Streetwise Professor

September 11, 2011

WWLD? I Really Don’t Care

Filed under: Economics,Politics — The Professor @ 8:12 am

During his “Pass the Bill” speech, Obama tried to persuade Republicans to support his plans for infrastructure spending–like fixing our congested skies, or something–by invoking Abraham Lincoln’s championing of the Transcontinental Railroad.  (Which was also the passion of Lincoln’s Democratic rival, Stephen Douglas.)

WW(insert-initial-of-role-model-here)D is an annoying and unpersuasive rhetorical trope.  During the debt ceiling controversy, Democrats or their media pilot fish would frequently invoke Ronald Reagan’s raising taxes in 1983 to attempt to persuade Republicans of the virtue of raising taxes today.  After all, WWRD?  Well, I couldn’t care less.  For one thing, it’s not 1983: circumustances are radically different today.  For another, Reagan was not unerring in his judgment, and indeed, what happened in 1983 is a cautionary tale about the pitfalls of agreeing to tax increases today in exchange for promises of spending cuts to come.

It is even more ridiculous to invoke Lincoln, for 2011 is certainly not 1863, and the Transcontinental Railroad was not at all analogous to some farcical high speed rail project.  Or fixing the skies.  How do you fix congested skies, anyways?  If you build more airports,wouldn’t that make the skies more crowded?  Can you build more sky?  That sounds terribly expensive–but hey, that means it would be really stimulative, right?  I’m so confused.

To see the inanity of this appeal, consider how Democrats generally, or Obama in particular, would respond to an invocation of Thomas Jefferson–the actual founder of the Democratic Party, in contrast to Obama’s ahistorical crediting of Lincoln as the founder of the Republican–to support a return to a minimal Federal government, with extremely limited and enumerated powers.  I’m sure at the mere mention of Jefferson’s name, Democrats would be falling all over themselves to slash spending, eliminate entire departments and agencies, terminate Obamacare, Medicare, Medicaid, and on and on.  You see, they’ve just forgotten that they are bound to adhere slavishly to Jefferson’s ideology, and would hasten to make amends on being reminded.  After all, WW(T)JD?

Actually, Obama showed exactly what he thought of any such idea in his speech, with one of his trademark false-choice, straw man arguments:

In fact, this larger notion that the only thing we can do to restore prosperity is just dismantle government, refund everyone’s money, let everyone write their own rules, and tell everyone they’re on their own – that’s not who we are. That’s not the story of America.

So I guess Jefferson (and libertarians generally) are un-American, and that Jefferson (and Jackson) are not part of “the story of America. ”  Good to know.

No.  Give the WW*D thing a rest.  It only appeals to weak, sentimental, and credulous minds, and is usually invoked by the manipulative.  Thursday’s speech being a case in point.

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  1. 2011 might not be 1863, but perhaps closer to 1983. I have become particularly interested in what happened during Reagan’s first term as president. In 1980 unemployment was 6% and spiked to 10.8% in 1982, two years after he took office. As far as I understand Reagan cut taxes in 1980 and later raised them in 1983. By mid 1983 unemployment started declining dramatically and continued to do so until 1990 (5.2%). Inflation was hovering above 10% in 1980 and Volcker raised rates to a staggering 20% in 1982. This is in sharp contrast to the roughly 1.5 – 3% inflation we have now (depending on how inflation is defined). Reagan also borrowed heavily public debt increased from 1 trillion to 3 trillion (32% to 53%) during his two terms.

    It is not very clear what combination of interest rates, taxes and spending is beneficial. Lower taxes, higher public debt and higher interest rates seems to have worked in the high unemployment / high inflation setting. I would say the current setting is one of high unemployment / low-moderate inflation. We seem to have pretty low taxes (in comparison to 1983), zero rates and high public debt. Thus effectively out of policy responses. I am wondering whether it was a mistake to keep rates & taxes lower during the good years of 1990. I think it makes sense to gradually increase both rates and taxes during a boom……..

    Comment by Surya — September 11, 2011 @ 10:36 am

  2. Quick reply, Surya–the crucial thing about ’83 is that marginal income taxes were not raised. Not all taxes are created equal. There is considerable debate whether the post-83 recovery was Keynesian (i.e., driven by the increased deficit), or “supply side” (i.e,. driven by improved incentives, particularly lower marginal tax rates). Note that an interpretation of the recovery depends crucially on what was recovered from. The anti-inflation measures implemented by Volcker were certainly disruptive in the short run, but IMO those measures plus the reduction in tax rates laid the foundation for a sustained recovery.

    Also, Reagan (following Carter’s precedent, ironically) reduced substantially regulatory burdens–something Obama has ruled out.

    IMO macro policy tools (spending, monetary policy) have limited force. The drag in the economy is driven by “micro” frictions, most of them policy driven (the regulatory onslaught of the past 3 years) and debt overhang.

    Re “increase rates and taxes during a boom”–a legitimate Keynesian would agree with this. Keynes supported countercyclical policy–deficits in recessions and surpluses during booms. But this ignores the political economy of spending, which tends to find excuses all the time not to run fiscal surpluses during booms.

    The ProfessorComment by The Professor — September 11, 2011 @ 4:01 pm

  3. Ronald Reagan took office in 1981, so 1982 was about 1 year into Reagan’s term.

    The excuse of Team Obama is “We inherited the destruction of the Bush presidency”. That is rhetorical support for a lag from the start of bad policy and seeing its bad effects, and a lag from the start of good policy and seeing its good effects. So, Team Obama is saying that you can’t judge an administration for what happens at the beginning of its term, you have to judge it according to particular policies and their measured effects.

    Some bad policies can take 10 years to bear rotten fruit, or they are reinforced over time, so that what is bearable in the beginning becomes a disaster in the end. The housing collapse is a case in point. Bad housing policy rolled on, increasingly bad over the years, until it exploded at the end of Bush’s term in office. This was bipartisan bad policy, pushed by Democrats and not effectively opposed by Republicans. So, is Bush responsible because that disaster happened during his term? Only partly.

    Say for example that most policies take three years to have a definite effect, good or bad. Then each president would get the blame or praise due mostly to the prior president, and you could never figure out from simple comparisons of terms in office what policy was good. One cannot compare events directly to presidential terms of office and derive simple and true conclusions.

    Real comparisons and knowledge come from a fine grained analysis of policies and effects. Some people argue that higher tax rates correspond to propsperity over some periods. That can be explained in part by time lag effects. Such people should explain in detail just how a higher tax rate can produce prosperity. Is that because the government is known to be an efficient producer of personal wealth?

    By the end of Ronald Reagan’s administration the US was doing well. That is reasonable, given the detailed effects of his policies. So far, the US is doing badly under Obama, also due to the detailed effects of his policies. As one wag has said, “You can’t love jobs and hate rich employers at the same time”.

    Comment by Andrew_M_Garland — September 11, 2011 @ 4:41 pm

  4. […] WWLD? […]

    Pingback by Tuesday Breakfast Links | Points and Figures — September 13, 2011 @ 2:30 am

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