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Just How Risky Should US Policymaking Be Right Now?
“Risky scheme” used to be a popular pejorative in American politics. It’s been used by Democrats and Republicans, though my clearest recollection is Al Gore attacking Jack Kemp and the Dole-Kemp tax cut plan during the 1996 vice presidential debate. Gore used “risky” some eight times. Example:
The plan from Senator Dole and Mr. Kemp is a risky, $550-billion tax scheme that actually raises taxes on 9 million of the hardest pressed working families. It would blow a hole in the deficit, cause much deeper cuts in Medicare, Medicaid, education and the environment and knock our economy off track, raising interest rates, mortgage rates and car payments. We stopped that plan before. We will stop it again. We want a positive plan for growth and more jobs. . . . The conservative business journal, “Barron’s,” says this is the strongest economy in 30 years. We’ve got good solid growth. Let’s don’t risk it on some $550-billion risky scheme.
Gore had a better point than he realized or could have imagined. The US economy was finally hitting its stride after an initially anemic recovery from the 1990–91 recession. In fact, it was entering a historic boom period, including four-straight years of 4% or higher economic growth. Of course given such economic momentum, it’s hardly clear a big tax cut would have either notably accelerated or hindered growth in the way the two campaigns suggested. Taxes matter, but they’re not all that matters. So does the commercial maturation of a historically important technology.
Now fast forward to the 2017 US economy. Growth is slow but steady, though the job market is somewhat peppier. The just-released September jobs report saw the unemployment rate fall to 4.2%, the lowest level in 16 years. Things could be better, but this isn’t a time of crisis. As President Trump tweeted yesterday:
Stock Market hits an ALL-TIME high! Unemployment lowest in 16 years! Business and manufacturing enthusiasm at highest level in decades!
— Donald J. Trump (@realDonaldTrump) October 5, 2017
To which New York Times reporter Binyamin Appelbaum replied: “This is an unconventional argument for making sharp changes in tax policy, healthcare policy, regulatory policy and trade policy.” And Appelbaum’s point might prove even stronger if we begin to see a strong tech-led rebound in productivity growth, as I recently wrote for The Week.
None of this is to argue against reform or for a do-nothing approach, though “do no harm” should be the first impulse of Washington policymakers. And with that mind, time to focus on revenue-neutral, pro-growth tax reform rather than stimulus, deregulation focused on boosting economic dynamism such as startups and labor force participation and mobility, and modernizing the safety net. The goal should be to lift worker productivity and improve fiscal sustainability through well-understood (as much as possible) and gamed-out policy choices. Significant change rather than radical change, preferably of a bipartisan nature.
Sometimes you need to take massive policy risks and boldly experiment, such as with monetary policy during the Financial Crisis. But now doesn’t seem to be one of those times.
Published in Economics
JimP,
We are hugely behind the eightball, sluggish economy and big debt. However, many massive fundamentals are waiting to be tapped by a government not wrapped up in hyper-regulation and the insane narratives of global warming, endemic racism-sexism, and Marxist idiocy.
In short, now is the time to roll the dice and go for it big. Now is not the time for rearranging the deck chairs on the Titanic again. Trump is just the guy to play it to the max.
Regards,
Jim
I agree with “do no harm”: So don’t regulate, and don’t steal people’s money. “Revenue-neutral” and “bi-partisan” “reform” will achieve exactly what it always has: draping an ever-heavier anchor around the neck of the ever-shrinking wealth-creating portion of the economy.
Good Post, James.
I think one of the reasons for our current good situation is the expectation that Trump will do things that make our lives (and business) better. If he doesn’t follow through, that optimism may fade. Small businesses cannot afford the massive rises in costs brought by Obamacare. The easiest way to lower that burden is to drop the Corporate Tax rate to 15% – that’s a pure-profit move of (I know the math isn’t perfect) of 20%.
I don’t see how that could possibly a bad idea.
James, the reason growth was good in 1995-1996 was due to Republicans taking over the House in 1994 (the Gingrich revolution), stopping much of the silly Clinton proposals, including Hillary Care. To be fair, some of it was also the personal computer revolution, bringing cost and performance to all citizens, including small business.
You want growth? Get the Republicans to embrace what Gingrich did, and eliminate Obamacare.
Funny, I know people who feel good, but they have a lethal cancer.
Now is the time for more winning so the socialist tide can be held at bay in my lifetime.
Health care is not stable, it’s an impending fiasco. But hey let’s hear from an Obamabot…….
To which New York Times reporter Binyamin Appelbaum replied: “This is an unconventional argument for making sharp changes in tax policy, healthcare policy, regulatory policy and trade policy.” And Appelbaum’s point might prove even stronger if we begin to see a strong tech-led rebound in productivity growth, as I recently wrote for The Week.
Lunacy.
Exactly, deregulation and tax cuts are already baked into the stock market. If tax cuts don’t happen the market will correct downwards.
The market needs to correct downwards anyway, its way over priced. Its deep into bubble territory. Even if the tax cuts happen – or some tax cuts happen the market may sell off on “Buy the rumor sell the news” activity.
I disagree with the original post. Slow growth is not a good worth protecting. Slow growth should be more accurately called stagnation. Risks need to be taken to get growth back above 4%.
I fail to see what’s “risky” about letting all Americans keep more of their earnings. I think the Republicans should sell their tax plan by simply emphasizing that the earnings belong to the earners first. “We want you to keep more of every paycheck”
The risk is to the deficit. IF the tax cuts dont move the economy sufficiently to generate additional revenue to cover the loss of the cuts, the deficit gets larger…
Its the typical liberal viewpoint that all your monies belongs to us, be happy that we let you keep some…
We could do the exact opposite of every piece of economic advice from Ivy economists like James P and end up doing substantially better than taking their advice.
He is neither an economist nor did he go to an Ivy League school.
I don’t agree since markets are always changing and we are just headed towards the next bubble. For all we know if we do nothing, there will be a massive depression in less than ten years. I would argue that you don’t need to already be in a crisis to know one is coming.
I see debt, retirement, baby boomers, relatively lower lower-middle class incomes, massive financial risk from overpriced markets, unnaturally cheap foreign goods and labor(in the long term), and other factors will contribute many economic crises in the near future.
Due to that belief, I think we do need to be radical in our policy. We need that change that will allow us to withstand the next collapse without destroying our economy. We need to start running surpluses, getting people of government subsidies and providing competitive and productive production environments in America so we won’t be so troubled if foreign sources are suddenly cut by war, foreign governments collapse, or other problems.
Besides, when better to make change than when you have a little breathing room. Causing a little chaos right now would be a lot less bad than in the middle of a recession. For example, better to cut a few hundred thousand government jobs right now rather than when unemployment is much higher.
Personally I’m riding the current bubble OK, so I vote for the status quo and any rationalizations for it that we can think of. Too bad for the others, but that’s the way it goes.