|GOP Presidential Candidates Need A Refresher Course on Free Markets|
By Troy Senik
Thursday, February 09 2012
A little learning is a dangerous thing. Unfortunately, it’s also all that’s required of a professional politician. While stammering, inarticulate candidates tend to have short shelf lives, a political aspirant who manages to recite a crisp bullet point without giving its content much thought can make a career out of the exercise (as testified to by the 2008 election of a president who spun the rhetorical equivalent of cotton candy).
The problem is that abstract principles untethered to specific circumstances tend to function more as applause lines than serious roadmaps to how a politician will act once elected to office. When the rubber meets the road, there’s always some unforeseen caveat to the previous declaration of unshakeable conviction (remember when George W. Bush had to “abandon free-market principles in order to save the free-market” in 2008?).
For that reason, the economic orthodoxy of the Republican Party has become a victim of its own success. Any office-seeker who wants to succeed in a GOP primary knows that he will have to offer the usual shibboleths about the virtues of free markets, low taxes, restrained spending and minimal regulations on the campaign trail. By parroting those bromides, however, many seem to think they’ve earned a free pass to propose whatever policies they like, even if they actively contradict free market principles. Unfortunately, this trend shows no sign of abating in the Republican presidential race.
Rick Santorum and Newt Gingrich are both men whose political biographies attest to a serious devotion to conservative thought. Yet even they haven’t been able to resist the temptation of a little government meddling in the economy when it’s accompanied by the prospect of chasing up votes.
One of the strengths of Santorum’s campaign has been his call to cut America’s corporate income tax rate – which, at 35 percent, is one of the highest among the world’s advanced economies – in half. That’s an utterly sensible policy – and one that would certainly galvanize job growth (studies examining various proposals for corporate tax cuts – though not Santorum’s specifically – estimate that between 500,000 and 2.2 million jobs would be created by lower rates). But Santorum, in a bid to appeal to the sort of blue-collar industrial workers that he knows intimately from his days as a Pennsylvania senator, goes one step further by proposing to abolish the corporate tax outright for the manufacturing sector.
Giving special tax treatment to manufacturing doesn’t make much sense on the merits. For all the hand wringing about the “hollowing out” of America’s industrial sector, it’s actually outpacing the broader economy in terms of recovery. Sure, it deserves a break – every sector of the economy does. And outright abolition of the tax across the board would be even better. But zeroing out the tax for manufacturers while leaving a 17.5 percent rate for every other corporation in America would distort investment patterns (getting an extra 17.5 cents on the dollar tends to do that), unjustly steering capital away from other sectors of the economy without regard for performance and smacking of the kind of “picking winners and losers” policy that conservatives have rightly objected to in recent years.
While Santorum’s targeted tax policy is a mistake, at least it’s extrapolated from a sound principle. The same can’t be said of Newt Gingrich’s energy policies, which come far too close for comfort to the green boondoggles of the Obama years. The former Speaker of the House, while laudably bullish on removing government barriers to the development of oil, coal, natural gas and nuclear power, has also regularly espoused alternative fuels such as wind, solar, biomass and geothermal, all of which depend largely on Washington for their existence.
Perhaps most egregiously, he has repeatedly touted the use of corn-based ethanol – which, because of federal mandates, takes up 24 percent of the nation’s corn production, driving up the price of food. Not coincidentally, Gingrich was most outspoken in his support of the fuel in Iowa, a state where the corn lobby is a powerful political force (even Al Gore, high priest of the green movement, has admitted that his erstwhile support of ethanol was a political play for Iowa voters). The Speaker is smart enough to know that the virtues of a free market apply to the energy industry just as much as any other. Fuel markets work best when consumers are making decisions based on price and quality, not when politicians are hand-picking energy sources to please favored constituencies.
Though Santorum and Gingrich have their shortcomings, no one can compare to Mitt Romney when it comes to putting political expediency before sound economics. Time and again, Romney has too readily accepted conventional (read: liberal) wisdom on the economy, only to end up with a policy position that puts him 180 degrees from the conservative mainstream.
The former Massachusetts governor relentlessly demagogues the issue of China’s “currency manipulation” (enough so that Donald Trump cited it in his endorsement of Romney – a fact that, in and of itself, ought to give pause). In reality, however, the punitive measures Romney proposes in response would likely touch off a trade war, leaving both the American and the Chinese people materially worse off as a result.
Overly sensitive to how his personal wealth will be used against him in the campaign, Romney also engages in painstaking efforts to paint himself as an advocate for the middle class, even at the expense of the rest of the country. One such example is his proposal to eliminate capital gains taxes for those Americans making $200,000 a year or less. Like Santorum’s manufacturing policy, this is an example of a sound principle applied incorrectly. Eliminating – or even just sharply reducing – the capital gains tax would be a boon for the American economy, increasing savings rates and driving the investment that would fuel new jobs and new technologies. But keeping that benefit from America’s wealthiest citizens greatly dulls its capacity to kickstart the economy, for a simple and intuitive reason: The investment that creates middle-class jobs mostly comes from precisely those upper-class citizens. In fact, 87 percent of all capital gains go to those above Romney’s $200,000 threshold, meaning that a lot of that money wouldn’t be liberated to create increased investment.
That focus on the middle class also led to Romney’s recent gaffe in which he said that he was “not concerned about the very poor” (in fairness to the candidate, his meaning was that he thought the current safety net was adequate to meet the needs of the indigent.). Attempting to do damage control, Romney went on the record shortly thereafter touting the virtues of regular increases in the federal minimum wage. Yet, as the vast majority of economists will tell you, the minimum wage is actually a job-killer, pricing low-skilled labor out of the market. Romney, good conservative that he claims to be, should know that price floors produce unused surpluses – and in this case, those surpluses take the form of unemployed workers, often disproportionately young, poor and/or from the ranks of minorities.
For all of the economic foibles of the leading Republican candidates, we can at least be satisfied that each would be a dramatic improvement on Barack Obama, who has repeatedly shown himself to be an economic illiterate (this is the man, after all, who signed a bill whereby the federal government paid citizens to have their used cars destroyed). If one of them becomes president, however, conservatives will have to remain vigilant. This group knows just enough about free market economics to be dangerous.
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