Obamanomics: Hope Has a Plan
Don't worry, says Max Sawicky, Barack Obama's views on economic polices are well within the mainstream.
Senator Barack Obama has become renowned for his eloquence, and it’s almost unfair. He gets accused of being all sizzle and no steak. I’d even say there is a racial subtext to the criticism — that he is more preacher than statesman.
Lacking the arcane interests and expertise of policy wonks, the public tends to gloss over the prosaic ingredients of campaign promises, especially in regard to the alchemy of economics. What could we expect from an Obama Administration in this regard? My overall take is that Obamanomics is well within the Democratic Party mainstream, neither much to the left nor to the right.
Just from his website material, one thing is clear: There is plenty of beef. Nobody can do a Gary Hart number on the Senator for a lack of substance. It is true that you do not find Obama droning on with this material in stump speeches. Maybe that is the secret of his success.
Let’s take a spin through Obama’s views on some of the economic issues that matter most.
Monetary policy. Monetary policy of the Federal Reserve is commonly held to be the most powerful weapon in the government’s arsenal. Senator Obama has said: “It’s not my place to comment on the actions of the Fed.” In other words, by upholding “the independence of the central bank,” the Obama campaign’s monetary policy is to have no monetary policy.
Cynics and other subversives would say an independent central bank is a bank in thrall to the banking industry, or more broadly, to the commanding heights of Wall Street. Critics of the Fed often maintain it is insufficiently attentive to its mandate of promoting full employment and overly vigilant against inflation. Obama’s position here is that of the mainstream, not of the left.
The Budget Deficit. Obama’s chief economic spokesperson, Professor Austan Goolsbee, is emphatic that there can be no thought of balancing the budget from “the hole President Bush has gotten us into.” Obama sees public investment as a more pressing objective than attaining budget balance and has announced plans for a multi-billion dollar National Infrastructure Reinvestment Bank. As to just what sort of deficits might be tolerable, Goolsbee is noncommittal. Obama supports the current PAYGO regime adopted by the Democratic Congress, which means all new initiatives would require offsets (tax increases or spending cuts) and thereby not increase deficits. The infrastructure bank sounds like the establishment of a separate, capital budget, something public investment advocates have long pined for. As such, it would be a departure from the PAYGO regime.
For Senator Hillary Clinton, fiscal responsibility is central to the experience of the 90s. She puts more emphasis on balanced budgets. The legend of the “fabulous decade” is that the Clinton deficit reduction plan of 1993 turned around adverse trends bequeathed by Presidents Reagan and Bush, leading to an economic boom and budget surpluses. Some of Clinton’s top economists, such as Joseph Stiglitz and Alan Blinder, don’t tell the same story. Blinder credits the ‘93 budget with sparking a bond market rally that reduced interest rates and set the stage for an investment surge. But the magnitude and timing of the effect, from Blinder’s standpoint, do not account for the greater part of the investment boom that only jelled several years later.
John Edwards’ de-prioritization of deficit reduction was more consistent with Obama’s posture. Clinton is more of a budget balancer. In one of her recent criticism’s of Obama, she said, “So when I hear Senator Obama talk about that, I wonder which fights he wouldn’t fight. Would he have not fought to get to a balanced budget and a surplus and help create 22 million new jobs?”
Taxes. Like most Democrats, Obama would rescind at least part of the Bush tax cuts. He would use the proceeds to finance new tax credits for working families. He also proposes loophole-closing and simplified tax filing. These wholesome ideas are of a piece with the Democratic orthodoxy of tax simplification and revenue neutrality — reducing the tax burden of the many at the cost of a privileged few.
Trade and Competitiveness. Obama proposes to amend what he views as a flawed NAFTA agreement and to include social clauses on environmental and labor standards in future trade agreements. Such an agreement would bind U.S. trading partners to minimum standards of environmental regulation and worker rights. The posture of all of the Democratic campaigns is similar on this front.
I pushed Goolsbee on the question of protectionism, offering him the opportunity to distinguish Obama from John Edwards. Edwards conveyed perhaps the harshest criticism of past trade agreements. Goolsbee passed, asserting that in matters of trade there is little difference among the candidates. With Edwards’ departure from the race, Obama has stepped up his criticism of past trade agreements, notably the North American Free Trade Agreement negotiated by President Bill Clinton.
