“I think the answer to Alan Reynolds's excellent question and article ("How's Obama Going to Raise $4.3 Trillion?," op-ed, Oct. 24) is that Barack Obama is not going to raise $4.3 trillion, and he is not going to perform on his rhetoric. He excels as a rhetorician -- common to both the great and the least of past presidents -- but performance cannot run on that fuel. Inevitably, I think his luster will fade even with his most ardent supporters as that reality sets in. We also have seen luster fade time after time with Republican presidents. The rhetoric of a smaller and less invasive government always leads to king-size performance disappointments. This weakness is as central to the reality of our political economy as are its strengths. With all its foibles, its strengths become transparent when you compare it, not with our various idealizations, but with the litter of human experiments in political economy that have delivered far more suffering and murder than human betterment to the citizens of those economies.
Of course it is entirely likely that Mr. Obama will succeed in going for higher business, capital gains and income taxes, but it is an economic illusion to think for a minute that this will benefit the poor. All our wars on poverty have been lost by failing to help the poor help themselves. Higher business taxes, which ultimately can only be paid by individuals anyway, will simply export more economic activity to the world economy. Higher capital gains and income taxes will primarily reduce savings and investment at the expense of greater future productivity, which is at the heart of cross-generational reductions in poverty. A dozen countries, including the third largest economy, already have zero taxes on capital gains, and eight of them score high on the Economic Freedom Index and high in gross domestic product per capita.
I favor making all individual savings and direct investments deductible from income for tax purposes. In that world there would be no need to make any distinction between ordinary income and capital gains. By adding a negative feature to such a net consumption tax, the poor would not only receive redistribution benefit, but have an incentive to save and accumulate capital. Some poor will see this as an opportunity to help themselves.
Vernon L. Smith”
Vernon L. Smith, “Only Economic Growth Can Provide Positive Change”, Letter to the Editor of The Wall Street Journal (31 October 2008).
http://online.wsj.com/article_email/SB122541237504586451-lMyQjAxMDI4MjA1MjQwMTIyWj.html
Vernon Lomax Smith (1927-) is professor of economics at Chapman University School of Law and School of Business in Orange, California, a research scholar at George Mason University Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center, all in Arlington, Virginia. Smith shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman. He is the founder and president of the International Foundation for Research in Experimental Economics and an Adjunct Scholar of the Cato Institute in Washington D.C.
Smith is right to note how we often compare the actual performance of an economy with some idealized system or notion of perfection that ought to be reflected in its performance. All economies are in reality mixed economies in practice and suffer from all the imperfections associated with the real world. They must grapple with real world problems and they must deal with the fact that people have very different objectives and very different judgments about the values society should promote. What is perfection to one person brings horror in the eyes of another. For this reason, any criticism people make must be discounted by the difficulties of leadership and the difficulties of the situation on the ground. And, needless to say, assertions that they or their party could do better are worthless unless they have a track record of good performance.
Critics of the contemporary economy of the United States and its performance under George Bush have been very critical of the man and the economy during his years as President. In macroeconomic terms, however, the performance of the economy under George Bush has not been bad at all: Following a slowdown that began before he became President and a setback caused by the tragedy of 9/11 the pace of growth recorded since 2002 compares favorably with other Presidents, and, similarly, rates of inflation and unemployment since the recovery are lower than other recent Presidents except for Clinton. The prevailing academic wisdom that living standards of the poor under Bush have declined is nonsense, as the average poverty rate for the Bush years is lower than that under Clinton and all other Presidents. History will argue that the financial crisis has been building for many years, as Robert Shiller points out in a recent New York Times article (http://www.nytimes.com/2008/11/02/business/02view.html), but Bush’s responsibility for the disaster is shared with the Congress, the Fed and the regulatory agencies. In terms of economics, Bush has done as well as other Presidents, and it reflects badly on his critics that they have distorted his record to the point of dishonesty.
And it is easy to assert with cool and self-righteous confidence, as Barack Obama does, that the man who has been grappling with the problems and produced decent results is somehow stupid and unequal to the task. Should he win the Presidency, Obama will find it much more difficult to deliver as it was to promise. He should pray that he does as well as Bush and that he will not have to suffer the mockery and disparagements and isolation that Bush has had to endure.
Barack Obama is an untried man advocating untested policies in an unprecedented situation. He proclaims “This is our time!” and “I will change the world!”. Dealing with real world problems, however, requires much more than words and by raising expectations beyond what any human being can deliver Obama has opened himself up to the very criticisms he has heaped on Bush.
Whether Barack Obama or John McCain becomes President he will need our prayers and support. For the problems before the country are immense and the man elected President is only a human being with greatly limited powers.
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