David Leonhardt has written a long and substantive (although definitely pro-Obama) piece on Obama’s economic policies. It’s definitely worth reading if you want a one-stop summary of Obama’s economic views.
From a progressive point of view, assuming the article is accurate, Obama’s not as bad as a lot of centrist Democrats — or, more accurately, his positions reflect how the center of the Democratic party has moved a bit to the left since 8 years ago — but neither is he the answer to progressive dreams.
In practical terms, the new consensus means that the policies of an Obama administration would differ from those of the Clinton administration, but not primarily because of differences between the two men. “The economy has changed in the last 15 years, and our understanding of economic policy has changed as well,” Furman says. “And that means that what was appropriate in 1993 is no longer appropriate.” Obama’s agenda starts not with raising taxes to reduce the deficit, as Clinton’s ended up doing, but with changing the tax code so that families making more than $250,000 a year pay more taxes and nearly everyone else pays less. That would begin to address inequality. Then there would be Reich-like investments in alternative energy, physical infrastructure and such, meant both to create middle-class jobs and to address long-term problems like global warming.
All of this raises the question of what will happen to the deficit. Obama’s aides optimistically insist he will reduce it, thanks to his tax increases on the affluent and his plan to wind down the Iraq war. Relative to McCain, whose promised spending cuts are extremely vague, Obama does indeed look like a fiscal conservative. But the larger point is that the immediate deficit isn’t as big as it was in 1992. Then, it was equal to 4.7 percent of gross domestic product. Right now it’s about 2.5 percent.
I would have liked the article much better if Leonhardt had said the truth flat-out — by all appearances, Obama’s plan will increase the deficit (Obama aides optimism aside) or at best keep it the size it is, but McCain’s plan ((McCain has said he intends to balance the budget, but the actual economic plans he’s released don’t add up to a balanced budget.)) would increase it more. ((Quoting EconomistMom: “…if we use Tax Policy Center estimates for the cost of the McCain and Obama tax plans (I know the Obama campaign is using a much larger figure for McCain), then the Obama tax plan adds ‘just’ $2.8 trillion to the federal debt over ten years (not counting interest), while the McCain tax plan adds $4.2 trillion.”)) It’s odd that Leonhardt dodges around this question, since Obama openly admits that he doesn’t expect to balance the budget.
Leonhardt also emphasizes Obama’s interest in market-based solutions to problems. For instance, on cap-and-trade:
By last year, Democrats in Congress essentially agreed that to reduce greenhouse-gas emissions, the government should place a nationwide cap on these emissions and then issue tradable permits giving companies the right to produce them (thus the term “cap and trade”). Most Congressional bills envisioned giving away many of the permits to power companies. Economists, by and large, considered this giveaway to be the worst part of the plan. It would require Congress to decide how many free permits each company should get and would set off a frenzy of corporate lobbying.
The alternative was to auction off the permits — to let the market set their value. “If you don’t auction 100 percent of the permits,” [Obama econ adviser] Goolsbee told me, “this could be one of the biggest pieces of corporate welfare ever.” With Congress making the decisions, the power companies with the best political connections might get the permits. With a full auction, the permits would end up with companies willing to make the highest bids. Presumably, these would be the most efficient companies, the ones able to produce the most energy (and profits) for a given amount of greenhouse-gas pollution.
Edited to add: Isn’t this exactly backwards? It seems to me that the least efficient, most polluting companies would be the ones forced to pay the most for these permits — while the most efficient companies would be less in need of the permits. Or am I misunderstanding something?
The auctions would have another big advantage too. They would raise billions of dollars for the government, money that could then be returned to taxpayers to offset the higher energy prices created by the emissions cap.
It seems likely that a President Obama would sign a cap-and-trade bill even if it did give away some permits. But candidate Obama has at least moved the debate toward a more pro-market solution.
The writer roots Obama’s market attitudes in his background at the University of Chicago. There’s some left-wing critique of Obama’s market bias in the comments at this post on Angry Bear.
A curious lack in the article is any discussion of trade policy. Nor is there any discussion of wage gaps (either gender or race).
Anyhow, I could go on more, but I’m going to go to the pool with my niece and nephew instead. Later, folks.