The more general Obama approach to international competition is Clintonian: support for public investment in “human capital.” Obama would face the same problem as Bill Clinton — how to finance investment initiatives in a tax-phobic environment after criticizing the H.W. Bush budget deficits. The next president will have a more difficult time than Clinton, since the Social Security Trust Fund surpluses will begin to shrink. Less of that loose change will be available to prop up the rest of the federal spending.
Labor markets. Obama decries the stagnation of wages and the growth of inequality. His remedies are tax cuts, a minimum wage indexed to inflation, and investment in education.
A tax cut is a one-shot deal; it cannot in and of itself offset ongoing wage stagnation and growing inequality. A minimum wage that keeps up with inflation benefits the lowest-paid workers and adds some trickle-up effect, but leaves most of the working class just as vulnerable as now. Investment in education can be of some help if significant investment indeed came to pass.
All of the Democratic candidates’ promises in the areas of tax cuts, education, the minimum wage, and modest trade reform may sound adequate to the public, but may not prove satisfactory in actual implementation. Where labor standards are concerned, there remains the question of power. In this economy, people with perfectly adequate educations have been displaced by globalization. Though a strong advocate of free trade, Blinder fears a tidal wave of such calamities. Insofar as the U.S. system of social insurance fails to shield workers from such creative destruction, there will be demands for additional remedies in the field of labor market regulation.
In fairness, responding to globalization and reversing wage stagnation is a monumental task. Like his rivals, Obama is committed to supporting trade unions’ right to organize and strike, but bigger and better answers to globalization are not easy to find.
Health Care. There has been something of a tempest in this teapot. Paul Krugman and others have criticized Obama for proposing to provide affordable access to health insurance for all, but no requirement for individuals to enroll. The danger is that people will ‘free-ride’ by delaying participation in a public system until they are sick, thereby imposing costs on everyone else without having previously shared in the risk-spreading.
A mandate is only as good as its enforcement, and mandates on individuals are difficult to enforce for the simple reason that a payment required of tens of millions of people is difficult to enforce. Just look at the Federal tax system, which fails to collect one of every six dollars owed. By contrast, a voluntary system can be inviting or not. Positive incentives in a voluntary system could be more powerful than coercive measures in a compulsory one.
The most popular objection to Obama’s plan is also the silliest: that it is not universal because some would have the right to decline enrollment. Anybody who wants to will be able to enroll in the plan. The mandated participation in the competitors’ plans is universal like the income tax is universal. The premise that a mandate is more progressive than a voluntary program can be a tricky question. An onerous mandate is a political liability, while an inviting voluntary program is an asset. Conversely, a program with uncontrollable costs will not survive, and paternalism is accepted when the objective is broadly supported. The details matter.
Under the Medicare drug benefit, the cost of enrollment depends on whether you signed up at the start of the program or subjected yourself to higher fees by waiting until it was more convenient. Under ObamaCare, your decision to postpone participation could entail a higher charge, thereby encouraging early enrollment and fewer holdouts.
Goolsbee claims that some free-riders would not deprive a public system of net revenue. Lower income people would get subsidies to participate in a mandate system, and these subsidies plus their health care costs would offset their contributions to the system to a greater than average degree. Higher income people tend to insure themselves, even when it might be a good risk to forego insurance.
In general, the inclusiveness and solvency of a system with or without a mandate depends on features that are not typically spelled out in campaign platforms, as Henry Aaron pointed out recently.
So that’s a taste of Obamanomics. It’s not too hot, not too cold. For some it’s just right. Whether you agree with the specifics or not, powering the verbal pyrotechnics is some wonky engineering.
Max B. Sawicky is an economist with the Federal Government. The views stated here are his alone, not those of his colleagues or his employer.
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17 Comments
1. Ken:Why does the first paragraph of Obama’s defense accuses his critics of racism? Does that constitute as verbal pyrotechnics?
Mar 14, 2008 - 5:42 am 2. Valerie:So this is the answer — pay no attention to what the man says, look at the website only?
Mar 14, 2008 - 9:56 am 3. Larry:This presumes, of course, that a politician can be taken at his word. That’s usually a bad assumption.
