Friday, July 20, 2012

Both Romney and Obama May Be Spinning Economic Policy


Ezra Klein's Wonkblog has an interesting posting relating to the debates going on in this election season.
Mitt Romney’s claim, broken down to its core components, is that the path to broadly shared economic growth is to reduce public investment in order to further cut tax rates, and so his policy proposal is to slash public investment and cut taxes. Obama’s claim is just the opposite: He thinks we have too little public investment in order to assure broadly shared economic growth, and so he would raise taxes on high-income Americans to protect public investments.
Note that when you phrase the question more calmly, we’re talking about a difference of degrees. Romney knows that entrepreneurs depend on the quality of infrastructure. Obama knows that there will be no new business formation if business owners aren’t rewarded for their success. Romney is not proposing to zero out public spending. Obama is not proposing to raise marginal tax rates to 100 percent. Rather, if you look at the proposed revenue levels in the Ryan and Obama budgets, the difference in revenues is about three-quarters of a percentage point of GDP.
A recent paper by the Kauffman Foundation — a nonprofit devoted entirely to encouraging entrepreneurship — looked at some of these issues, and they began with a fact that should force both sides to moderate their rhetoric: We don’t really know what leads to more firm creation. In fact, firm creation is something of a mystery, as it’s been eerily stable over the past 50 years, despite the radically different policy and economic environments we’ve had over that time. Here’s the graph:

Of course, politicians don't win votes by admitting that their policies are pretty much the same as those of their opponent, not that the knowledge base on which those policies are based are pretty slim. The guy who gets elected will find that he can't really implement the policies that he thinks he wants as a candidate.

I think the basic issue is whether the government should seek to increase the income inequality within our nation or to decrease it. If it continues to increase, I fear our democracy is in trouble. Consequently, I prefer modest increases in taxes on the rich.
 

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