Isn’t it time for conservatives to rethink their economic agenda?
Sep 12, 2011, Vol. 16, No. 48 • By IRWIN M. STELZER
With Paul Ryan out of the race, the last chance of a substantive program emerging from the debates of the Republican wannabes has gone a‑glimmering. Or has it? Dare we hope that some one—better still, several—of the candidates eager to take on a president whose popularity is suffering from the failure of his economic program will come up with more than criticisms, but like Ryan will have some radical ideas built on conservative principles that will return the economy to growth?
Start with a few things on which all conservative candidates can surely agree.
n Rewards should be related to performance.
n Consumers should pay the full cost their consumption imposes on society, including environmental costs.
n Policy should take account of externalities, the effect of any policy on society as a whole rather than merely on those at whom the policy is directed.
n There is more to conservative economic policy than efficiency considerations.
With those principles in mind, and the urgent need to get a substantive debate started lest the campaign quickly descend into mindless repetition of talking points about who is less true to the memory of Ronald Reagan, here are some ideas that should be put to the economic policy types involved in the several campaigns, perhaps after reminding them, first, that it was only when conservatives made their peace with the New Deal that they became an effective political force, and second, that conservatives must make their peace with the idea that equity matters as well as efficiency if support for market capitalism is to be maintained.
I have no illusions that any of the candidates will adopt these ideas. That is not the point. Instead, my hope is that they will benefit from figuring out why they won’t do the things listed below—and what they would do instead to confront the problems we face. I share the view that another Obama term would be bad news for the country—he is out of ideas, unable to lead, and the prisoner of constituency groups that elevate income redistribution over the need for growth. But he is no pushover, least of all to a candidate devoid of solutions and running purely as a critic.
So here goes.
(1) Spending: What the economy needs is just the opposite of what the GOP contenders are proposing. This is a bad time to cut spending, as Federal Reserve Board chairman Ben Bernanke hinted in a talk to his fellow central bankers, but the right time to put a plan in place that emphasizes longer-term cuts as bills come due for entitlements—to be phased in as the economy recovers. Experience in Greece suggests that cutting spending in the teeth of a weak economy can cause GDP to decline more rapidly than the deficit, raising rather than lowering the deficit-to-GDP ratio, in what is called a debt spiral. Paul Krugman might be always a tad hysterical, but he is not always wrong. The name of the game is to develop an effective plan to prevent future Congresses from reneging on promises to cut spending when the economy recovers. And a balanced-budget amendment “ain’t it, kid, that ain’t it,” as one of the dancers in A Chorus Line said when asked if talent rather than looks would land a job. If you think it is, consider this: Italian prime minister Silvio Berlusconi favors just such an amendment for his country, and he is a man whose devotion to economic reform and deficit reduction has not heretofore been readily visible.
(2) Taxes: The “no new taxes” idea should be abandoned. End lots of loopholes in exchange for cuts in the general tax rate, as Jon Huntsman has proposed. Surely conservatives who favor having markets allocate capital rather than politicians—the latter proved their incompetence by over-allocating capital to housing markets—can have no objection to the elimination of tax breaks, aka subsidies, to wind, solar, ethanol, nuclear, and oil companies. And if we are serious about reining in Leviathan, surely we should be willing to trade $1 in tax increases for $10 in assured spending cuts.
Billionaires should be granted their wish for higher taxes. Anyone with assets in excess of $1 billion should have a 25 percent surcharge levied on all his/her income. That would make Gates, Buffett, et al., happy. Unless of course they prefer a wealth tax. It is difficult to imagine that any such tax would reduce incentives to risk-taking.
End mortgage relief on second homes, and dedicate the revenues to reducing top marginal tax rates. That way the incentive to work and take risks will be increased, and the artificial incentive to divert capital to housing will be reduced. A victory for both efficiency and fairness.