January 20, 2010


Con Artists: Oh, no! Scott Brown has incoherent and appalling economic ideas—just like almost all of his congressional Republican colleagues. (Daniel Gross, Jan. 20, 2010, Slate)

Political commentators will likely say that Scott Brown's victory in the Massachusetts Senate race proves that the United States is still a center-right nation and that Obama and the Democrats have to be more bipartisan. But Brown's victory says a lot more about the incoherence and contradictions of today's Republican Party when it comes to matters of economic and fiscal policy. The failure caucus has just added another member. [...]

Throughout, there's been a consistent chorus: Deficits are too high, but we must cut taxes (a move that will increase the deficit), and we must not cut Medicare spending in any way, shape, or form (a move that will increase the deficit), and we must not raise taxes (a move that would narrow the deficit).

There's no reason that liberal rags should employ orthodox economists, who, after all, are all free marketeers. But they ought to be forthright about the fact that it is tax cutting instead of increased spending that is endorsed by the profession as a means of goosing growth, Let's Stimulate Private Risk Taking: Tax cuts are the way to nudge capital toward productive uses. (ALBERTO ALESINA and LUIGI ZINGALES, 1/21/09, WSJ)
In virtually all economics classes, including those taught by the many excellent economists on the Obama team, the idea of government spending as an engine for growth is not a popular topic. Yet despite their skepticism of Keynesianism in the classroom, when it comes to public policy, these economists happily endorse a large stimulus package that could bring our deficit to 10% of GDP. Why? [...]

So how do we stimulate the economy without increasing the already large current-account deficit? It's not easy, but here is an idea: Create the incentive for people to take more risk and move their savings from government bonds to risky assets. There is no better way to encourage this than a temporary elimination of the capital-gains tax for all the investments begun during 2009 and held for at least two years.

If we fear this is not enough, we can temporarily increase the size of the capital loss that is deductible against ordinary income. This will reduce the downside of new investments and increase the upside. [...]

No doubt, it is much easier to sell the public and Congress a plan for more public works than tax cuts, particularly while Main Street despises Wall Street -- with some good reason. But the role of a good economic team is to courageously propose the right economic policy, even when it is unpopular. The role of a president is to sell it politically, as real change we can believe in.

Posted by Orrin Judd at January 20, 2010 1:06 PM
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