Friday, September 14, 2012

Growth, Debt, and Social Equity

David Brooks, columnist for The New York Times, lays out this to-do list for the next President:
The next president has to do three big things, which are in tension with one another: increase growth, reduce debt and increase social equity.
After the jump, my assessment of the candidates' abilities to accomplish each big thing.

Increase Growth

The American economy is simply too big to be steered by the President. If it could be, President Bush would not have let it fall off a cliff in 2008. The business cycle is determined by millions of small decisions made by millions of players across the globe, including the president, but not exclusively or even mainly by him. At most, the President or Congress or the Federal Reserve can nudge things along (for better or worse), but by the time we notice a change, it's impossible to say for sure which nudges did what. That's why we're still arguing over which nudges pushed the economy towards that cliff in 2008. Still, candidates keep campaigning as if they can completely control the economy. And pundits keep crediting (or blaming) presidents for the results.

So, what can we expect from the next president? The American economy is recovering from the financial crisis of 2008. Yes, recovery is slow. Yes, recovery would have been faster if Congress had not blocked President Obama's American Jobs Act. Yes, Congress can still muck things up even worse. But right now the economy is growing and will likely still continue to grow no matter who is elected President.

Reduce debt

This is something that is entirely in the hands of the President and Congress. Together they have all the power that's needed to reduce debt (or grow it). They have no one else to blame. Will they reduce the debt? Probably not.

Republicans think it is more important to shrink government than reduce debt. Their tax cuts (popular) will grow the debt. Their spending reductions (unpopular) will shrink the debt. This explains why Romney/Ryan are so open with their tax cut plans, but so coy with their plans for spending cuts. Where do you think the balance will end up? Hint: check out the results of the last Republican administration, which followed the same principle of tax cuts over balanced budgets.

Democrats believe in Keynesian economics, which suggests that when consumers and businesses cut back on their own spending to pay down personal and business debt, the government should spend more to pick up the slack and keep the economy going. This causes government debt to go up in the short run. When the economy returns to health, Keynesian economics says government spending should be restrained and the debt should be paid down. Democrats are willing to raise taxes on the rich (popular) to help bring the budget in balance. But what happens when that's not enough? What happens when raising taxes on the middle class (unpopular) is needed? Which do you think is more important to Democrats -- safety net programs or balanced budgets?

Throw in the possibility of divided government and it's even harder to imagine the parties coming together to take the unpopular actions needed to reduce the federal debt, either in the short-run or the long-run.

Increase Social Equity

I don't know what David Brooks means by this. Besides a question of definition, I'm not sure everyone even agrees that social equity is a good thing.

According to Wikipedia, the National Academy of Public Administration defines the term as "the fair, just and equitable management of all institutions serving the public directly or by contract; the fair, just and equitable distribution of public services and implementation of public policy; and the commitment to promote fairness, justice, and equity in the formation of public policy."

That definition doesn't help. There's not a lot of agreement in America about the meaning of fairness and justice. Just like there's not agreement about what we mean by "citizenship," the subject of a recent blog article here. So I don't give either candidate much of a chance of pleasing everyone on this to-do item. With such a divide over whether social equity is even a good thing or not, no matter what happens, one side will be satisfied and the other not.


Sassy Texan said...

Yesterday was a definite game changer in the value of the dollar. QE3 will sent inflation in motion. Get ready for the dollar's demise. And it was confirmed by china's announcement to sell oil in YEN instead of the US dollar. And where is our president? Campaigning.

Cheri Duncan-Hubert

Mark Steger said...

"The Austrian/Ron Paul types made some very strong predictions about inflation — and rightly, given their model of how the world works. In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap.

"So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong. Unfortunately, I see no hint that anyone in that camp is prepared to consider that possibility."
-- Inflation Predictions, Paul Krugman, December 15, 2011

"Inflation doomsayers increasingly resembling members of those cults that set specific dates for the Second Coming, then keep rescheduling."
-- Tweet, Josh Barro, September 13, 2012

Sassy Texan said...

David M Walker, former US Comptroller General from 1998 to 2008 disagrees with those third party comments.

And in the earlier post I made an error. I wrote that China was offering sales of oil in YUAN. It is not the YEN.

Sassy Texan said...

David M Walker, former US Comptroller General from 1998 to 2008 disagrees with those third party comments. His living the accounting of the USA might have some validity to you.

And in the earlier post I made an error. I wrote that China was offering sales of oil in YEN, but is actually the YUAN. It is not the YEN.

And here is the chart of the USD. If it undercuts 78, it will be a new day.

Cheri Duncan-Hubert