Oct
19
By Paolo von Schirach
October 19, 2011
WASHINGTON – In a smart nation run by mature people the policy debate will focus on what is most important. In a confused, despondent nation the debate centers on issues that, while important, are mostly politically appealing but not central –and thus not really critical. And this is what is happening in America right now on the economy, in large measure because of president Obama clever re-election strategy. With some success, Obama has managed to make his “Jobs Plan” the central issue of the current debate on national economic priorities.
Obama’s Jobs Plan is about politics not economics
Obama knows well that he cannot have his plan passed by Congress. But he is pushing it anyway –not in Congress of course– but in staged events across states he needs to win in November 2012. All this is about politics. It has nothing to do with economic policy. Obama is clearly using his jobs proposal as a club to beat the Republicans. Obama wants to go to the voters in November 2012 saying that he had a good plan to create millions of jobs; but the Republicans killed it, because they did not want rich Americans, their masters, to pay for it as they should. So, Mr. and Mrs. America, if you are out of a job on election day, you know whose fault this is: the ultra rich and the Republicans who protect them.
The plan is about adding to the public sector pay roll
And what is Obama’s plan? It is about creating public sector jobs paid for through higher taxes for the rich. Look, this public sector jobs idea may have some merit. Yes, we need more teachers and more policemen and what not. And yes, we may agree that America’s super rich should throw more money into the pot.
But the hard fact is that hiring or not hiring more teachers, while not irrelevant, is not America’s central economic issue. This is mostly a social issue, now conveniently turned into an electoral ploy to get the votes of unemployed teachers and policemen. It is true that millions of Americans are out of work. A government sponsored plan that will put many into public sector jobs would provide at least some relief, no doubt about that.
And, sure enough, more people with a pay check would mean more consumer spending and some boost for aggregate demand. Fine. All true. And yet none of this would address, let alone solve, America’s real problem which is lack of economic growth. More teachers paid for with higher taxes would reduce unemployment, by a little bit. But this is no economic growth strategy. This is mostly a good Obama vote grabbing strategy, as most teachers vote for the Democrats.
There is no Obama plan for economic growth
Smart policy-makers would use an unfolding national political season to introduce and debate solid economic growth strategies. But this not happening in America. President Obama does not have a growth strategy. He has a re-election strategy. And he has figured out that making the Republicans look bad is politically smart. And I am sure it is.
In a clever way, Obama changed the conversation. We do not talk about his mediocre (at best) economic policy record. We talk about the evil Republicans who want to protect their rich sponsors from paying higher taxes, this way preventing teachers jobs from getting funded, while children education suffers, and so on. Now, all this is reveals political smarts; but it is not at all helpful.
Republicans mired in their own fight do not produce ideas
Unfortunately, the Republicans are not helping much either. At the moment, there is an internal fight among the many, (mostly mediocre to bad), contenders for the party nomination. To make it worse, as the debates among candidates are about appealing to Republican party primary voters emotions, they are not very substantive. Former business executive Herman Cain grabbed headlines because of his 9-9-9 tax reform proposal which has been attacked by the others as a tax increase.
And what else is out there? Jon Huntsman came up with a sophisticated plan; but he is so far behind in the polls that his ideas are not even mentioned. Former Governor Mitt Romney would like to coast to the nomination without saying anything too bold or controversial. He wants to claim the presidency largely on the basis of his resume as a successful businessman, as opposed to the strength of his arguments.
Plenty of ideas, but they are not seriously debated by national policy-makers
This is pretty sad. America needs a better economic growth environment. But where is the national conversation? There are plenty of ideas. Higher growth can be achieved in part through serious tax simplification and less burdensome regulation. But Washington could also help through more proactive policies. Whatever the Republicans say, we need a long term, serious plan to upgrade the national infrastructure. The trick here is to structure projects and funding so that this does not become a giant pork barrel project. Having politicians dole out billions of dollars for high visibility projects that they hope will get them re-elected is a recipe for misallocation of resources and waste.
And yet America needs to spend heavily (up to two trillion dollars, according to reliable estimates) to fix infrastructure, in part because it is literally crumbling, and in part because efficient ports and functioning highways make it easier and cheaper to move goods around. This is all about competitiveness. This is about making America an attractive, efficient place to invest and do business. This is about improving the foundations for growth.
And finally America needs an energy strategy. This is difficult. But it is no excuse for not having any. Much has been said about the failure of Obama’s renewable energy plans, exemplified by Washington funded solar companies like Solyndra going under. But this is not the real issue.
Mistakes aside, America has no overarching energy policy. If we wanted to achieve greater automobile fuel efficiency, much could be done simply by increasing the federal gasoline tax. By making gasoline more expensive, Washington would provide a clear pricing reference to all those who are thinking about how to achieve greater efficiencies and/or profitably introduce alternative fuels.
But this federal gas tax idea would be extremely unpopular today, because Americans mistakenly are led to believe by politicians that gasoline, most of it made from oil we do not produce, can and should be cheap. Few appreciate the fact that America imports most of its oil. Even fewer understand the reasons why we should become less dependant on these imports. And why so? Because, beyond the experts, there is no national energy debate.
And yet there is a fierce debate on hiring more teachers and on Warren Buffett and his advice to tax capital gains at the same rate as income. In other words, America wastes precious time focusing on politically appealing social policy issues and redistributive taxation instead of concentrating on economic growth. As I said, smart nations debate central issues. The others, oh well the others do what we are doing: have a big fight over what is politically expedient, but not policy relevant.
Print This Post