by Mike Kimel
Why I will not be Voting for Obama in 2012
Cross posted at the Presimetrics blog.
The presidential elections are a year and a half away, but I am pretty certain of one thing: I will not be voting to re-elect Barack Obama. That does not mean that I will be voting for the Republican nominee, or for any of the third party candidates, but rather that I do not see any likely circumstances under which Barack Obama will do anything I think is necessary to earn my vote. That may seem unusual because I voted for Obama, and my economic views are probably best described as slightly left center.
Now, I’m nobody special, and my endorsement or lack of it isn’t going to make a whit of difference, but I suspect there are other people who are also somewhere close to slightly left of center (i.e., who are either what Obama considers to be his “natural constituency” or close enough that they can be convinced to vote for him rather than his likely eventual opponent) who are starting to think the same thing I am. So perhaps its worth trying to explain why I feel the way I do. I think its easiest to do that by discussing the issues I think I important and what Obama has done (or not) about them.
1. Economic growth/unemployment/taxes. These three topics, as Senator Ryan and all economists know, are closely inter-related. Sadly, the relationship between these three topics is very, very different than Senator Ryan and most economists believe. Getting the economy moving is vital after eight years of mediocre growth under GW Bush, culminating in the Great Recession. But when you go back as far as the data allows, you find a quadratic relationship between the top marginal tax rate in one year and growth in the subsequent year , and that we are at a point on the curve where it is an increase, not a decrease in tax rates, that is likely to lead to faster economic growth. Even sticking to the period of relatively low taxes we’ve been in since Reagan started his tax cuts, growth rates should go up and unemployment rates should go down if tax rates go up.
There are two reasons this is true. One is that taxes pay for the existence of the government. The government provides services the government provides that are conducive to growth and which the private sector simply has not historically provided at non-negligible levels. These services include national defense, monitoring and controlling epidemics, and building infrastructure.
The government also provides some leadership that can make it possible for the private sector to adopt new technologies. As an example – in this day and age, having a vehicle that could run on any mix of gasoline, ethanol or natural gas (depending on which is cheapest per mile) would be a nice thing to have. You can buy one of those vehicles today… in Brazil. Never heard of such a thing? Well, there are millions of bi-flex and tri-flex vehicles on the road in Brazil today, made by such exotic companies as GM, Ford, Volkswagen, and Mercedes. Why are there so many flex-fuel cars and motorcycles on the road in Brazil? Because the Brazilian government realized you can’t get from 1970s fuel shortages to where they are now without someone forcing both auto makers and fuel stations to make changes simultaneously. Without government action, auto makers wouldn’t have been willing to mass produce flex-fuel vehicles out of fear there would be no filling stations for those vehicles, and fueling stations would have been reluctant to make investments out of fear that there would be no vehicles to take advantage of them. In other words, the situation we see in the U.S.
But there is another, perhaps more important reason, why higher tax rates often lead to faster economic growth and lower unemployment. As I keep pointing out, any good business owner (and any lousy one, for that matter) will tell you, if you tax something more, you get less of it. And income taxes can be seen as penalties on withdrawing money from one’s business for the purpose of consumption, which means they discourage business owners from taking profits out of their business. The alternative to taking profits and consuming is re-investing in the business. Thus, higher tax rates on income lead to more investment on business. And this result is borne out empirically; when the top marginal rate is below 50%, a tax increase is correlated with more private investment and less private consumption.
2. Deficits and the national debt. This is another tax related issue. Historically, during and following tax hikes tax collections /GDP rise. During and following tax cuts, tax collections fall. (How a fact so basic that even a child could observe it in the data became a surprise to many people is a testament to, ahem, economists like Art Laffer and Thomas Sowell.
But there are many ways to cut taxes people pay, and changing the marginal rate is only one such way. Enforcement of tax law is another. Since 1929 (that’s as far back as data is available) – every single Republican President decreased the tax burden, the percentage of people’s income paid in taxes, and thus far, all Democrats but Truman and Obama have increased that percentage. Click on the link and you’ll also see that growth rates were much faster for Presidents who increased the tax burden than for Presidents who decreased it. Though there are many ways of being fiscally responsible or irresponsible, it is, of course, easier to balance the budget if tax revenues are higher. The last four Republican Presidents – Ford, Reagan, and the two Bushes all increased the national debt. Conversely, before Obama you had to go back to 1944, when the nation was fighting World War 2, to find a Democrat in the Oval Office who increased the national debt.
And yes, I know, there was a bad recession going on when Obama took office, and the economy still sucks. And yes, I agree with Keynes – the data shows that expansions following recessions during which the government increased its spending are longer and stronger than when expansions following recessions during which the government cut spending. But that spending should have been paid for with tax hikes. Historically, when the government raises taxes during or shortly after a recession, the resulting expansion is longer and stronger than when the government cuts taxes. That’s what the data shows. The reasons are the same as given above in the discussion about economic growth, plus one: during periods of economic weakness those in the private sector tend to sit on money.
As an aside – it is worth noting that both this Great Recession and the Great Depression came about half a decade after big reductions in both marginal tax rates and regulation. Coincidence?
3. Obama’s performance might resemble that of other Democratic administrations more closely had he chosen economic advisors who paid more attention to data and were less enamored of the policies GW Bush was employing. When you pick an advisor who jumps through hoops to be like one of GW’s economic advisors, you will get GW’s outcomes. Its even worse when you’ve been warned and you do it anyway. Frankly, if I say so myself, it isn’t that difficult to find people who actually can spot business cycles at both ends.
4. The bail-outs. Of course, one of the big contributors to the Obama deficits are how Obama reacted to the poor state of the economy. (In fairness, some of the bail-out spending was pre-committed by the previous administration, but then Obama voted in favor of that spending as a Senator and didn’t try to walk it back once he became President.) But where are the prosecutions? Was there not wrongdoing? And then you have stories like Matt Taibbi’s latest. Like GW’s policies before him, Obama’s approach seems almost designed create another mess.
5. Health care. Obama care = Romney care. This is a policy that Republicans were pushing a decade ago, and would still be pushing if a Democrat hadn’t proposed it. Where is the public option?
6. The wars. I don’t have a solution, but then I didn’t spend a few hundred million bucks running for President, nor am I about to spend a billion dollars running for re-election. It is the height of immorality to seek out the presidency or re-election in a time of war and yet have no clue how to bring the war to a successful conclusion.
I always thought it was the height of insanity for anyone to vote to re-elect GW in 2004, after screwing up the economy and two wars. Yes, I know some worthies were still talking “Mount Rushmore” a year or two later, but one should be better than that. And yes, there are a handful of things Obama did that GW might not do, but let’s be realistic – this has looked from the very beginning like GW’s third term.
Which leaves just one question – if the policies of the Republicans are even worse than Obama’s – and they tend to support anti-growth tax policies (calling them pro-growth doesn’t change the data), what should a rational person do? I don’t know. But I think if I’m going to see Republican policies enacted, I’d prefer to see them run under a Republican label. See, Democratic policies may not be very good, but historically they have tended to produce better results than Republican policies. (BTW – Michael Kanell and I have an entire book called Presimetrics looking at how Presidents performed on a wide range of topics.) Another four years spent bringing the feeble Democratic brand down to the levels of the even more feeble Republican brand will cause lasting damage.