Another tidbit from that daily newsletter I get. Fairly objective:
The Economic Debate
The assertion is that it is “the economy stupidâ€. That has been taken as an article of faith by the political punditry for years. How true
that is remains to be seen as we have already seen an election that has been profoundly affected by issues that have little or nothing to do
with the economic issues. The fact is that many voters do not make their decisions on the basis of economic concerns – many are still far
more interested in the social issues and even for those who assert that it is the economy that motivates them, there is considerable variety
in terms of what people mean by this.
The candidates will likely wander all over the topic when they square off but for some measure of clarity one can look at the positions
taken by their advisors. The debate took place at the offices of the National Association of Business Economists and featured Kevin
Hassett for the Romney campaign and Jeffrey Liebman was the Obama spokesman. Hassett is Director of Policy Studies at the American
Enterprise Institute and a former senior economist for the Federal Reserve. He has been a faculty member at Columbia University and has
served as economic advisor to both George W. Bush and John McCain. Liebman is with the Kennedy Center at Harvard and served in
several leadership posts at the Office of Management and Budget during the Obama Presidency. Both men have spent a lifetime working
on public policy issues and both have been very active in the campaigns of Romney and Obama. The two have spent a fair amount of
time debating each other in a variety of venues and essentially mirror the approach that Obama and Romney assert.
Analysis: Liebman makes the case for targeted spending as a stimulus – just as many of the economists polled assert. The challenge is
that some of the areas that are delineated as targets are not universally seen as the crucial as far as economic growth is concerned. This
is not to say that there is not value in bolstering spending in these sectors but the economic impact would be limited – at least in the
short term. The three specific areas cited by Liebman include infrastructure but nothing specific was outlined. It is assumed that this
means investment in the transportation sector but there is also need to invest in the power grid, Internet access and a host of other
categories that can be construed as infrastructure related. The other two areas include putting teachers and fire fighters to work. These
are far more important from a political standpoint than from an economic point of view. In a decision to hike spending while facing
down a $1.3 trillion deficit it is far easier to assert that the money is going to popular categories of worker. The position of the Obama
administration is similar to that of the economists polled by the NABE – first priority is to bolster the economy regardless of what this
does to the deficit in the meantime. The Obama stance has not included a return to fiscal restraint in 2014 however and that differs
from the opinion expressed by the economists who assert that the 2013 strategy should be geared towards greater economic aid.
Liebman went on to assert that the Obama administration is primarily focused on jobs. This growth in employment is to come from
the variety of incentives that have been proposed for the business community – everything from tax breaks for hiring the unemployed
to systems that try to encourage employers to engage in “tryuts†for the unemployed. There was also plenty of conversation about
tax rates and Leibman made the case for a higher tax on the wealthy. The assertion was that by going back to the rates that existed in
the Clinton years the deficit would be lowered without resort to higher taxes on the middle class and the lower class. Critics have
asserted that the additional revenue generated by eliminating the Bush‐era tax breaks for those making over $250,000 would only
generate some $50 billion and that is hardly going to make a dent in the current deficit – much less a deficit that is set to grow again
through the additional stimulus money. In the course of the debate Leibman made the case for taxing but left some question as to how
the process would manage to spare the middle class or even the people who currently do not pay income taxes. The wealthy pay less
than they did in the Clinton years to be sure but the percentage of people paying no taxes at all went from around 40% to nearly 50% in
that period. The reality is that everybody’s taxes went down in the boom years and now that the boom is well and truly over the tax
reductions are not as viable as they once were.
Hassett focused on the role of the business community and asserted that real growth and gains in employment will only come when
the average business feels that it can safely expand. He made the point that jobs were not really the core issue – they come after there
are other changes in the economy. First comes the expansion of business opportunity – more demand creates the need for business to
grow and that growth means that additional people are needed. That is when hiring takes place and he pointed out that few of the job
incentive plans have had an impact on hiring. Those companies that have been hiring are in sectors where there has been growth – the
energy sector and in the export categories. Hassett pointed out that business has been forced into a cautious mode by a highly unstable
regulatory environment that has affected everything from health care to bank lending and the operations of manufacturers and power
plants. The average business is unsure what their obligations will be and that makes them reluctant to invest and grow.
Hassett took the opportunity to critique the policies of the Federal Reserve and asserted that the current loose approach would have
negative impact in the years to come. This is not the first time that the Bernanke plan has been assailed and Hassett expressed the
reason that most are worried. There is nothing that will stop the Fed from reacting to inflation when the time comes and the Fed has all
the tools that it needs to take action. The question is whether there will be the determination to act. To stop an inflation surge would
likely require the Fed to hike interest rates very quickly and to very high levels. This will mean that the economy will almost immediately
stall and if the Fed is still mostly concerned with growth that will be a very tough call to make.
The debate made it clear that the two candidates really do have very different ideas as to the future of the economy. It is safe to
assert that the Obama campaign is putting the deficit issue aside in favor of stimulus now and that extra cash is to come from the
wealthy. The Romney approach is focused on the deficit and asserts that far more cuts are necessary before discussion of further taxes
on anybody.
