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Saturday, August 9, 2008

Obama's Economic Policy: Hubris or Worse

Here is Dick Morris' latest advice to John McCain about how to attack Barack Obama on the economy.

Raising the top bracket to 40 percent seemed a no-brainer. Applying the Social Security tax to more earned income, not just to the first $100,000, seemed like elemental fairness and a good way to save the pension system. Restoring the capital gains tax to 28 percent appeared to comport with the notion that those whose income derives from investment should pay a tax closer to that paid on earned income (despite the argument that it is after-tax money that they invested in the first place).

But now, with massive capital outflows crippling the public and private sectors, doubling the tax on capital seems like a very, very bad idea. And a sharp increase in taxes on the entrepreneurial class seems like a risky proposition.

And, besides, when a candidate starts raising taxes, who knows where he will stop once he is in office?

McCain can put economist after economist on the air to prophesy depression if Obama’s plan for taxes is enacted. And the public will not be reassured by the Democrat’s claims that his tax hikes are only on the rich.


The irony is that while an economist would carry credibility it really wouldn't take a professional economist to know that you never, ever raise any tax while the economy is weakening. Any Economics 101 class will tell you what the government, through fiscal policy, and the Federal Reserve, through monetary policy, can and should do during periods of economic weakening and also periods when the economy overheats.

In fact, one of the greatest things about economics is that it is all logic. Our capitalistic system is driven by the private sector. Thus, when the economy is weakening, we want it stimulated by more spending, investment, and capital from the private sector. The government does this by lowering taxes so that individuals AND businesses coulds spend and invest more and spawn the economy. The Federal Reserve can do the same thing by lowering interest rates which encourages borrowing to do the same. It is really that simple. During a recession you lower taxes and during inflation it is vice versa.

Now, Barack Obama has already proclaimed that our economy is in a recession. Yet, instead of lowering taxes across the board, as prescribed by simple economic fundamentals, Barack Obama's economic plan calls for targeted tax cuts. Here, he will cut taxes for some while raising taxes for others. He wants those making $150,000 and less to get a tax cut, while those over $250,000 to get a tax increase. Furthermore, he wants to raise taxes on capital and on corporations.

Targeted tax cuts were NOT the prescription to any recession in any economics class I took, and I took plenty. That's because targeted tax cuts are NOT the answer in a recession if you believe in capitalism. The problem with targeted tax cuts is that while they may stimulate parts of the economy they will stunt others at the same time. That is no recipe to expand the economy but rather for total disaster.

Thus, there can only be two reasons why despite overwhelming evidence otherwise, Barack Obama continues to maintain that targeted tax cuts are the answer. The first is that Barack Obama is full of hubris. In his long academic career, I am sure that Mr. Obama took as many economics classes as me. I am sure that he knows as well as I do that according to proper economic fundamentals the right way to do this is across the board tax cuts. If Obama is full of hubris, then he thinks he knows better than economic principles and fundamentals. He thinks his own view overrides basic economic common sense.

One of my favorite film directors is David Lynch. When he was making movies like Wild at Heart, Blue Velvet, the Elephant Man, and even more recently the Straight Story, he told bizarre stories full of crazy and interesting characters. More recently though, with films like Mulholland Drive and Inland Empire, Lynch stopped telling stories and began to simply juxtapose a bunch of bizarre scenes together with nothing to really tie everything together. To me at least, a movie is a story told with moving images. The filmmaker can tell their story in any way they want as long as they respect the artform enough to recognize that they need to tell a story. When Lynch stopped telling stories, he became so full of himself that he felt he was bigger than the artform. He wasn't restrained by such trivial handcuffs as storytelling. To me, this was nothing short of filmmaking hubris. These two movies are among the worst that I have seen.

In much the same way, Barack Obama is performing economic hubris. He thinks that he is bigger than the science of economics. Even though longstanding and common sense principles say that during this period of economic weakness what the economy needs are across the board tax cuts, he thinks he knows better. Just as David Lynch thought he knew better than the artform of movie making, so to does Barack Obama.

There is one other possibility and this one is even more frightening. Barack Obama may in fact be a true believer in the sort of economic principles that believe in targeted tax cuts, Marxism. Targeted tax cuts are straight out of the Marx playbook. They are a perfect tool of class warfare and the sort of thing that Marx advocated. In fact, throughout Obama's economic plans you will hear him propose policies that favor the working class, the proletariat, at the expense of the business class, the bourgeoise. Furthermore, he advocates economic fairness and a we're in it together" economy both firm principles of Marxism. In fact, much has been made of Obama's time at the University of Chicago, the mecca of academic free market thinking. Of course, to say that the University of Chicago leads the way in academia's belief in the free market is sort of like finding five drunks and picking the sober one of the group. The fact is that anyone that has spent anymore than five minutes in academia will likely have been exposed to overwhelming Marxist thought. Thus, it is entirely possible that Barack Obama believes in his heart of hearts in some form of Marxism, like most of his former academic colleagues.

As such, I can only see two reasons for his conclusions on the economy, bad motives and even worse.

6 comments:

Don Miguel said...

There can be a couple of more reasons. One is that he actually didn't take many classes in Economics and, even if he did, he didn't really understand it. It's been decades since I was in school but I can still remember a few students who would ace everything without learning anything. They mastered the technique but never gained knowledge.

The other is that he actually does understand it and is just pandering to get elected. The assumption is that he wouldn't do some of the asinine things he says he will do (personally I think he's serious and is an economic ignoramus just as he's an ignoramus of history). There is a precedent for this theory. A couple of decades ago in Peru Mario Vargas Llosa ran for president against Alberto Fujimori by telling the people that tough economic measures were required to put the country on track. Fujimori offered the sky with no pain. Once Fujimori won he started doing the things that Vargas Llosa lost the election for saying he would do.

mike volpe said...

I can't believe that he has never taken an economics class or doesn't understand basic economics that during times of economic slowdown you cut all taxes.

I can believe the second which is that this is nothing more than a political ploy. Though, I would be very interested in seeing him try and pull it off if he is President.

Don Miguel said...

"I can't believe that he has never taken an economics class or doesn't understand basic economics that during times of economic slowdown you cut all taxes."

Well Mike, there are a lot of leftists who don't understand basic economics (the Democratic leadership certainly acts like it). And the most popular leftist economist I know of -- Paul Krugman, who happens to be a professor of economics -- often has trouble with basic economics.

mike volpe said...

Krugman falls into the second scenario of my piece. He has no trouble with economics, but he is simply from the Karl Marx school of economics.

Don Miguel said...

"He [Krugman] has no trouble with economics, but he is simply from the Karl Marx school of economics."

LOL! The Karl Marx school of economics is sort of like the flat earth version of geography.

mike volpe said...

True enough, though, unfortunately the economic flat earthers have quite the following in academia. That's why I think it is possible that Barack Obama is merely a true believer of so called targeted tax cuts. Either way, this is a question that someone in the media ought to be asking him.