In “Larry vs. Marco” Bobo gets all economist-ish and tries to ‘splain to us how Marco Rubio and Larry Summers give us a glimpse of the economic options likely to be on offer in 2016. Well, at least he’s not playing rabbi today… Prof. Krugman, in “Money Makes Crazy,” points out the obvious: That monetary policy madness is pervasive in today’s Republican Party. Here’s Bobo:
Pride goeth before a fall. Capitalism’s great triumph over socialism has been followed by a series of humbling setbacks since. Capitalism is not necessarily self-regulating, as we learned during the financial crisis. Capitalism does not necessarily lead to democracy abroad. Capitalism does not automatically produce sufficient social mobility.
Both Democrats and Republicans are adapting to these realities. Both are moving away from the orthodoxies that dominated the parties in the 1990s. We now have before us two documents that give us a sense of how each party is shifting.
On the Republican side, Marco Rubio, who has become the most intellectually creative of the presidential contenders, has given us a book, “American Dreams.” He moves beyond the Reagan-era emphasis on top marginal tax rates. He moves beyond the Mitt Romney distinction between makers and takers. Drawing on work by Yuval Levin, Peter Wehner and the YG Network, he gives us the clearest picture of how Republicans might use government to enhance middle-class prospects.
On the Democratic side, Lawrence Summers and the British politician Ed Balls have given us the “Report of the Commission on Inclusive Prosperity.” This report smashes the New Democratic approach that defined Bill Clinton’s (and an earlier Larry Summers’s) economic approach. It shows how boldly the Democrats have moved leftward and can be profitably read as a blueprint for a Hillary Clinton presidency.
The Rubio and Summers documents have some overlap. They have a similar sense of the core of the problem: The forces unleashed by globalization and technological change have hit middle-class earnings. Both plans would increase the earned-income tax credit or create similar subsidies. Both would take bold measures to make college affordable, though the Rubio plan is private sector and the Summers plan is public.
In other ways the two visions are different. The Summers document uses the language of social fairness; the Rubio document uses the language of individual virtue. The Summers document puts a bit more emphasis on the demand side of the economy — pumping up middle-class spending — while the Rubio document puts more emphasis on the supply side — incentives to increase investment.
Summers believes that middle-class wages have been hurt because of changes in the way corporations work; Rubio doesn’t. The progressive document implies that finance and corporate boards have rigged the game against the middle class, while Rubio argues that corporate lobbyists have used government to rig the game against small companies. While Summers would make parts of college free, Rubio has a more aggressive plan to reform higher education itself, using online learning.
The contrasts on family policy are fascinating. For a progressive document, the Summers report is clear that two-parent families are important for social mobility. But the proposals would push families toward the sorts of day care arrangements progressives like, encouraging women to stay in the work force. Rubio is more comfortable talking about family structure. His increased child tax credit would give parents greater leeway in how they want to make choices about child care and work.
The biggest philosophical difference between Rubio and Summers is this: Rubio sees government as a bridge helping people to get into the marketplace, while the Summers document argues that the marketplace is structurally flawed throughout and that government has to be a partner all the way along.
Rubio wants to transition to an immigration policy built around drawing high-level skills. He argues that employers should be allowed to immediately deduct every dollar they invest back in their business. He would simplify the tax code into two income tax rates: 15 percent and 35 percent. These proposals reshape the economic landscape but don’t get inside business decisions.
The Summers proposals get into the very gears of corporate governance and reshape workplaces on an intimate level. Summers would regulate executive compensation and use government power to encourage long-term investing. He would encourage employee ownership of companies and create mandatory work councils to bring employees into the decision-making process. He would have government ensure that employees have access to paid vacation, sick leave and generous family leave.
The questions for Rubio are: Is his approach sufficient? Will giving people access to contemporary capitalism lead to social mobility or is modern capitalism structurally flawed? The questions for Summers are: Have we forgotten the lessons of the last quarter-century? Do we think government is smart enough to intrude into millions of business decisions? Do we worry that in making hiring more expensive we will get less of it, and wind up with European-style sclerosis and unemployment levels?
This big hairy problem — insufficient social mobility — has landed in our lap. We don’t know what to do. But we are getting some alternatives.
Sweet baby Jesus on a seesaw but he’s a horse’s patoot. Here’s Prof. Krugman, who actually knows what the eff he’s talking about:
Monetary policy probably won’t be a major issue in the 2016 campaign, but it should be. It is, after all, extremely important, and the Republican base and many leading politicians have strong views about the Federal Reserve and its conduct. And the eventual presidential nominee will surely have to endorse the party line.
So it matters that the emerging G.O.P. consensus on money is crazy — full-on conspiracy-theory crazy.
Right now, the most obvious manifestation of money madness is Senator Rand Paul’s “Audit the Fed” campaign. Mr. Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he’s been saying that since 2009, and it keeps not happening. So now he has a new line: The Fed is an overleveraged bank, just as Lehman Brothers was, and could experience a disastrous collapse of confidence any day now.
This story is wrong on so many levels that reporters are having a hard time keeping up, but let’s simply note that the Fed’s “liabilities” consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can’t fall victim to a bank run. But is Mr. Paul being ostracized for his views? Not at all.
Moreover, while Mr. Paul may currently be the poster child for off-the-wall monetary views, he’s far from alone. A lot has been written about the 2010 open letter from leading Republicans to Ben Bernanke, then the Fed chairman, demanding that he cease efforts to support the economy, warning that such efforts would lead to inflation and “currency debasement.” Less has been written about the simultaneous turn of seemingly respectable figures to conspiracy theories.
There was, for example, the 2010 op-ed article by Representative Paul Ryan, who remains the G.O.P.’s de facto intellectual leader, and John Taylor, the party’s favorite monetary economist. Fed policy, they declared, “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.” That statement looks an awful lot like a claim that Mr. Bernanke and colleagues were betraying their trust in order to help out the Obama administration — a claim for which there is no evidence whatsoever.
Oh, and suppose you believe that the Fed’s actions did help avert what would otherwise have been a fiscal crisis. This is supposed to be a bad thing?
You may think that at least some of the current presidential aspirants are staying well clear of the fever swamps, but don’t be so sure. Jeb Bush appears to be getting his economic agenda, such as it is, from the George W. Bush Institute’s 4% Growth Project. And the head of that project, Amity Shlaes, is a prominent “inflation truther,” someone who claims that the government is greatly understating the true rate of inflation.
So monetary crazy is pervasive in today’s G.O.P. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems.
You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. You could say that to the free-market true believer, to know the price of everything is also to know the value of everything.
Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. … Paper is a check drawn by legal looters.”
Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.
So as I said, monetary policy should be an issue in 2016. Because there’s a pretty good chance that someone who either gets his monetary economics from Ayn Rand, or at any rate feels the need to defer to such views, will get to appoint the next head of the Federal Reserve.