The Command-and-Control Economy

September 8, 2008

Comments

In watching/listening to the two acceptance speeches by both candidates one thing struck me. Both appear to believe, or at least promulgate, this notion that the President of the United States can control and/or has great and precise influence over the economy. Lets take a look at John McCain’s acceptance speech,

But let there be no doubt, my friends, we’re going to win this election. And after we’ve won, we’re going to reach out our hand to any willing patriot, make this government start working for you again, and get this country back on the road to prosperity and peace.

These are tough times for many of you. You’re worried about keeping your job or finding a new one, and are struggling to put food on the table and stay in your home. All you ever asked of government is to stand on your side, not in your way. And that’s just what I intend to do: stand on your side and fight for your future.

This kind of language has become standard form for both parties nominees for quite some time. Note that times are tough, possibly that the other guy/party has the wrong plan is taking us in the wrong direction, and that only by electing “Me” will we get back on the right track. Jobs sent over seas will come back, wages will rise, benefits will get better, and by golly it will be morning in America again.

How will all work? Specifics aren’t usually given, but McCain has been rather specific this time around.

My tax cuts will create jobs. His tax increases will eliminate them.

Maybe. President Bush cut taxes pretty much right after he got into office. And was there a boost to unemployment? No. In fact, unemployment wouldn’t peak and start to decline until 2003. Now maybe Bush’s tax cuts helped keep unemployment from going higher and brought about the end of the recession quicker. But even the Bush Administrations own projections of unemployment were pretty much a return to trend–i.e. there was no lasting decrease in the unemployment rate anticipated as a result of the tax cut.¹

Keeping taxes low helps small businesses grow and create new jobs. Cutting the second highest business tax rate in the world will help American companies compete and keep jobs from moving overseas.

Again, maybe. See the preceding reason as to why. At best this would have an impact at the margins. How large? Probably not large.

We will prepare them for the jobs of today. We will use our community colleges to help train people for new opportunities in their communities. For workers in industries that have been hard hit, we’ll help make up part of the difference in wages between their old job and a temporary, lower paid one while they receive retraining that will help them find secure new employment at a decent wage.

Is this some sort of modified living wage argument? And exactly how long is this welfare going to last? Six months? A year? Four years? And what about college kids going from high school to college? Shouldn’t they get a break too? And what kind of training? Something that is needed today or something that they like to do? The question may sound silly, but many people like studying things that pay very poorly. Exactly what is a decent wage?

The view expressed by McCain is that “The economy is something I can have control over, and I’ll make it work for you, the voter.” Obama is pretty much the same way. He has his magic energy pony that is going to lead us to new and economically viable alternative energy so we don’t have to buy from those Middle Easterners anymore. He subsidize companies that keep jobs here as opposed to sending them overseas, corporate welfare?

The actual reality is that the President of the United States, irrespective of party, has limited policy tools that are clumsy and imprecise when it comes to influencing the economy. Think about it, if President Bush had precise and strong influence over the U.S. economy why let the recession lnger for so long and so close to his second election? Why would his father have let the previous recession last so long it would cost him his re-election bid? Why would Carter allow inflation to run amok ruining his shot at a second term? They are all stupid? All of their advisers are stupid? This kind of pandering is now standard political fare and I don’t doubt that neither candidate really believes. That they keep right on using it tells us something about them. They are both dishonest, and that the American public is a gang of cry-babies who apparently can’t handle reality. Long live the Nanny State. Father Obama (or Grandpa McCain) is going to take care of us.
_____
¹Don’t get me wrong, I don’t like paying taxes. I like having my taxes lower. I want them to stay low or even go lower. What I am disputing is this notion that we will have a permanent decrease in the unemployment rate due to a tax cut. I might happen, but I doubt it.

25 responses to “The Command-and-Control Economy”

Dantheman

September 8, 2008 at 1:39 pm

The counterexample to the 2001 tax cuts is also worth noting. In 1993, Clinton raised taxes, despite getting zero Republican votes for it, and with McCain’s primary economic advisor, Phil Gramm, repeatedly saying that it would kill the economy. Instead, the economic expansion which started the prior year turned into the longest expansion in the post-WWII era.
Jeffrey W. Baker

September 8, 2008 at 1:45 pm

I don’t think the president has a lot of power to improve the economy, except by not doing things which ruin the economy. The president definitely has the power to screw up the economy, by going to war or by assenting to run-away deficit spending.
sam

September 8, 2008 at 1:49 pm

Steve, while you’re here, let me ask you a question (it’s somewhat germane, I think). The New York Times had a interesting article on August 29, 2008, titled Surge in Natural Gas Has Utah Driving Cheaply. Evidently, Utah is experiencing a surge in the number of natual-gas powered automobiles. Such cars are, fuel-wise, much cheaper to operate than conventional gasoline-powered cars. So, why aren’t there more of them around, nationally? There are few filling stations for the cars, and as the article says:

The situation is a Catch-22: Carmakers do not want to make natural gas cars when few filling stations are set up for them, and few stations want to install expensive equipment to compress gas with so few cars on the road.

