Thursday, March 22, 2012

False Choices or Growth?

John H. Cochrane, The Grumpy Economist, proposes a set of economic policies that I think the tea party should support. He dispenses with the false choices of austerity vs stimulus that has plagued the debate over economic policy. Stimulus has clearly failed and failed the world over. Austerity isn't fairing much better. Why not, Cochrane asks, just choose policies that allow growth?
Growth Now.” Forget about “stimulating.” Spend only on what is really needed. We could easily stop subsidies for agriculture, electric cars or building roads and bridges to nowhere right now, without fearing a recession. Most "spending" is in fact transfer payments, which even Keynesian economics recognizes are not very stimulative, not the mythical (and curiously carbon-intensive) roads and bridges, and most of that goes to people who are relatively well off.

Rather than raise tax rates further on “wealth” and the “rich,” driving the underground, abroad, or away from business formation, fix the tax code, as every commission has recommended. Lower marginal rates but eliminate the maze of deductions. In Europe, eliminate the fears of wealth confiscation, euro breakup and currency devaluation that are driving saving and investment out of the south.

Most of all, remove the profusion of regulation and (increasingly) direct government management of the economy.

Exactly. I would add to end the uncertainty in this country about how regulation, especially in the area of health insurance will impact business in the future. Lower marginal rates while eliminating deductions will increase the tax haul from the rich, but more importantly will grow the economy as the distorting effects of the tax code are removed.

A tea party growth plan would have these elements:
  • Eliminate loopholes, deductions and credits for a low flat tax rate below 19%.
  • Tax all sources of income at the same low rate.
  • Eliminate subsidies to all industries, no matter how "green." This includes all the hidden subsidies in the tax code.
  • Tax profits in accordance with the same accounting principles that corporations use to report their earnings. This will eliminate stupid arguments over things like depletion allowances and simplify the tax code.
  • Repeal Obamacare. Start over on health insurance reform using principles of economic freedom.
  • Halt the application of new regulations and require a review of all existing regulation for economic cost benefit analysis.
  • Repeal Dodd-Frank. End too big to fail by simply increasing capital requirements for the largest financial institutions in proportion to their market share.

That should get us started.

5 comments:

  1. If you ended the stimulus and subsidies, what would keep those dollars from leaving the country into better investments? Those government stimuli guarantee that the money will stay here, if at least for one round of spending.

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  2. KT,
    Not sure if you aren't trolling me. Businesses are sitting on piles of cash which would be invested in a less hostile regulatory climate. The subsidies and stimulus results in mal-investment which ultimately just prolongs the recession.

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  3. Yeah, I wasn't saying I thought the stimuli and all that was a good thing, it just occurred to me that once you allow people freedom, they'll have the freedom to go somewhere else. Which Californians are doing all the time!

    :-)

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  4. SameClassAsB-DaddyMarch 24, 2012 at 11:01 AM

    Love the growth plan! At first read, I thought you were missing something on regulations: what about regulations designed to protect citizens? A quick bit of research, however, confirms the importance exactly as B-Daddy suggests. The Small Business Administration estimates the cost of regulations on business in 2008 as more than $1.75T!!! It's probably a lot more today. By far, most of the regulatory cost is due to "Economic" regulations. Only a tiny percent of that figure is associated with the category of "Occupational Safety and Health, and Homeland Security".

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  5. More important than the specifics of policy is the underlying truth that economic and political freedom are the same. Freedom and equality are opposites and fairness is the anthem of ignorance.

    If we were all equal, no individual would have a unique ability to provide value to others. The rules should give us equal opportunity and that is all.

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