The Economic Debate
The assertion is that it is “the economy stupidâ€. That has been taken as an article of faith by the political punditry for years. How true
that is remains to be seen as we have already seen an election that has been profoundly affected by issues that have little or nothing to do
with the economic issues. The fact is that many voters do not make their decisions on the basis of economic concerns – many are still far
more interested in the social issues and even for those who assert that it is the economy that motivates them, there is considerable variety
in terms of what people mean by this.
The candidates will likely wander all over the topic when they square off but for some measure of clarity one can look at the positions
taken by their advisors. The debate took place at the offices of the National Association of Business Economists and featured Kevin
Hassett for the Romney campaign and Jeffrey Liebman was the Obama spokesman. Hassett is Director of Policy Studies at the American
Enterprise Institute and a former senior economist for the Federal Reserve. He has been a faculty member at Columbia University and has
served as economic advisor to both George W. Bush and John McCain. Liebman is with the Kennedy Center at Harvard and served in
several leadership posts at the Office of Management and Budget during the Obama Presidency. Both men have spent a lifetime working
on public policy issues and both have been very active in the campaigns of Romney and Obama. The two have spent a fair amount of
time debating each other in a variety of venues and essentially mirror the approach that Obama and Romney assert.
Analysis: Liebman makes the case for targeted spending as a stimulus – just as many of the economists polled assert. The challenge is
that some of the areas that are delineated as targets are not universally seen as the crucial as far as economic growth is concerned. This
is not to say that there is not value in bolstering spending in these sectors but the economic impact would be limited – at least in the
short term. The three specific areas cited by Liebman include infrastructure but nothing specific was outlined. It is assumed that this
means investment in the transportation sector but there is also need to invest in the power grid, Internet access and a host of other
categories that can be construed as infrastructure related. The other two areas include putting teachers and fire fighters to work. These
are far more important from a political standpoint than from an economic point of view. In a decision to hike spending while facing
down a $1.3 trillion deficit it is far easier to assert that the money is going to popular categories of worker. The position of the Obama
administration is similar to that of the economists polled by the NABE – first priority is to bolster the economy regardless of what this
does to the deficit in the meantime. The Obama stance has not included a return to fiscal restraint in 2014 however and that differs
from the opinion expressed by the economists who assert that the 2013 strategy should be geared towards greater economic aid.
Liebman went on to assert that the Obama administration is primarily focused on jobs. This growth in employment is to come from
the variety of incentives that have been proposed for the business community – everything from tax breaks for hiring the unemployed
to systems that try to encourage employers to engage in “tryuts†for the unemployed. There was also plenty of conversation about
tax rates and Leibman made the case for a higher tax on the wealthy. The assertion was that by going back to the rates that existed in
the Clinton years the deficit would be lowered without resort to higher taxes on the middle class and the lower class. Critics have
asserted that the additional revenue generated by eliminating the Bush‐era tax breaks for those making over $250,000 would only
generate some $50 billion and that is hardly going to make a dent in the current deficit – much less a deficit that is set to grow again
through the additional stimulus money. In the course of the debate Leibman made the case for taxing but left some question as to how
the process would manage to spare the middle class or even the people who currently do not pay income taxes. The wealthy pay less
than they did in the Clinton years to be sure but the percentage of people paying no taxes at all went from around 40% to nearly 50% in
that period. The reality is that everybody’s taxes went down in the boom years and now that the boom is well and truly over the tax
reductions are not as viable as they once were.
Hassett focused on the role of the business community and asserted that real growth and gains in employment will only come when
the average business feels that it can safely expand. He made the point that jobs were not really the core issue – they come after there
are other changes in the economy. First comes the expansion of business opportunity – more demand creates the need for business to
grow and that growth means that additional people are needed. That is when hiring takes place and he pointed out that few of the job
incentive plans have had an impact on hiring. Those companies that have been hiring are in sectors where there has been growth – the
energy sector and in the export categories. Hassett pointed out that business has been forced into a cautious mode by a highly unstable
regulatory environment that has affected everything from health care to bank lending and the operations of manufacturers and power
plants. The average business is unsure what their obligations will be and that makes them reluctant to invest and grow.
Hassett took the opportunity to critique the policies of the Federal Reserve and asserted that the current loose approach would have
negative impact in the years to come. This is not the first time that the Bernanke plan has been assailed and Hassett expressed the
reason that most are worried. There is nothing that will stop the Fed from reacting to inflation when the time comes and the Fed has all
the tools that it needs to take action. The question is whether there will be the determination to act. To stop an inflation surge would
likely require the Fed to hike interest rates very quickly and to very high levels. This will mean that the economy will almost immediately
stall and if the Fed is still mostly concerned with growth that will be a very tough call to make.
The debate made it clear that the two candidates really do have very different ideas as to the future of the economy. It is safe to
assert that the Obama campaign is putting the deficit issue aside in favor of stimulus now and that extra cash is to come from the
wealthy. The Romney approach is focused on the deficit and asserts that far more cuts are necessary before discussion of further taxes
on anybody.
