Peas, Stuffed Cabbage Balls, and the No-Camp Camp of Economic Policy

As a recent member of the Septuagenarian Club I am working hard on balance. Old people fall down a lot even when they have not partaken of JD tasting rituals. So working on balance is important if one values his hips, shoulders, and other decaying body parts. Getting depressed yet? Getting old ain’t no picnic you know.

But this piece is not about aging or falling down. It is about restoring balance in economic policy in this country. While it sounds obvious that balance might be an appropriate goal, this conclusion is not shared by everyone and the move towards balance is not easily attained. Stand on one leg and close your eyes and you will see what I mean.

American is very unbalanced. We have our camps. The blue camp likes more government intervention. The blue camp prefers to increase spending and worry later about the debts. The blue camp wants to regulate banks, shadow banks, and various companies. The red camp says they worry about government deficits but often favor tax cuts that create them anyway. The Red camp favors deregulation and generally a smaller intervention by government. And now there is forming a Trump camp. The Trump camp is not so much a camp as it is family of camps with no identifying color.

I kind of like the no-camp camp. The no-camp camp is a little closer to what I might call balance. The no-camp camp can favor more government spending and at the same time propose tax cuts. It believes that somehow lower tax rates and higher spending will not cause the deficit to increase. It also says it wants to reduce many recently imposed government regulations.

How could I like this no-camp camp? If balance enrages extremes then it immediately has strong minuses. Notice that balance means that the blues will scream about a proposed diminishing role of government while the reds yell that the government is still too big. This no-camp camp will quickly enlist enemies from all the traditional camps. This will not be easy to overcome.

Overcoming the negatives shouted by the traditional camps means focusing on the positives gained by each camp from the no-camp camp. More spending on infrastructure is widely viewed to be beneficial on many fronts since it generates income to the working class while it improves productivity. Red and blue will like that one. Tax cuts for the middle class can restore losses in earning power to that group. Blues will like that. Tax cuts for the wealthy should be good for national investment spending and declines in corporate income taxes and should boost the competitiveness of US companies and American cities. Can you hear the reds cheering?

More contentious is how government deregulation can promote jobs and growth in energy and healthcare. But the clear point is that a slowdown of regulation in these areas could produce jobs and income growth. One does not have to be a climate skeptic or a hater of the poor to believe that a temporary hiatus of regulation in those areas might produce important beneficial growth effects. Get the economy humming again and then return to more vigorous ways to remedy global warming and coverage of health care.

What I am suggesting here is that a no-camp camp set of policies provides balance as it contains features that both annoy and amuse everyone. It’s like my mom used to say to me – Larry, eat your peas and then you can have another stuffed cabbage ball. In the distant past the two political parties would compromise on economic policies. Give a little get a little was the slogan. More recently with strong influence by ideological extremes we quit doing that. You can eat the peas or the stuffed cabbage balls. Not both. And the nation has suffered from this standoff.

Many of us don’t like Trump for one reason or another. What I am suggesting is that since Trump has no real connection to either party or ideology, he might be the perfect person to get us back to some much needed balance in policy. I guess we will see in the near future. He has to come through with policies that make some sense. As voters, we need to be ready to eat our peas. Hopefully the meatballs will make it worth our while. 

Triplets and the Tax Reform Blues

The WSJ on October 29^th  featured an article by Republican Candidate Ted Cruz about tax reform. Cruz joins Jeb Bush and some of the other candidates in laying out thoughtful pro-growth tax reforms. We will be seeing more and more of these as we approach the coming presidential election.

While there is much to discuss and debate about the particulars of these tax reform plans, today’s blog post is more about the elephant in the room. Somehow these serious attempts to reform taxes and promote economic growth avoid or miss some important consequences and therefore make it very easy for the opposition to demagogue such plans.

It is no secret that income distribution and the national debt are twin ticking time bombs. Yet none of these tax reforms advance any serious if debatable discussions about how tax reforms might impact these issues. Democrats can’t do a sit-up without lamenting what has happened to the income distribution. Whether you agree with their policies or not, many of us wonder how long the economy can tolerate this apparent dislocation of wealth away from the poor to the rich. Clearly we do not want to be responsible for policies that exacerbate this widening gulf. But this is red meat for Democrats every time a Republican offers a tax reform program that skirts this issue. I don’t think Cruz’s recent article said one word about the effects of his program on income distribution.

Why? Perhaps it is because he wants us to assume that his plan will improve the situation. Economic growth lifts all boats. I agree with that statement but like many economic truths it is contingent. The truthfulness of it is related to other things happening in the economy. Doing push-ups is good for you. Give me 20. It will make you stronger and happier and sexier. But coach, I have a broken arm! Oops…maybe you should not do any push-ups right now.  So Cruz and the other tax reformers owe us a serious explanation for why their policies will not worsen and might even improve income distribution. If they don’t do it themselves – this leaves a lot of room for Democrats to make up outrageous stories. I can just see Hillary right now explaining how a flat tax is going to save billionaires zillions of dollars while the poor guy gets enough to buy a lottery ticket.

The other elephant in the room is national debt. Advocates of tax reform plans resemble the cheesy used car salesman promising that if you buy this plan you will grow hair and sleep through the night without one trip to the lavatory. As in the income distribution discussion, these Rs are whistling and crossing their fingers behind their backs while promising that a flood of tax revenues will flow over the dam. Lower tax rates mean tax revenues will jump higher than Michael Jordan on a trampoline. If debt is a problem, then these Rs need to do their homework and do some serious calculating about tax reform and debt. I would rather have them arguing about specific assumptions and elasticities than be such easy prey for the Ds. Silence is not golden.

Of course there is another approach that can work. Maybe Cruz and his playmates should admit that tax reform might not have a positive impact on the distribution of income and the debt. What? Larry are you nuts? Probably. But here is my point. The income distribution did not get out of whack easily. Maybe some serious thinking about the real causes of a poor income distribution would result in a serious policy aimed directly at those problems. Admit that tax reform is about growth. Tax reform cannot brush your teeth and walk your dog. An honest discussion and feasible policies to improve income distribution could go a long way politically.

The same goes for debt. Tax reform does not have to impact debt if it is tax neutral. It is a slam dunk that debt is not the result of deficient taxes but results from an incessant desire for government to spend more and more. Don’t hang your tax reform hat on the debt. Admit it has little to do with the nation’s crushing debt. And then have a separate program that goes after runaway spending. If you don’t think spending is running away just read my recent post “US Government: Liars and Thieves.“  Since I wrote it Congress decided to add another $80 billion on top of what was already a generous trajectory for spending.

So there you are. Tax reform is needed but it doesn’t stand a chance of passing if the good guys don’t couple it with serious approaches to income distribution and national debt. It is too easy to sabotage tax reform if nothing is said about these evil sisters. We might think about triplets.