Mar 14, 2008 - 10:17 am 4. John Corn:Just for example: “Like most Democrats, Obama would rescind at least part of the Bush tax cuts. He would use the proceeds to finance new tax credits for working families. He also proposes loophole-closing and simplified tax filing. These wholesome ideas are of a piece with the Democratic orthodoxy of tax simplification and revenue neutrality – reducing the tax burden of the many at the cost of a privileged few.”
1. Class warfare undisguised, by further reducing the percentage of taxpayers and increasing taxes for as many current payers as possible.
2. Income levels of “working families” is dropping like a stone. Apparently those earning over 30, 40, 60, 80K, or whatever number he is tossing about don’t work for a living, but his bottom line is to eliminate taxes for as many people as possible, making them wards of the government.
When people don’t have a stake in something, they don’t take care of it. One needs only visit ghettos or any country not yet recovered from decades under communist rule.
Mar 14, 2008 - 10:23 am 5. Ken Hahn:Obama’s views are indeed orthodox. They are orthodox socialism.
Mar 14, 2008 - 11:08 am 6. Max Sawicky:Ken — That black people are good at singing and dancing, but can’t think, is the old racist sentiment. I think the ‘all talk’ line, beaten to death by you-know-who, is an echo of that, especially in light of many other public incidents.
Valerie — don’t expect policy wonk stuff if you want to hear a good speech. People tune out of that stuff. Many are more interested in “Kristin” than Austan.
Larry — true, so far that’s all we have to go by.
John — if it’s class war to restore taxes on high income persons, was it something else to reduce them? The top 60% or so pay some income tax, so restoring rates for the top one or two percent is hardly “increasing taxes for as many current payers as possible.” If you only make, say, $35K and have a few kids, you pay little or not income tax, but you have a big stake in a well-running economy.
Ken — Bush’s Federal Reserve guy is bailing out Bear Stearns today, so I guess there’s a lot of that going around.
Mar 14, 2008 - 2:04 pm 7. Ken:Max: A man can be all talk, without regard for the color of his skin. I’d like to point the light to john edwards as an example. If Obama’s ideas are solid enough to withstand criticism, there is no need to resort accusing ctitics of racism. If the camp does go on to play the race card at virtually every opportunity, than some of us might think that those ideas are not strong enough to withstand serious scrutiny.
Mar 14, 2008 - 3:23 pm 8. Fat Jolly Penguin:I see your point; you make a good argument. However, there are two problems with it.
First, you’re assuming that Obama really means what he’s saying; in light of the fact that he’s a politician, that’s a very bad idea. Look at his record; since that seems to be so very sparse, look at what he has said when he was not campaigning for office. That, I feel, will give the best indication of his true intentions.
Furthermore, you didn’t seem to give much consideration to the effects of these economic policies. Rolling back tax cuts for wealthier Americans, for example, not only reduces their incentive to work (they can’t keep as much of what they earn), but it makes them unable to pay as many people or to pay them as well. In other words, higher taxes on the wealthy have a negative impact on the entire economy. Also, the implications of these policies are profound: assuming Obama doesn’t so royally botch his Presidency that another Democrat will never be elected again (unlikely, I admit), the next Democrat President will expand upon these programs. You mentioned yourself that his ideas aren’t that far out of the Democrat mainstream, then listed national health care as one of these; would not another Democrat President, then, share his plan and expand the national health care system, possibly even making it mandatory?
It’s far better to nip these ideas in the bud rather than allowing them into full bloom. I hope I’m right in assuming that you would rather not see Obama elected; in that case, it may not be such a good idea to point out how common his ideas are. If you’re truly intent on keeping him out of the Oval Office, expound upon the flaws in his plans rather than praising them (even obliquely).
Mar 14, 2008 - 6:54 pm 9. Harvey Levy:I agree that Obamanomics is within the mainstream of Democratic party but they’re certainly not middle of the road.
