Why I support Hillary Clinton - 2. The Economy

It's been pretty widely reported that the economy does better under Democratic presidents than Republican presidents. That's been true for most of the past century, and the gap is quite wide and remarkable. The stark differences are evident via measures of economic growth, employment, periods in recession, the stock market, and several other metrics. This graphic gives the general picture:
gdp_growth.png

Various analysts (such as PolitiFact and FactCheck.org) point out that the Princeton study this graphic comes from attributed the differences more to random factors (oil price changes, for instance) than to any particular policies attributable to the presidents. Also presidents are not entirely responsible for policy under their watch - yes they may set a general tone or trend, but congress is responsible for the budgets and changes in the tax code, the federal reserve is responsible for monetary policy, and of course businesses and economic policies in other nations are additional important factors. And yet this pattern has been pretty stable for a long period of time - and there are at least a few policy choices that Democratic presidents have managed to maintain in distinction to Republican ones (perhaps primarily the level of taxes on the wealthy). If a better economy is important to you and you were facing a generic Democrat versus a generic Republican for president, this pattern at least suggests voting for the Democrat would be the safer choice.

But there are some other factors involved this year. I am not an economist, but I have read quite a bit on the subject. Paul Romer's recent The trouble with macroeconomics is entertaining, but more enlightening to me have been some books I've read, including Thomas Piketty's Capital in the Twentiy-First Century, and most recently Ryan Avent's The Wealth of Humans. I hope I'll get a chance to write a bit more about that, because there was a lot in the book I found very interesting.

But one overarching understanding I have taken away from all this is that government policies, public attitudes, and strong stable institutions in a nation can make huge differences in the wellbeing of individuals and the growth of economies. There is undoubtedly a lot about this which is mysterious and poorly understood. Adam Smith's "invisible hand" (the "free" market) is not a matter of "winners" and "losers", but describes conditions of hard work and competition where everybody comes out ahead, because they can focus on what they do best, and accumulations of capital can drive economies to greater and greater heights of accomplishment. But that magical "win-win" formula is easy to break if simply left on its own: power and wealth accumulate among an increasingly rarefied group who switch to a "win-lose" mentality. The generosity of "win-win" blesses both sides; "win-lose" leads to stagnation, and often to war.

Our choices in the presidential race to me seem to epitomize those two starkly different attitudes to economic policy. Hillary Clinton is clearly on the side of generosity, fostering competition, taking out monopolists, seeing the vast potential of technology (such as renewable energy investments) and infrastructure investment to improve the lives of all people. Her opponent seems almost the exemplar of the "win-lose" economy - that we can only "win" by taking stuff from other people. That's definitely one way to run the world - into the ground.

Hillary Clinton's economic proposals include many components; the main ones are in this five-point plan. The first one takes one piece of the investment angle:

Hillary will fight to pass a plan in her first 100 days in office to invest in infrastructure, manufacturing, research and technology, clean energy, and small businesses. [...] And she will make the U.S. the clean energy superpower of the world—with half a billion solar panels installed by the end of her first term and enough clean, renewable energy to power every home in America within 10 years of her taking office.

Infrastructure and research and technology are traditional areas of federal government spending which have suffered recently under tight budget constraints - see the following graphic on federal funding for research from Bloomberg:

so this certainly needs to be addressed. Clean energy is also clearly an economic driver; the more we invest in energy the more energy resources we have for anything our nation wants to accomplish. I'm not sure exactly what sort of federal role is anticipated here regarding manufacturing and small business, but the specific policy statement on manufacturing mentions a $10 billion fund for the purpose. To the extent this is protectionist it may not be a good idea, but it's also not that much money on the scale of federal spending, so probably won't have a huge effect one way or another.

Another major economic policy from the Clinton campaign, antithetical to her opponent's proposals, is improving the fairness of our tax system. It is clear there are some of extreme wealth who get away with paying no or almost no federal taxes. Piketty's analysis of the growth of inequality demonstrates that, at least since the 1980s, the US tax system has been unfair in under-taxing the wealthy and over-taxing the poor. Every person drawing a salary in the US up to about $120,000 a year pays a 15.3% payroll tax (for Social Security and Medicare) in addition to the regular income tax that may be 10 to 40% (but no more than 28% for those paying the full 15.3 payroll rate) after deductions. But investors with most income coming from capital gains never pay more than 20%, and there are of course plenty of loopholes for the really wealthy - trusts for example, that can pass most wealth untouched to their children. We all pay taxes and we all benefit from government spending; the rich need to start paying their fair share. The Clinton campaign has a collection of substantive proposals to start fixing some of these problems, and she has a track record of fighting for this kind of thing in the past in her votes in the Senate. Fixing this distortion in our tax system could have some huge ripple effects in the economy as a whole, as more income will be directed to ordinary workers rather than those at the top (who benefit from capital rather than regular income) leading to real growth.

In fact, an independent analysis of the Clinton economic proposals from Moody's saw considerably greater growth in the economy and in job numbers than under current policy - and quite the opposite for her opponent's plans. One factor Moody's included which I have not mentioned yet was the effect of immigration policy - this is an interesting case where being generous brings "win-win", and being miserly means both sides lose out - but that's mostly another topic (and one Ryan Avent discusses quite a bit in his book) that I hope I'll have a chance to write about later.

One economic issue I haven't mentioned yet is the national debt. Clearly it has grown - Republicans like to point out that under President Obama the total federal debt burden has doubled. One can argue all day about the reasons for that - we had a crisis going on in 2008-2009, and the first and worst budget years were based on budgets passed under George W. Bush, not Barack Obama. But a more immediate constraint is how much that debt is costing us in interest payments. That number has actually dropped to its lowest level (relative to US GDP) in about 40 years, about 1/3 what it was during the 1990s:

Now it is projected to rise again as interest rates return to more natural levels - if they actually do so. But fundamentally, just like with a business that has both assets and debts on their balance sheets, there is no reason the US federal debt need be zeroed out. The US has huge resources and assets (including its citizens, the American people) who can make good any debt if needed: for the most part US debt is held by US citizens anyway, so there's no real economic effect from the size of the debt at all. Nevertheless, it's a good idea to try to keep income and revenue reasonably close to one another for long-term sustainability of government - that's what budgets are for after all - and Democrats have demonstrably been better at that than Republicans for decades now. Part of that is the willingness of Democrats to raise taxes (the revenue side of the budget), while Republicans absolutely refuse to. Part of it is the frequency of divided governments which constrain spending under Democrats, but not so with Republicans. In any case, while the US debt is certainly a large number right now, debt payments are small, and Hillary Clinton's plan regarding future spending and taxation is far closer to balance than her opponent's.

There really is no question in my mind on this matter - if you care about the US economy, Hillary Clinton is the only sane choice for president this November.

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