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Critique of Obamanomics

Anthony Randazzo
March 9, 2009, 11:04am

Laura D'Andrea Tyson, Cal-Berkeley public policy professor and member of the White House Economic Recovery Advisory Board set down her best defense of Obamanomics in the Wall Street Journal today. And in the world of ideas, I propose six thoughts that seem to cause her argument to break down. Perhaps you'd want to read the full piece first, but here are my thoughts generating from her article:

1) Reacting to the fear put forth by free marketers that the end of Bush's tax cuts will kill any economic grow, Tyson seems to suggest that if the economy has not "recovered" by 2010 that Obama might not raise taxes on the very wealthy.

"President Bush's tax cuts are scheduled to expire at the end of 2010. At that time, assuming the economy has entered a recovery, President Obama's budget will restore the top two marginal income tax rates to their 1990s levels."

Oddly, this seems to be tacit admission that taxes can be a hindrance to creating economic growth, which should make one consider the inconsistencies of the message. If raising taxes now is a bad idea, why not always?

2) Along those lines, if spending is the way to increase GDP and create jobs, why not just continuously spend more and more to get a larger multiplier? If theories are to be held consistent and constant we should just spend a trillion in defense spending, watch our economic grow widely and watch our enemies tremble at our might... unless of course the marginal GDP gain we get from stimulus spending is not scalable and the real path to economic growth is less government intervention.

3) Tyson defends Obama's plan to raise taxes on the 3% to 5% as necessary to reduce the deficit. But at the same time Obama is pushing a budget that is nearly doubling the Federal deficit from last year.

"A full 97% of small businesses will see their rates unchanged or enjoy additional tax benefits under the Obama plan... Moreover, the higher tax revenues resulting from these rates will reduce the deficit by about $750 billion."

If higher taxes mean less incentive to produce (basic economics) and Tyson and Obama seem to realize this by not wanting to raise taxes right now, then wouldn't the most prudent step towards bringing down the deficit be to spend less money?

4) For those that would quickly say yes but point to military spending, note that Obama's budget already slashes military spending to Clinton administration levels and below. The cuts are needed in entitlement programs, in earmarks, in agricultural subsidies, and in money leaching institutions such as Fannie, Freddie, Amtrak, and the Postal Service.

5) In defense of Obama's tax plans, Tyson keeps referencing Bush and Reagan tax policy levels--as if raising taxes to levels we had in the 1980s somehow makes it okay to do that now. All the defense of taxes are backward looking, we need to be a forward looking nation. The men who control Wall Street are the same and just as fallible as the men in Washington, we should be looking for ways that reduce their involvement in the order of things, not increase their influence.

6) In defense of higher taxes as not crippling to business, Tyson says,

"the strong expansion of the 1900s proves that the tax rates on income, capital gains and dividends in the Obama budget will support rapid economic growth and substantial income gains at the top."

I'm not even fully sure what that means. If she means that high taxes on the wealthy will mean they will become wealthier then... well that's just silly. If the theory is that by taxing the wealthy more, it allows for the income levels of the middle and lower classes to rise, so they can buy more products from the wealthy, thereby increasing the income of the wealthy, then logically the rich should want to be taxed. And that just isn't the case.

If you draw out most of these ideas to their logical, reasonable end, and they simply are bunk, the unfortunate side effect of cognitive dissonance.


Anthony Randazzo is Director of Economic Research


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