But the right keeps telling me he’s a Marxist! They wouldn’t lie to me, would they?
I went to the Angry Bear link and read the left-wing critique of Obama’s market bias, and it made me want to scream. It represents worst possible aspects of the left.
First the minor irratant. There is a complaint that some people might cheat or game the system to their advantage. This is an excellent point to bring up when designing any government policies, so that we can try to write the rules to allow as little gaming as possible and create methods of enforcement. But it is not generally a legitimate you can cheat or game ANY system. Unless you can show that it is absolutely impossible to write fair and emforceable rules, bringing this up when arguing against the establishment of certain policies is a red herring.
But worst, the thrust of the argument is that we shouldn’t trust the poor to make the best decisions about how to run their own lives. Instead, we should put the money in the hands of bureacrats and let them make the decisions, because they know SO much better how the lives of the poor should be run.
As an attorney, my work has involved mostly two area. The first has been representing welfare claimants, before mostly the Social Security Administration, with most of those SSI recipients. The second has been representing individuals before the Internal Revenue Service, mostly in tax collection. It is my professional opinion that the IRS is a model of compassion and rational efficiency when compared to the SSA and every other welfare organization I have dealt with.
This idea that the poor are better off if their lives are run by beuracrats has consequences that are real, tragic, and common. You think the “free market” is automatically bed for the poor? I can give you a market-based agenda that is far more progressive than anything a worshipper of Karl Marx’s dead carcase will ever propose: Eliminate welfare agencies and provide every individual citizen with a basic income just above the poverty line. That’s right, don’t take care of the poor, just end poverty.
Oh, but then we couldn’t use the threat of starvation to force the poor to behave in ways that we smart people know are better than the stupid decisions those idiots would make for themselves. Plus, Milton Friedman proposed something like that, so the idea must be EEEVVIILLLLL!
I’m missing something, too, but not the same thing as you are.
Today firms that incur needlessly high production costs per unit of output (“inefficient firms”) tend to be driven out of business by firms that operate with lower production costs. Over time, we’d expect to see only reasonably efficient firms remaining in the market – firms that manage their production costs per unit of output. But the cost of emitting greenhouse gasses has been pretty low, or even free, so firms have not competed on the basis of their ability to limit those emissions. Thus the amount of gasses a firm emits has not affected any measure of the firm’s “efficiency.”
Under a cap and trade system, firms that incurred needlessly high production costs per unit of output would tend to be driven out of business by firms that operate with lower production costs. Sound familiar? The only difference would be that a firm’s emissions – specifically, its cost of complying with pollution control laws, including the cost of securing sufficient emissions permits – would be considered as part of the efficiency of its operations. Over time, we’d expect to see only reasonably efficient firms remaining in the market – firms that manage their production costs (including emissions control costs) per unit of output. Thus, I would expect all remaining firms – whether the firm purchased emissions permits or found a way to avoid emissions – would be reasonably efficient firms.
Here’s the part I don’t get: The Coase Theorem says that we should expect this outcome whether or not government gave away credits to current firms. Firms that produced the highest value good or product per unit of emission (and, by implication, that lacked a cheap substitute for emitting greenhouse gases) would have an incentive to buy up credits from all other firms, and all other firms would have the incentive to sell them. In theory the final allocation of permits would be the same regardless of the initial distribution.
This issue arises whenever government establishes a new property right where none existed before. I’m all in favor of government raising money for the public coffers rather than giving it away to corporations. But that seems to be the exception rather than the rule. Congress gave great swaths of digital spectrum away to incumbent broadcasters. Congress gave Disney many decades of additional copyright protection for its soon-to-expire monopoly interest in its intellectual property. Congress barred local units of government from profitting from telecom companies that wanted to install private cables in municipal rights-of-way or on municipal utility poles. And federally-regulated Regional Transmission Operators arguably do the same thing when they allocate financial transmission rights to incumbent electric utilities. While arguably the public benefitted indirectly from these transactions, corporations — and, oh yes, many well-positioned Congressmen — profitted much more directly.
But the idea that private firms are raiding the public treasury is different than the idea that regulation creates economic inefficiencies. I see the first problem; I’m not persuaded of the second.
