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.

Deregulation and Limited Government

The U-T article by James Durfee alleging partisanship by the Tea Party in Sunday's paper kicked off something of a food fight in the comments section. Leslie Eastman calls out the lie that is central to the article:

If all Tea Party Participants are "Republicans", then how do you explain the 13% of us DEMOCRATS who are involved in this citizens movement? Data Here:

http://www.cbsnews.com/8301-503544_162-20001743-503544.html

Over 40% of SCTRC's members are Democrats, Independents, Libertarians, undeclared or are not otherwise connected to the GOP.

What also caught my attention was the frequently posted criticism that the Tea Party candidates do not have specific plans for spending cuts and deregulation. Leslie again responds:

True -- but I understand their hesitancy. Anything the candidates say that indicate specific programs (like Social Security), are distorted into vile, ineffectual attack ads by their opponents. Citizens need to research candidates thoroughly, and not rely on party literature, when selecting representatives.

But I also wanted to point to specific programs of cost cutting and deregulation that could easily be proposed, along with pointers to Tea Party candidates with specific proposals. Here are some easy ones from your author.

Really easy spending cuts:

• End all stimulus spending. Return all unspent funds to the Treasury.
• End all TARP spending. Return all unspent funds to the Treasury.
• Freeze the pay of federal workers, since the CPI stayed flat last year, so too should have federal pay, but it went up. (Full disclosure, I work for the federal government.)
  
• De-Fund all of the committees, czars and regulatory boards for Obamacare.
• De-fund the Department of Education, for starters, since it doesn't educate anyone.

Really easy deregulation:

• Repeal Obamacare. It is chock full of regulations.
  
• Simplify banking regulation by ending too big to fail, and requiring increasing capital reserves the larger any financial institution gets. Little additional regulation would be required.
• Simplify clinical drug trials, by only requiring that safety be proved, not efficacy. This will lower the cost of drugs.
• Require a cost benefit analysis be conducted for all new regulations proposed by any federal agency. Require a public comment period and allow court challenges to new regulations on the basis of lack of benefit commensurate with cost.

There, that wasn't too hard, was it?