Reboots, Revisions, and Reality

President Obama addressed a rally in Las Vegas yesterday [LVSun] including the stump speech line: “In fairness, my opponent’s got a plan, too,” Obama said. “They think that somehow you can lower our deficits by spending another $5 trillion on tax cuts for the wealthy. No matter how many times they try to reboot their campaign and try to explain it, they can’t.”  It’s tempting to conjecture that the Romney campaign has rebooted more often than Microsoft has issued new versions of its operating systems.

One problem is simply that Trickle Down, or Supply Side, Economics is a hoax.  [DB] [Krugman] [Stewart] There’s no way to reboot, re-wrap, re-state, or re-launch an economic program predicated upon a fundamentally flawed economic proposition.  One with its origins in the 1970s:

A group of thinkers, including the economists Arthur Laffer and Robert Mundell and the journalist Jude Wanniski, became convinced that lower taxes and deregulation were the answer. If you lowered taxes, the thinking went, people would take the extra money and invest it in new enterprises, getting the economy started again. [The New Yorker]

Nor did the initial proponents envision the misuse of the theoretical framework they propounded as a foil for reducing government services to its population:

Laffer, whose inspired napkin scrawl was most responsible for popularizing supply side, warned its followers not to look to the theory as an all-encompassing outlook—economic or ethical. “A problem I have with people who follow us,” he told Brooks, “is that they don’t recognize the theory’s shortcomings. They go too far. I don’t think you cut Social Security or unemployment insurance in a down economy. To do that is—well, immoral.” [The New Yorker]

Since the notion that tax cuts and deregulation work to increase revenue is a proposition thoroughly debunked [EPI]; and, since tax cuts and deregulation aren’t effective in creating a stable economy, witness the Housing Bubble collapse in 2007-2008; and since no causal relationship can be demonstrated between tax cuts and employment.  [Bernstein] Then the only straw left in the stack is to decry the Deficit and Debt in order to justify a program predicated on lowering taxes for the wealthy.   It’s both a last straw and a thin reed.

Little wonder vice-presidential candidate Rep. Paul Ryan (R-WI) didn’t want to stand on it when he told Fox News he didn’t have time to explain their tax plan. [TP]  A person could spend a goodly part of the next millennium to attempt an explication of in the inexplicable and still not get the job done. “Revenue neutral” only works when its acknowledged that the money has to come from somewhere.  If taxes are lowered on corporations, wealth management executives, and wealthy individuals then the other side of the equation has to be addressed in the form of higher taxes on everyone else, draconian cuts to public services, or both.   This shouldn’t take much time to explain — any 8th grader in a pre-Algebra class can tell you both sides of an equation must have the same value.

A second problem is that de-regulation, especially in the financial sector, is an invitation to economic instability.  We tried that.  Combining high speed electronic trading with flawed risk management models with the securitization of assets with the creation of synthetic derivative instruments along with third party bets on asset based securities and those derivatives … created the financialist’s flash crashes and the Wall Street Casino.   A volatile financial market is a financialist’s dream — full of opportunities to make big bucks in the margins; it is a Main Street nightmare.

Even the tepid provisions of the Dodd-Frank Act, seeking to re-regulate the derivatives markets, to monitor the liquidity and solvency of the major banks, to require banks to development ‘living wills’ in the case of serious trouble, to impose rational orderly liquidation of banks if they fail — are too much for the confirmed financialists.  The question becomes how generously will financialist Governor Willard Mitt Romney embrace them.

In May 2012, Governor Romney pledged to repeal the Dodd Frank Act, but offered no specifics. [Boston.com] He was still hewing to that position as of May 26, 2012. [TDB] By August 17, 2012 Governor Romney was calling for “transparency and common sense regulations,” while his running mate was publicly supporting a reversion to the Glass-Steagall Act which prohibited banks from indulging in propriety trading. [Politico]  As of September 6, 2012 Bloomberg news reported:

“Mitt Romney has pledged to repeal the Dodd-Frank act. That’s not really going to happen—and that’s just fine with Wall Street. Instead, President Romney would likely try to give the financial industry something it wants more: a diluted financial reform law that would relax restrictions on some of its most profitable—and riskiest—investments but maintain enough government oversight to give the banks cover.”

Somehow, the idea that our government should be primarily concerned with “giving the banks cover,” doesn’t seem to be a particularly good campaign talking point while speaking to middle America.  The Etch-A-Sketch could move into over-drive?

Meanwhile back in the real American economy — the growth of which  President Obama would like to sustain —

Shows steady growth in the last year in the Real Gross Domestic Product

An economy with some good news for Main Street — retail sales and food service are trending into positive territory

Shows continued improvement in private sector employment:

President Obama may be campaigning in Nevada’s largest urban area, but the economic message is right out of the First Rule of Ranch Management — If it ain’t broke, don’t fix it.

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Filed under 2012 election, Economy, financial regulation, Obama, Politics, Romney

One response to “Reboots, Revisions, and Reality

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