Like the stock market, politicians have predicted nine of the last five recessions. Worse, they are proposing to do something to avert or soften the recession they currently predict. The leading idea, apparently embraced by the White House as well as the Democrats, is to send out checks to everyone. We’ll take the money, but the economic theory behind this idea — that people will take their “rebates” and the country will spend its way out of trouble — is doubly flawed. The rebates of 2001 were mostly saved, not spent, and consumer spending has been holding up pretty well.
Instead of trying to fine-tune the economy — to make temporary changes at just the right time to smooth its ups and downs — politicians should try to devise policies that promote its healthy long-term growth. Democrats, unfortunately, seem to have reached a party-wide consensus on economic policy that is well to the left of where they were in the 1990s. The chairman of the House tax-policy committee, Charles Rangel, wants to raise the top income-tax rate to 44.2 percent, which is well above its level of 39.6 percent under Bill Clinton. Those Democrats who want to fix Social Security, such as Sen. Barack Obama, would do so by adding more upper-income taxes. The leading Democrats also want higher taxes on dividends and capital gains. Meanwhile, the Democrats are running away from free trade. Even Hillary Clinton wants a time-out from trade deals.
The Republican presidential candidates say they would block tax increases, and most of them favor liberalized trade. (Rudolph Giuliani, based on his campaign statements, is probably the most aggressive free trader of the bunch.) Giuliani, John McCain, and Mitt Romney have all outlined health-care plans that could be expected to help the economy, both by reducing inflation in the health sector and by making it easier for people to switch jobs without fear of losing their insurance. Several of the candidates — McCain, Romney, and Fred Thompson, in order of increasing specificity — have faced up to the need to rein in entitlement spending.
It must be said, however, that the intra-Republican debate has often been pretty dismal. The low points have generally come from Mike Huckabee, who seems to think that it is a sin to lay anyone off. Sometimes it is a favor to everyone else, if it keeps a company in business. The recent back-and-forth between Romney and McCain, in which the candidates have debated who is the more optimistic, has not had much content.
In Michigan Monday, Romney said we should “be bold.” His first piece of boldness: a quintupling of “our national investment in energy research, fuel technology, materials science, and automotive technology.” Next time, try timidity. Romney is right, however, to resist federally mandated improvements in the fuel efficiency of cars. If we want the government to discourage the use of gas — a big if — we should just raise the tax on it; consumers will then buy more efficient cars without being forced.
McCain, meanwhile, has said that he does not know much about economics. It shows. He would impose an emissions cap on oil companies to fight global warming, but pretends that the companies would not pass on their costs to consumers. (His plan has been estimated to raise gas prices by 68 cents a gallon.) He is a moving target on taxes. He voted against Bush’s tax cuts, saying that they were tilted toward “the wealthiest.” After they passed, he said he would not vote to keep them. Now he says that they helped the economy and he would keep them, but he is still glad he voted against them.
We’re not sure what he thinks about the economy; we’re not sure whether he thinks about the economy. The Michigan primary, being held today, has become a three-way contest between Huckabee, Romney, and McCain. On economic issues, Romney is the best of the three.