Now I know how you feel about government and the economy, but isn’t this a plausible place for government to step and help break the impasse? Couldn’t the government say to the gas station guys, look we’ll give you a tax credit for installing the natural-gas pumps, and say to the car makers, we’ll give you a tax break if you increase production of natural-gas powered autos?

Is this unreasonable?
Rick DeMent

September 8, 2008 at 1:54 pm

natural-gas has the same issues as oil, demand is going up while production and discovery is going down.
sam

September 8, 2008 at 2:07 pm

Dunno about that, Rick:

Is U.S. natural gas production increasing?
Natural gas production in the Lower 48 States has seen a large upward shift. After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.

…

Source
anjin-san

September 8, 2008 at 2:14 pm

Speaking of the economy, here is a pretty good clue about why McCain seems afraid to let Palin speak without a script:

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.” The companies, as McClatchy reported, “aren’t taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization.”

Economists and analysts pounced on the misstatement, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

“Heretofore, if the treasury had a balance sheet there would have been a liability but there was never a taxpayer payment before [the bailout],” said Gerald P. O’Driscoll, an economist with the Cato Institute. “[Fannie and Freddie] were not taxpayer funded. They had taxpayer guarantee, which is worth something, especially in the stock market…”
Dave Schuler

September 8, 2008 at 2:31 pm

Steve, practically everybody in Washington is a Fordist. They’re all technocrats who believe that it’s possible for a collaboration between Big Business, Big Labor, and Big Government to manage the economy. I’d’ve thought that the events of the last ten or twenty years might have persuaded them differently but there you have it.

On the Bush tax cuts I think you need to consider that they were a political necessity rather than an economic necessity. Imagine for a moment that GWB had done nothing whatever in reaction to the economic slowdown of the early aughts. The campaign ads in opposition to him would practically have written themselves. After all, that’s what happened to his father.

My own view on the subject as I’ve mentioned before is that the problem with our economy over the last eight years hasn’t been a problem with consumer spending but a problem with business spending and that if we’d been operating rationally the tax cuts of early in the Bush term would have been to the corporate tax rate or even to allow current year expensing of all business expenses. We’re practically the only OECD country that doesn’t allow that.

But once again the campaign ads practically write themselves so we do counterproductive but politically popular stuff rather than productive politically impossible stuff.
MM

September 8, 2008 at 2:51 pm

Whether they believe it or not, the key factor is that a large portion of the electorate does believe that the president has massive amounts of control over all sorts of things (including the economy).

Not a lot of people want to hear “That’s not a federal issue” or “I can’t control that” or “This is going to happen regardless of what my administration tries to do”. So candidates go on the stump and talk about these things to try to get voters in the “this candidate cares about people like me” column.

It’s the exact same reason why candidates always want to paint their opponents as out of touch and elitist.
Michael

September 8, 2008 at 3:16 pm

Couldn’t the government say to the gas station guys, look we’ll give you a tax credit for installing the natural-gas pumps, and say to the car makers, we’ll give you a tax break if you increase production of natural-gas powered autos?

I like the idea of the government breaking the catch-22 by investing in the infrastructure. Rather than a tax credit, though, which still makes development of the infrastructure optional, why not let the government build it, then sell it to a private company once it becomes viable? Governments already invest money on things like toll roads, and then turn them over to private companies to run at a profit, maybe we could do the same here.

I’d also like to see the government spend money upgrading out power grids to allow for spiking, on-again off-again sources like solar and wind. Requiring that all new business and residential construction has the equipment necessary to feed extra electricity back to the grid would also help reduce the installation cost of wind turbines or photovoltaic cells.
Anderson

September 8, 2008 at 3:33 pm

Steve V. likes low taxes.

How are we going to cure the budget deficit and pay down the national debt — including our billions spent on the Iraq war — without raising taxes?

Serious question.
Aubrey

September 8, 2008 at 4:43 pm

It wouldn’t surprise me that both Obama and McCain actually believe they can have substantial influence over the economy. Neither has any experience that would prepare them for this facet of the world. Virtually their entire lives have been in some form of government activity.
Dantheman

September 8, 2008 at 5:35 pm

Aubrey,

“Virtually their entire lives have been in some form of government activity.”

McCain, yes (I think the only period in his adult life he was not in the Navy or in Congress was a 1 year period he worked for his father-in-law’s company).

Obama, no. The much decried period as a community organizer was for a Catholic charity. He then worked for law firms for nearly a decade. His years as a state legislator were also the period he taught at the University of Chicago Law School.
Triumph

September 8, 2008 at 6:23 pm

Both appear to believe, or at least promulgate, this notion that the President of the United States can control and/or has great and precise influence over the economy. Lets take a look at John McCain’s acceptance speech,

McCain must be getting his economic advice from Palin-zilla. She idiotically thinks that the Freddie/Fannie failures were a result of TOO MUCH government interference!

Great to know we’ll have this moron at the helm!!
Steve Verdon

September 8, 2008 at 7:23 pm

Steve V. likes low taxes.

How are we going to cure the budget deficit and pay down the national debt — including our billions spent on the Iraq war — without raising taxes?

Serious question.