No.
It takes me a bale of hay to make a pound of beef. It takes you two bales of hay to make a pound of beef. Beef sells for $5 a pound. The amount of hay is limited.
I’m willing to pay $4 a bale for hay. You can at best afford to pay $2.50 if you want to break even. Whom do you think the hay farmers are going to sell to, you or me?
(Damn greedy hay farmers.)
Re: the Coase Theorem:
1. The Coase Theorem predicts the same end distribution of credits assuming the transaction costs are the same regardless of the initial distribution. That second part is important, because it leads to what the law and ecconomics crowd considers to be the primary practical lesson of the Coase Theorem: Initial distribution should be determined by whatever will produce the lowest transaction costs. In this regard, an initial government auction would have a slight advantage in giving the credits to those most willing to pay for them at the outset, while giving them out based on past usage might make some companies less wiling to trade, partially due to simple inertia compelling them to be the business of making things that produce carbon emissions rather than in the business of selling carbon credits, and partially due the belief that the more they use, the more they might get from the government in the future. But given that carbon credits are an intangible asset, overall tansaction costs are unlikely to be greatly different in any case.
2. The Coase Theorem is silent on the morality of whom should ultimately profit from the initial distribution. So if the transaction casts are miniscule in either case, so that the final distribution of credits is the same in either case, and the costs will eventually be borne by the consummers in either case, then the primary question we SHOULD ask when determining initial distribution is: Who should wind up with the lion’s share of the cash? The current polluters, or We, The People?
It seems to me, and sorry if I’m relying on stereotypes here, that there’s an element of the Left, steeped in academic Marxism, that is more interested in their self-image as righteous rebels than anything else. (And yes, to you right-wingers, Marxism is indeed rebellious in America; it is not “the establishment”.)
If you oppose an ameliorative social welfare agenda… well, then, I’d disagree with you, but if you oppose an ameliorative social welfare agenda because you believe more is possible and we should strike down more while the iron is hot, then okay. I don’t agree, but okay. If you oppose it because doing so involves perpetuation of the cycle enslavement by the petty bourgeiosie of the creative/bureaucratic class and the thing-in-itself, well then please don’t assume to speak for me in debates; it’s embarrassing.
OBAMA’S ECONOMICS ARE DANGEROUS !!!
Unemployment at 6.1% simply reinforces McCain’s argument that if you raise taxes on businesses, they will have to cut back their work force in order to keep their doors open. In the short run, Obama’s desire to raise taxes on businesses, and give the money to struggling Americans sounds good … but, it panders to people’s desire for hand outs and immediate gratification … for, in the long run, this kind of bad judgement is like eating the goose that lays the golden eggs … or, like eating your seed crop, instead of using the seeds to grow more crops. Raising the taxes on businesses is the best way to dramatically increase unemployment in America.
Howard –
Um, how? Was there a recent increase in the taxes on business I missed that caused this unemployment?
Look, I will grant that your argument that we should not make businesses pay their fair share of taxes because they have their hands around our throats and if we make them pay they will just squeeze us tighter does have *some* real-world merit. But we can correct these problems without resorting to Marxism, and that is what Obama is arguing we should try to do. He says we need a “bottom-up” ecconomy. I call this a “demand-side” ecconomy. One of Marx’s biggest mistakes is that he was a supply-sider, believing that the ecconomy is driven by whoever is in charge of production, which is ONE of the reasons the neocons were able to so easily slide from being Marxists to Republicans. But this is simply wrong. Consumers do not buy stuff because producers make it, producers make stuff because consumers buy it. Labor is not ultimately employed by capitalists, it is employed by consumers. The best way to revive the ecconomy is to put as much money as possible in the hands of people who will spend it, and the less wealthy a person, the greater the percentage of their wealth and income they spend. The poor spend everything they have because they need to do so to survive, and the rich save money because there is only so much stuff they can use. Put more money in the hands of business owners, and they will hoard it instead of investing it, because there is no one to buy the excess stuff they would make. Put more money into the hands of the poor, and the rich will convert their hoarded wealth into investments to make the stuff that the poor want to buy.