The Economy: Who is to Blame?

When talking about the economy, some people like to say that a president deserves far less blame and far less credit than they actually get. This statement seems so reasonable and nonpartisan when you first hear it. Granted, Republicans often say this, and this allows them to avoid giving Clinton credit for the boom of the 1990s and avoid blaming George W. Bush for this recession. So it isn't so non-partisan.

But it is also wrong. There is a lot presidents can do about the economy. They can create conditions that lead to speedy recoveries from recessions - with the help of good policy from the federal reserve. And they can create conditions that lead to bubbles and an overleveraged a financial system.

The president has helped the economy recover but I think the president could be making it recover faster. There is no question that the stimulus helped. It just wasn't large enough (and maybe poorly targeted). But recent budget cuts at the federal, state, and local level have not helped the recovery. Federal reserve policy has been helpful, but again, they could be doing more. And President Obama could encourage them to do more. 

Also, I blame presidents for aspects of the Great Recession. President Clinton and President George W. Bush supported decontrol of the banking system, allowing banks to overleverage, putting the whole system at work. It also allowed a lot of risky borrowing by homeowners and investors alike. 

But there were other aspects that were outside the control of Presidents Clinton and Bush. Excessive savings by Asian countries had a role in our recent housing bubble.  

Also, I don't give Clinton too much credit for the 1990s dot-com boom. Sure, his decision to balance the budget and create surpluses helped create market confidence. But really, that boom was driven by technology and efficiency improvements (and a bit of a bubble). 

Mitt Romney's economic adviser, Greg Mankiw, had a good thought on evaluating presidents and their economic policy :

What you would not do is judge him by the outcome. Even the best physicians have patients die. And even witchdoctors can have patients recover. Randomness is a fact of life (and death). In the case of a medical doctor, the answer seems clear: Instead of looking at the outcome, you would judge him by the decisions he makes and treatments he prescribes. That is, you would examine whether he followed best practices for the circumstances he faced.

I think this makes a lot of sense. Following this method, we might blame Obama if we enter a double-dip recession caused by further government austerity. But we would not blame Obama if Europe's austerity causes them to have a double-dip recession and then bring us along for the ride or if the Federal Reserve decides to implement monetary tightening. 

Mitt Romney himself takes a different approach. When there is good news about the economy, he gives Bush credit. When the recovery is faltering, he blames Obama.

I think it is clear though that a president can have a very big impact on the economy. We just need to be nuanced (Romney has inexplicably attacked Obama for nuance) and thoughtful about what a president is and is not responsible for.

What is Work?

A couple weeks ago there was a big to-do about women and what constitutes work. Mitt Romney's  team got all riled up when someone associated with Obama suggested that staying at home and taking care of children is not work, in reference to Ann Romney. I think the outrage was mostly fake and ginned-up, but that's how campaigns work. But fine, we all agree that women (and men) staying home to take care of children is work.

Except Mitt Romney doesn't actually agree with that himself if you look at past statements. When talking about low income women, Mitt Romney actually thinks staying at home is not work, and that these same women should be forced to "work" in order to get welfare and to teach good "work" habits to their children.

Mitt Romney is a bad candidate. His positions are not at all consistent, even when not considering all the positions he has changed. But this actually points out a Republican inconsistency. Republicans want the woman's role in the home recognized and appreciated. Just not when it comes to low income women.

It is a shame that the press is more interested in fake controversies than in actually getting at fundamental issues like whether being at home is work and how that affects major policies like welfare reform. If pressed, Republicans cannot maintain this position and be consistent. If taking care of kids is work, than single low income mothers should be paid to stay home if they want to (welfare). If not, Republicans have to say that staying home is not work.

But our press corps won't push this. Instead, they'll cover every silly fake controversy and miss all the important issues. And Republicans (and sometimes Democrats) will continue to be allowed to be inconsistent. And policy and our debate will suffer.

Buffet Rule: Not a Fan

I'll be honest - I don't love the way Obama is pushing the Buffet rule.


The problem with the Buffet Rule is that, even if we think it is being proposed genuinely (and not as a political stunt - which is what it really is), it doesn't come close to solving the problem we all know exists, which is that the wealthy don't pay as much in taxes as they should if we are really to have a progressive income tax.

There are proposals to solve that problem. They include eliminating some tax deductions and increasing taxes on capital gains. Since nothing Obama proposes (not the real solution I just mentioned nor the Buffet Rule) is likely to get passed, it seems to me Obama should propose the one that is a real policy solution. But he doesn't want that. He doesn't want a big detailed plan that might have some unpopular elements. Instead, he wants a quick, and absurd, political win.

This is going to be a long and disappointing campaign.

On Redistribution

I have heard Republicans accuse Democrats of favoring wealth redistribution. I will admit that Democrats do not do a good job of dispelling this myth (see Obama v. Joe the Plumber). But let me take a quick stab at making clear what the Democrats position is - or at least should be.

Democrats believe that government provides necessary services, from public health and safety (military, police, fire, hospitals), to needed public infrastructure (roads and rail), education, and a safety net, among other things. All of these things are necessary.

We also believe that some of the ways we raise revenue should be progressive, meaning that the rich should pay higher rates. It is only fair that people that have more money should bear more of the burden because they can bear more of the burden.

What Democrats need to make clear - over and over again - is that a progressive tax structure is to pay for necessary services. We do not take from the rich to give to the poor. We take from everyone - in some cases at higher rates from the rich - so that people do not starve, do not live unsheltered, do not go without health care and so that there is police, military, roads and education. Among other things.