Adding in the obligations for Medicare as well…we can’t cut taxes. In fact, we’ll have to raise them or cut benefits or both. As Herb Stein said, unsustainable trends are never sustained.
anjin-san

September 8, 2008 at 8:42 pm

Adding in the obligations for Medicare as well…we can’t cut taxes. In fact, we’ll have to raise them or cut benefits or both.

That sounds about right. Mediacare is not going anywhere, so can we find ways to make it more cost-effective?
Rick DeMent

September 8, 2008 at 8:50 pm

Sam and all of the other math impaired, please do the math. 3% increase in US production is nothing considering we get most of our NG fomr Canada. Start running even 10% of the current auto fleet on NG and demand goes thought the roof.

The NG price spike will be huge. Also NG has the same peak problems as oil does your story might be significant to someone who can’t add … but anyone else knows its not even part of the discussion. Complete non-starter.

What I would like to know is where are all the free marketers around here who so flippantly like to call the policies of anyone with a D next to their name socialist, but when we have an actual example of socialism in the takeover of a privet company by the government it doesn’t even rate a post.
Bernard Finel

September 8, 2008 at 9:26 pm

If you are going to quote McCain lying about Obama’s tax plan, you could at least put a [sic] next to it if you are not going to actually debunk it.

Obama plans to cut taxes on 95% of Americans, and the vast majority of middle class Americans will do much better under Obama’s plan than McCain.

That is a simple FACT.

On the other hand, McCain’s tax plan would give him and Cindy almost a $400,000 tax cut per year. Talk about self-dealing.
anjin-san

September 8, 2008 at 9:59 pm

McCain’s tax plan would give him and Cindy almost a $400,000 tax cut per year.

Hey, that will buy one new outfit for Cindy and with a little scratch left over..
sam

September 9, 2008 at 6:59 am

Sam and all of the other math impaired, please do the math. 3% increase in US production is nothing

Perhaps, but I was responding directly to your assertion:

natural-gas has the same issues as oil, demand is going up while production and discovery is going down.

The article I cited shows that statement to be false.
Steve Verdon

September 9, 2008 at 12:15 pm

That sounds about right. Mediacare is not going anywhere, so can we find ways to make it more cost-effective?

In all seriousness, not by enough. Benefits will likely have to be cut, or the system will just self-destruct.

Obama plans to cut taxes on 95% of Americans, and the vast majority of middle class Americans will do much better under Obama’s plan than McCain.

Most of that 95% already pay little or no federal income tax. It is hard to cut taxes on somebody who isn’t already paying taxes…unless you want to subsidize them.
Michael

September 9, 2008 at 1:13 pm

In all seriousness, not by enough. Benefits will likely have to be cut, or the system will just self-destruct.

The problem we have with health care is not in the cost of insurance (which is really what Medicare is), but rather in the cost of the health care itself. As long as the cost of a doctor’s visit continues to spiral upwards, the cost of personal or government insurance will spiral upwards. That is exactly why universal health care will cost tax payers as much as private insurance does.

The only way to solve the problem is to reduce the cost of health care, and as always you have two options: Increase supply or decrease demand. Since there isn’t much you can do to decrease demand for health care (people will get hurt and sick regardless), you must increase supply.
Bithead

September 9, 2008 at 1:34 pm

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.” The companies, as McClatchy reported, “aren’t taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization.”

I’ll differ with you, to the tune of $200BUSD, more or less.

Freddie and Fannie Mae had nothing at all to fdo with being ‘private’ companies, but were governmental constructs from the word ‘go’. Free Market individualism was never a part of this situation, guys. That lack is exactly what allowed the kind of nonsense that went on in those two places for the last decade. That, and a Democrat run congress unwilling to rein in it’s own, who went well over the line of public service into the area of serving themselves, and their political friends.

Personally, I’m hoping the republcians will push this one. Think 200 billion of cost incidental to Democrats playing patronage would affect the election?
brainy435

September 9, 2008 at 1:49 pm

“Jobs sent over seas will come back….”

Um, except that he said the exact opposite:
“But making empty promises to bring back lost jobs gives nothing to the unemployed worker except false hope. That’s not change we can believe in. Reforming from top to bottom unemployment insurance and retraining programs that were designed for the 1950s, making use of our community colleges to train people for new opportunities will help workers who’ve lost a job that won’t come back, find a job that won’t go away.”
McCain Nomination Speech
http://www.americanrhetoric.com/speeches/johnmccainrepublicannominationspeech.htm
Bernard Finel

September 9, 2008 at 1:59 pm

Steve, man, wow. Have you even bothered to read Obama’s tax plan? Sure, the tax cuts on many poorer people will be small because they don’t pay much, but his cuts for those folks will still be larger than those proposed by McCain which go, almost wholly, to the wealthy.

The alternative tax plans are not that McCain wants to cut taxes and Obama wants to raise them, they are mostly about who will benefit from the tax cuts — the middle class or wealthier Americans. Yes, McCain’s cuts are, in the aggregate larger, but again for 95% of the population, they would get less out of the McCain plan than the Obama plan.

Is that really that hard to admit? I mean, why? What is wrong with the truth?