Here’s how Obama stacks up among various interest groups which focus on spending, budget, and taxes;
2006 Senator Obama supported the interests of the Americans for Tax Reform 15 percent in 2006.
2006 Senator Obama supported the interests of the FreedomWorks 25 percent in 2006.
2006 Senator Obama supported the interests of the National Taxpayers Union 16 percent in 2006.
2005-2006 Senator Obama supported the interests of the Citizens for Tax Justice 100 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Tax Limitation Committee 8 percent in 2005-2006.
2005 Senator Obama supported the interests of the Americans for Tax Reform 0 percent in 2005.
2005 Senator Obama supported the interests of the FreedomWorks 6 percent in 2005.
2005 Senator Obama supported the interests of the National Taxpayers Union 6 percent in 2005.
2005 Senator Obama supported the interests of the Taxpayers for Common Sense 40 percent in 2005.
For Business and consumers;
2006 Senator Obama supported the interests of the Business-Industry Political Action Committee 10 percent in 2006.
2006 Senator Obama supported the interests of the National Association of Government Contractors 100 percent in 2006.
2006 Senator Obama supported the interests of the National Stone, Sand & Gravel Association 92 percent in 2006.
2006 Senator Obama supported the interests of the U.S. Chamber of Commerce 55 percent in 2006.
2005-2006 Senator Obama supported the interests of the American Forest and Paper Association 42 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the Associated General Contractors of America 62 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the International Warehouse Logistics Association 25 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Association of Manufacturers 16 percent in 2005-2006. The following ratings indicate the degree that each elected official supported the interests of the organization in that year.
2005-2006 Senator Obama supported the interests of the National Electrical Contractors Association 67 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Federation of Independent Business 12 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Restaurant Association 38 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Retail Federation 17 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the National Small Business Association 28 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the Plumbing-Heating-Cooling Contractors-National Association 40 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the Public Citizen’s Congress Watch 69 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the Plumbing-Heating-Cooling Contractors-National Association 40 percent in 2005-2006.
2005-2006 Senator Obama supported the interests of the Public Citizen’s Congress Watch 69 percent in 2005-2006.
2005 Senator Obama supported the interests of the Business-Industry Political Action Committee 15 percent in 2005.
2005 Senator Obama supported the interests of the International Sleep Products Association 100 percent in 2005.
2005 Senator Obama supported the interests of the Maryland Business for Responsive Government 23 percent in 2005.
2005 Senator Obama supported the interests of the National Federation of Independent Business 17 percent in 2005.
2005 Senator Obama supported the interests of the Small Business & Entrepreneurship Council 9 percent in 2005.
2005 Senator Obama supported the interests of the U.S. Chamber of Commerce 39 percent in 2005.
Source Project Vote Smart
Mar 14, 2008 - 8:27 pm 10. David Thomson:“Ken — That black people are good at singing and dancing, but can’t think, is the old racist sentiment.”
Max Sawicky’s response borders on the ridiculous. It readily, though, explains why the “Barry” Obama campaign was not derailed long before this time. The warning signs concerning his relationships with the radical left were not public secrets. It was well documented for anyone willing to spend a little time searching on the Internet. Oh well, it’s too late now. The Democrats are royally screwed. John McCain should easily become our next president.
Mar 14, 2008 - 9:14 pm 11. Max Sawicky:Ken — I am not accusing any critic of BHO of automatically being a racist. There has been a fair amount of racist commentary in his direction, but that was not the subject of my column.
Mr. Penguin — At this point most of what we have to go on is just talk, since he has not served yet. Even with a record, we couldn’t be sure. Politicians’ inclinations can change when they ascend to higher office. George Bush is a good example.
Re: taxes, the economy did well in the 90s with higher taxes than presently. And don’t forget, failure to finance spending means more borrowing, which can have effects on the economy as well.
Re: health, health costs in both the public and private sectors are growing at an unsustainable rate. I don’t think the solution lies in a more fragmented, private sector system.
My purpose here was not to endorse or not endorse Obama, just to describe his proposals.
Harvey — what makes the groups you like “middle of the road”? In politics, people tend to call those they criticize extreme. It seemed like each of the Republican nominees was attacked for being too liberal, in one respect or another.
Mr. Thomson — there is no relation to the radical left. In fact, the radical left is very suspicious or critical of Obama, a fact that could be easily verified by asking . . . the radical left. (Or reading their web sites.)
