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The Good News: Bad Policies Can Be Changed

12:00 AM, Sep 17, 2011 • By IRWIN M. STELZER
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Since the president proposes to fund this with a tax increase, Republicans will have none of it. Those tax increases are aimed primarily at everyone earning more than $200,000 -- so much for hitting “millionaires and billionaires” -- as the president describes his tax plan, and will not take effect until after the 2012 election. They represent a de facto repeal of the Bush tax cuts for “the rich,” would provide about $400 billion over ten years to make up for the new spending. The much heralded attack on corporate jets, using the weapon of extending the depreciable life of these planes, will hardly shoot any down, and will yield $3 billion over ten years.

The pity is that in private all serious American politicians know that tax loopholes must be eliminated—Obama has sensibly proposed removing the special low rates paid by hedge fund managers -- so that overall corporate tax rates can be lowered; that there aren’t enough millionaires and billionaires to fill the gaping hole in America’s finances; that it must be made attractive for corporations to repatriate earnings held overseas; that regulations that stifle small business growth must be repealed; and that America has no way of meeting its current health care promises to pensioners and others, much less the more costly Obamacare version.

America is not alone in knowing what to do and being unable to do it. All of China’s new generation of leaders know they cannot for much longer sustain their export-led, environmentally degrading, currency manipulating policies. But they fear that allowing their currency to rise will cut exports and cause socially destabilising unemployment and downward pressure on wages. All of Europe’s leaders know that they cannot continue to lurch from meeting to meeting, and crisis to crisis, and must find a way of recapitalising their banks and persuading Germans to make their balance sheet and top-notch credit standing available to its weaker eurozone partners—in perpetuity.

Zoellick warned these slaves of defunct economists -- from Karl Marx and collectivists, to Keynes and deficit spenders, and Milton Friedman and pure monetarists -- that “we must change our old concepts and constricting labels…”. His conclusion is worth noting:

With credible and definitely possible action - not just short-term fixes - on debt and deficits to restore confidence, and with … structural and tax reforms to spur sector growth, boost productivity, and create jobs, advanced economies can … power ahead. Predictions of inevitable stagnation and decline -- from the Central European pessimism of Oswald Spengler to the stagnation hypothesis of the distinguished Harvard Keynesian Alvin Hansen -- have time and again proved to be wrong.”

I couldn’t say it better, so I won’t try.

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