For a nominally Republican, conservative, supply-side economist, Glenn Hubbard (Columbia Dean and erstwhile Chairman of Bush 43’s Council of Economic Advisors) has presented in The Wall Street Journal (”Where Have All The Workers Gone?”, 4/5/14) a curious channeling of the central-planning statists who have gotten us into our current economic straits. Our turgid government is already in near-collapse from micromanagement, and now we have Dean Hubbard offering us another set of micro-fixes. Here is a brief summary of Dean Hubbard’s suggestions:
- Expanding the Earned Income Tax Credit
- Reforming (i.e., cutting back on) disability insurance under Social Security
- Tinkering with ObamaCare – giving a “broader tax reform that gives a more uniform subsidy for spending on health insurance and health spending”
- Reforming unemployment insurance, so as to reduce the incentives to remaining unemployed
- Eliminating the Social Security payroll tax on older workers, and eliminating the tax penalty on earnings of older workers
Yes, each of these suggestions is a nice idea, each would probably have a net positive effect. But would any of these, or even all of them, turn our economy around? Are these items enough to convince entrepreneurs and investors that it is time to get back into the game and put big chunks of time, effort, and capital into business opportunities out there in the stagnant US economy? Are these steps going to reverse the passive, negative mentality that keeps us in no better overall shape than we were 5 years ago? Would the business community get it, be inspired by it, act upon it? I doubt it, and I wonder whether Dean Hubbard believes it would. Where is the slashing, dashing Glenn Hubbard of the wonderfully successful Bush tax cuts?
Economists and financial analysts can (and regularly do) give us mountains of data suggesting that we should be turning the corner any day now, but this writer does not believe that is going to happen until the business community is given a convincing reason to change its feelings about where we are going. The Hubbard menu is helpful, and if the country could stay in business long enough for its cumulative effects to emerge, it might be sufficient – but can we stay in business that long? (FDR had 13 years of trying to micromanage us out of the Great Depression, and we were not totally out until both he and WWII had expired.) Will the Hubbard agenda inspire any major changes in attitude and behavior? I wonder. I believe we need to think a lot bigger and simpler. The Hubbard agenda is baby steps, not a game-changer.
You want to get the animal spirits going again, here is what it would take:
- Massive cuts in tax rates – income-tax rates, capital-gains tax rates, corporate-tax rates. Even in the unlikely event that the cuts did not pay for themselves through the growth in taxable incomes they would generate, they would cost less – and be far more productive – than the Obama version of a “stimulus.”
- Radical reform of the healthcare situation – everyone but the President (and Rahm Emanuel’s big brother) now knows what it takes, and people will continue to be frightened until that happens.
- Approval of the Keystone XL pipeline, and a green light to American energy in general.
- Issuance by the US Treasury of long-term Treasury bonds in exchange for substantially all of the presently outstanding short-term US Treasuries, a swap that would demonstrate our seriousness of purpose regarding our fiscal crisis. It would increase our interest costs in the very short term but would lock in a relatively low rate-cap for decades and thus spare us from the runaway-debt catastrophe that is likely to occur when interest rates inevitably begin to soar (triggered by perceptions of incipient recovery, inflation, or weakness), and so it would buy us precious time in which to achieve fiscal order through the other three major reforms. (The debt-swap proposal was first presented by Prof. John H. Cochrane, in “Treasury Needs a Better Long Game,” The Wall Street Journal, Opinion, 3/4/13.)
It would be great if we could also do Social Security reform, but the first four items are of more immediate concern and would pave the way for moving to fix Social Security and to implement Dean Hubbard’s proposals. If we could achieve the four major items, or even just reach a credible, somewhat-bipartisan consensus to accomplish them, the results would be quick and dramatic – the Dow would record massive gains and you would see an almost-immediate resumption of economic growth.