of GDP, there are government spending projects left over that are so powerful that “we won’t grow” if they don’t happen.

Serious economists know that that is nonsense. Most government activities have negative effects on growth, not positive effects. Take the largest federal program, Social Security, which will consume about $660 billion in taxpayer money this year. The program is a negative on economic growth because it suppresses personal savings and the taxes to fund it create large distortions. Lots of liberal economists support such transfer programs for non-economic or “social” reasons, but few economists would argue that they expand GDP on net.