Here’s a piece from New Yorker about how restricting trade to help American workers ends up hurting the poorest Americans: “The Free Trade Paradox” (May 26, 2008). The point is that keeping imported calculators (for example) out of the U.S. would be great for a handful of guys who work in a calculator factory, of little consequence for the BMW-driving professionals, and ruinous for ghetto schoolchildren who would pay $100 for a calculator that used to cost $12 (though maybe they would learn how to do arithmetic?).
Harvard egghead Gregory Mankiw argues for cutting the corporate tax in a June 1, 2008 New York Times editorial. The stated goal of the corporate tax is to rake off money before it gets into the hands of wealthy investors. Mankiw cites studies from Europe that found that 92 cents of every $1 in corporate tax came out of the hides of workers in the form of reduced wages. Mankiw argues persuasively that the corporate tax discourages economic growth. The one example that he does not cite is the massive economic boom achieved by Ireland. You could argue that the Irish are simply much smarter and harder working that their counterparts in England and Western Europe. Alternatively you could note that a company in Ireland pays half as much corporate tax as one located anywhere else in Europe. (Artists, such as musicians, did not pay any tax for a long time. When Ireland tweaked the law to exempt only the first $320,000 per year, U2 and Bono moved all of their assets into an offshore trust (story).)
In 1948 we started laughing at Wile E. Coyote, but perhaps over time we have become him. Wile E. Coyote, unable to run as fast as the Road Runner, came up with elaborate schemes that invariably backfired. A Martian looking down at the Earth might think “the only way for the U.S. government to collect more taxes is to have a larger economy from which to slice off a share; the only way for the U.S. to grow is to work harder, improve education, streamline transportation, stop paying $1 trillion every year for oil that is mostly imported, etc.” Here in the U.S., though, we can’t get organized for the tough jobs. We watch kids come out of the school system barely able to write or do arithmetic and argue over whether or not their teachers should get a 5% raise or 10% pension increase. We watch cars burn millions of barrels of imported oil sitting in traffic jams and never ask ourselves why we can’t put down a wireless Internet along our road system so that the cars would have routed themselves around the problem. We watch our money and ownership of our assets disappear overseas to fill up cars whose engines operate almost exactly the same as the engine in a 1908 Model T Ford (25 mpg; somewhat more efficient than today’s average passenger vehicle) instead of thinking about investing our oil budget in technological innovation.
Let’s look at Barack Obama’s economic policy idea page:
- he will raise the minimum wage, an action that economists find serves mostly to discourage the employment of teenagers
- he will give a mortgage credit to people who are not currently able to write off mortgage expenses, further transferring money from the pockets of renters to the pockets homeowners and further inflating the cost of buying a house in the U.S.
- he will “create a fund to help people refinance their mortgages”, i.e., more money taken out of the pockets of renters
- “ensure freedom to unionize”; our public school teachers have the freedom to unionize, but it doesn’t seem to have helped students learn anything; autoworkers in Michigan have the freedom to unionize, but it doesn’t seem to have made Detroit a vibrant growing city
- “fix NAFTA”; presumably this is cutting down on imports from Canada and Mexico
- “Obama will invest in rural small businesses”; tax people who walk around energy-efficient cities to help encourage folks to settle in places where the supermarket is a 30-mile drive away
- “Expand the Family Medical Leave Act”; companies with 25 employees will now be required to read through the fine print of this law
- “Obama will initiate a strategy to encourage all 50 states to adopt paid-leave systems. Obama will provide a $1.5 billion fund to assist states with start-up costs”; Americans who are working will be taxed to give money to Americans who aren’t working. Everyone will pay for the lawyers who draft and read these new regulations. Government employees who are currently paid not to work at their desks will now be paid not to work at home.
- “Obama will also make the federal government a model employer in terms of adopting flexible work schedules and permitting employees to request flexible arrangements.” Government employees who currently do no work 9-5 will be doing no work 10-4. Maybe this will cut down on traffic in D.C.
- “Obama will enforce the recently-enacted Equal Employment Opportunity Commission guidelines on caregiver discrimination.” More new regulations to read and argue over.
If one were considering emigrating to the U.S. to become a worker, some of this sounds pretty good, though maybe not as good as a 10 percent pay raise or 10 percent income tax cut. If one were trying to figure out where to set up a new business, it is tough to see how these proposals would provide an incentive to locate in the U.S.
Obama is supposedly our nation’s best hope and these are his best ideas.
How about McCain? His economic plan starts off with a section by Wile E. Coyote. He is going to cut gas taxes. He wants to tax renters to help homeowners. He wants to put more money into student loans (most of which ends up inflating the cost of attending college). He wants to tax people who suffer from infertility to give big tax credits to parents blessed with a bunch of children (combined with the gas tax holiday, that family of six can finally help boost the economy by buying a 7-passenger SUV). Buried after a couple of pages is a section that Ronald Reagan might have written, proposing to cut taxes in order to generate economic growth. The apparent schizophrenia is not addressed.