Two Party Platforms: Only One Shot at Turning Around the Economy

Original Article

The platforms of the two major parties on economics, finance, and regulation could hardly be more different — and only one of them would keep our economy safe, maybe even turn it around. But before I analyze the platforms, let me get you good and worried about the state of America’s finances, and hence of our economy.

The U.S. Has Been Borrowing to Boost Obama’s Poll Numbers — and Hillary’s

In a recent campaign speech, Republican presidential nominee Donald Trump stated that Fed chief Janet Yellen should be “ashamed of herself for what she was doing to Americans” and for creating a “false stock market.” Trump’s directness reaped him immediate criticism, but he was right. The economy has been distorted by the Fed’s Zero Interest Rate Policy (ZIRP), which has penalized savers, encouraged debt expansion, and driven the stock market to an artificially high level. In addition to ZIRP, the Fed’s money-printing and bond-buying programs carried out during the last seven and a half years have served to bail out and mask President Obama’s failed economic policies — while inflating Hillary Clinton’s poll numbers.

A zero interest rate policy can’t promote wealth creation. It impedes it by distorting the price of credit and creating uncertainty that dampens economic activity. The result has been the somewhat arbitrary and unnatural shifting around of wealth — such as companies who borrow to fund stock buybacks to raise per share earnings and the stock price, rather than to finance business expansion and new jobs. Zero interest also punishes people for saving and rewards them for borrowing — hardly a recipe for a sound future.

The world’s biggest borrower is the U.S. government, which on Obama’s watch has borrowed to finance deficits averaging $913 billion annually. During all the years leading up to 2008, the highest single year U.S. deficit was $459 billion, about half of the annual average deficit during the nearly eight years of Obama rule.

Among the G20 countries, the U.S. is now the third weakest country in terms of its 104.5% ratio of national debt to GDP. Only Italy and Japan are doing worse. By the time he leaves office, Obama will have presided over a government that added just about as much debt in eight years as was accumulated in the first 225 years of U.S. history. U.S. GDP has historically grown about 3.25 to 3.5 percent annually; despite all his spending and debt, growth under Obama fell to less than 1.75 percent.

These financial shenanigans go to the heart of what ails the country: the inability of its leaders to address honestly the facts about economic reality, and in particular to explain the nation’s move toward insolvency and collapse — a catastrophe that would dwarf the previous financial crisis of 2008 and all prior recessions and depressions.

Neither governments nor central banks create or add to national wealth because they don’t produce much of anything that people willingly pay for — with the exception of a very few categories, such as national defense, which drives military contractor output. Almost all the nearly $4 trillion of our annual national budget is obtained from taxing productive people and private sector companies or by issuing debt and borrowing money.

The Patient Protection and Affordable Care Act, commonly called Obamacare, and the Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, were the two showcase pieces of legislation in the first Obama term. These laws partly socialized nearly 30% of the U.S. GDP found in the health care and financial service sectors. Both introduced enormously costly distortions to the economy, while failing to solve the problems that they purported to address.

Health care costs have skyrocketed, government-run insurance exchanges have failed and many companies won’t grow their full-time headcount beyond 50 employees, to avoid costs imposed by Obamacare. Banks have consolidated and raised fees to the consumer, while the largest are bigger than ever, and certainly “too big to fail.” The politically correct war against fossil fuels and pipelines to safely transport oil and gas has hurt the U.S. economy in other significant ways, both in job creation and the opportunity cost of deferred energy independence and lost exports.

The dramatic increases in regulation by unelected and unaccountable government bureaucrats now saddle the U.S. economy with an annual cost burden of some $2 trillion. When this regulatory cost is added to the $3.9 trillion annual government expenditures, the actual cost of the federal government in the U.S. is closer to 33% of GDP rather than the 22% figure that is generally understood. Further, when costs of state and local taxes and regulatory requirements are cranked in, it becomes even more apparent that subpar growth will likely continue and become as permanent a feature in the U.S. as it has been in Japan and Europe for the last two and a half decades. That is of course, unless dramatic changes are undertaken.

The Democrats: Four More Years of the Same Shell Game

Hillary Clinton is at best a morally challenged, tax-and-spend custodian of the crumbling status quo. At worst, she is a power hungry, open borders globalist beholden to George Soros and other donors to the Clinton Foundation, a leader who will continue and accelerate the sellout of America. What is clear in her party’s stated economic platform is that she advocates more spending and redistribution of other peoples’ money, while almost entirely neglecting incentives for economic growth.

In fact, the key points of the Democrats’ “National Infrastructure Plan” start with an $80 billion program of new spending and redistribution of wealth in three areas with no certainty of measurable job creation. In addition, the Democrats call for bailing out $35 billion in student loans annually and subsidizing states to guarantee tuition.

The Democrats think that growth doesn’t come from allowing markets to set prices, but from expanding price controls, both in healthcare and throughout the economy in labor costs. Clinton’s stated intentions to continue the war against coal and raise the national minimum wage to $15 per hour are but two policies that will put a lot of people out of work.

The Democrats’ tax policies add new complexity and compliance costs. They are also all punitive — such as raising estate taxes and imposing an “exit” tax on any company undertaking an “inversion” to reduce the burden of the 35% U.S. corporate tax rate — the highest corporate tax rate in the world, which the Democrats would leave in place. These policies are fundamentally at odds with job creation and economic growth for the U.S.

Where the Democratic platform addresses regulation at all, it speaks of expanding it — strangling fracking and fossil fuel development, and making both Obamacare and Dodd-Frank more burdensome.

At best, under a Clinton presidency, we would stay on the same course Obama set toward national stagnation and insolvency. More likely, a Clinton presidency would hit the gas. With heightened systemic risk from record debt accumulation, and with a growing amount of new debt being issued to service the old debt, we head for the brick wall even quicker.

The Republicans: A Glimmer of Hope

In contrast, the Republicans’ economic policy platform would unleash dramatic new economic activity by cutting corporate taxes to 15%, and to 10% on repatriated funds earned by corporations overseas — funds that have already been taxed by the countries in which they were earned.

Candidate Donald Trump describes the cornerstone of the GOP platform as “the biggest tax revolution since Reagan.” It focuses on tax simplification — including the reduction of exemptions and in the number of tax brackets from seven to three, with rates reduced to 12, 25 and 33 percent. Trump would also eliminate the estate tax, noting that wealth in estates has already been taxed when earned, often at the highest rates. In short, the Republican tax plans assure that more money stays in the private sector, which stimulates growth and drives new tax revenues. Trump’s tax policy advisors assert that the combination of economic growth from lower tax rate incentives and the elimination of deductions and loopholes will be revenue positive fairly quickly — that is, bringing in more money to the federal treasury, as Reagan’s 1981 income tax cut did.

Just as significant as its tax policies are the GOP’s positions on regulatory reform — all of which are targeted at keeping jobs and wealth in America. The plan starts with repealing and replacing Obamacare. Next it sets its sites on dramatic GDP growth by lifting the restrictions on all sources of American energy production.

Scott S. Powell

Senior Fellow, Center on Wealth and Poverty
Scott Powell has enjoyed a career split between theory and practice with over 25 years of experience as an entrepreneur and rainmaker in several industries. He joins the Discovery Institute after having been a fellow at Stanford’s Hoover Institution for six years and serving as a managing partner at a consulting firm, RemingtonRand. His research and writing has resulted in over 250 published articles on economics, business and regulation. Scott Powell graduated from the University of Chicago with honors (B.A. and M.A.) and received his Ph.D. in political and economic theory from Boston University in 1987, writing his dissertation on the determinants of entrepreneurial activity and economic growth.