Mar 15, 2008 - 8:03 am 12. Harvey Levy:Mr. Sawicky, the pendulum swings hard left when it comes to Obama;s voting record in the US Senate. One does not need further proof than to look at the interest groups ratings of his voting record in the Senate. You can see for yourself’ it’s well documented in my previous post. If Obama was indeed walking the white lines his ratings would mostly be between 40 – 60%.
Mar 15, 2008 - 11:44 am 13. Rich:The Dems in the House this past week voted to let the Bush tax cuts expire. Seems their idea of raising taxes on the wealthy is to raise taxes on individuals with incomes in excess of $30,000 and couples with incomes in excess of $63,000. It’s not about raising taxes on the rich or making the tax code more fair, it’s about raising taxes on virtually everyone so that the Dems can raise spending and make everyone more dependent on government. This is SOCIALISM.
And with the economy in a recession, raising taxers will only make things worse, doing far more harm to the middle class.
As for international trade, the Dems are in the pockets of labor unions (and trial lawyers). Their idea of ‘fair’ trade is to raise prices for american consumers. That will be good for low/middle income workers–yes sir, let’s shut down Wal Mart and make the low/middle class shop at Macey’s!
The mantra of most who vote DEm, thanx to the class warfare of the DEms: “I want this and want that, but most of all I want someone else to pay for it.”
Sadly, many a well trained economists buy into this drivel.
Mar 15, 2008 - 4:33 pm 14. Rich:Max,
I see that Obama earmarked $1 million for the U of Chicago Hospital in 2006 so taxpayers could buid them a new childrens pavillion.
As I said above, the DEms ain’t about raising taxe to balance the budget or make the tax code more fair. It’s about raising spending…………..and rewarding their cronies. And in this case, it seem that one crony who got handsomely rewarded was Michele Obama, that poor Ivy League graduate, who works at the University of Chicago hospital! Seems she got a $200,000 salary increase in 2005, the year Obama was elected to the US Senate.
The audacity of pork!
Mar 16, 2008 - 6:50 am 15. M. Simon:Can some of the brilliant “we need higher taxes” folks explain why government revenues started increasing after a period of decline when the Bush tax cuts were voted in?
If the government needs more money perhaps it should lower taxes further.
Mar 17, 2008 - 3:03 am 16. rtaycher1987:Tax revenue in have almost always risen most years (I think) largely due to the growth of the economy, the question is comparing it to how much it would be otherwise(also don’t forget to acount for inflation), also not renewing tax cuts is not raising taxes.
Lowering tax rates leads to lower revenue then would otherwise be taken in unless it is accompanied by significant closing of loopholes and/or increasing other rates. The lowering tax rates leads to more revenue (plus a free ponies) idea is based on the false assumptions based on the Laffer curve. The Laffer curve is basically a misused tautology: when tax levels are zero or 100% people pay no taxes, and that there is some sort of curve connecting those two things, and that if you’re on the right side of the curve you have moved into territory where increasing taxes leads to less revenue, I would say almost no non political economist think we are on the wrong side of the curve and even the advocates of the cuts only claimed that the revenue gained by the supposed large improvements in the economy would only replace a large percentage of lost revenue (ie we would take in less in tax revenue).
Mar 17, 2008 - 5:38 pm 17. rtaycher1987:Tax revenue in have almost always risen most years (I think) largely due to the growth of the economy, the question is comparing it to how much it would be otherwise(also don’t forget to acount for inflation), also not renewing tax cuts is not raising taxes.
Lowering tax rates leads to lower revenue then would otherwise be taken in unless it is accompanied by significant closing of loopholes and/or increasing other rates. The lowering tax rates leads to more revenue (plus a free ponies) idea is based on the false assumptions based on the Laffer curve. The Laffer curve is basically a misused tautology: when tax levels are zero or 100% people pay no taxes, and that there is some sort of curve connecting those two things, and that if you’re on the right side of the curve you have moved into territory where increasing taxes leads to less revenue, I would say almost no non political economist think we are on the wrong side of the curve and even the advocates of the cuts only claimed that the revenue gained by the supposed large improvements in the economy would only replace a large percentage of lost revenue (ie we would take in less in tax revenue).
Mar 17, 2008 - 6:04 pm