Who should you vote for?

It does not matter who is running for office. It matters how they vote when they get there. Those are the things that affect you and your family – and trust me, they do.

The Economy – Jobs

Clearly America has an employment problem. People living in Asia, like me, tend to think it’s structural and most of those jobs aren’t coming back until America reinvents its economy to be more competitive globally. Luckily, smarter people than I have argued persuasively that the job problem is a demand problem. If demand rises most of the old jobs will come back.

What’s important, statistically, is that there is a very real job recovery with Obama’s policies. Short of a new Works Progress Administration, I don’t think anyone has any idea how to create as many jobs as we need without an even bigger (and politically impossible) new stimulus or GM-style bailouts saving more manufacturing jobs.

There have been fewer job losses since Obama came into office with job creation out-pacing job losses since February of 2010. We still have a long, long way to go. It is not for lack of progress that we’re in this awful employment situation – it is a testament to just how bad things got in the last year of Bush, where 800,000 jobs* were lost in his last month alone.

* the 7-county Jacksonville area has a workforce of 750,000

The Economy – The Bailouts

I hated them. You hated them. Socialized risk with privatized profit is no way to run a country. I was 100% opposed to them at the time. In retrospect, it looks like it was the least worst option available. Like most government programs designed in the middle of an emergency, it could have been designed a lot better. However, the TARP (bailout) loans are being paid back with interest. Not letting corporate America implode turned out to be a good idea. Pessimist like me who thought they’d implode anyway and the money would disappear were wrong.

We’re still waiting for the money back from GM. Whether it was worthwhile to save some of the last bit of rust-belt industry we have left is up to your own values and judgement. I can assure you that the Japanese and German governments would have done the same to save their automotive manufacturing sectors.

The Economy – Taxes

First, taxes are not nearly as important to economic growth as the some like to claim. Looking at this chart from 1930-2010, you see there is no correlation. Second, tax rates today (and under Clinton) are historically low. The “top marginal tax rate” is how much is paid at the highest bracket of their income. Remember the first $20,000 or so of everyone’s income is nearly untaxed.

Top Marginal Tax Rates

Even if you do worry about the effects of higher taxes on GDP, there’s an important question: where is that money going? Overwhelmingly, we see it’s been going to the economic elite without trickling down. For instance, 41% of business profits from 2000-2010 was in the financial sector (compared to 16% in 1986) . So that’s good for bankers, but what about common people? In many ways, even before the Great Recession, 2000-2010 was a “lost decade” for income growth.

What was a Lost Decade for most Americans wasn’t at all for the economic elite. The Y axis is a percentage of total household income in America – meaning the top 1% own almost 20% of the income to be had. The left side  where it starts dropping is at the end of Clinton years when the government had budget surpluses and a governor from Texas was campaigning for the top job in the land by promising to give it back to the people. The spike at the very end is the Bush Tax Cuts. Tax policy and income inequality are very much related.

Perhaps what makes this problem all the more frustrating is that most people have no idea just how bad income inequality has gotten. Try to spot the bottom 40% of our country on this graph. The bottom 20% are completely invisible. Our income inequality is far worse, apparently, not only than we imagine but what even Republicans and the wealthy say they’d desire.

Real vs Imagined Income Inequality

For reference, this is what the Democratic tax plan looks like compared to the Republic tax plan, using pre-Bush Tax Cut rates as a baseline. I can tell you this fits with my own ideals fairly well.

A final look at trends to see where the burden for taxation is falling as we lift weight off the wealthiest. The answer? The middle class (and future generations).

Tax Burdens on Various Americans

The Economy – The Deficit

While tax rates don’t appear to have much correlation with GDP growth, they have a fairly strong historical correlation with surpluses and deficits, especially over the last 15 years.

Surpluses, Deficits, and Taxes

Despite what many Republicans preach, tax cuts do not pay for themselves. The Bush tax cuts made a huge dent in our economy, as seen below. The dark blue “economic downturn” section represents lost revenue during the recession – when the economy is bad, tax revenue goes down.

Bush Tax Cut Extensions and the Deficit

Our national debt is bad. It’s huge. But it’s not the most important economic problem right now. Keynesian economics, which arose out of the Great Depression and is the root of the common explanation that WWII got us out of the Depression, says governments should be saving during good times and running deficits during bad.

The government, because of its size, can take out loans and “stimulate” demand when private demand slacks off. If demand in the private and public sector both fall it becomes almost impossible to get the economic engine running again. Thus, government orders for hundreds of thousands of planes, boats, guns, and uniforms stimulated the economy out of depression in the 1940s. Instead of saving during the good times we were giving the cash away to the wealthiest in our society via the tax cuts, now up for expiration or renewal. Curiously, at the time, Republicans sold it as a Keynesian stimulative policy once the tech bubble burst and the surpluses they wanted to “give back” disappeared.

That said, anyone really interested in cutting the deficit needs to look the Tory budget plan. Overall nearly 20% spending cuts everywhere but education and health with a tax increase. That’s what serious fiscal conservatism looks like – making decisions, like they did, to retire aircraft carriers to save schools and hospitals. The problem, though, is that “it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers — the equivalent of almost three million layoffs in the United States — at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack”

Republicans don’t have a plan anywhere near as comprehensive, nor do they use numbers when discussing their budget plans. The Pledge to America leaves the Bush Tax Cuts unchanged and promises to protect all military and entitlement spending on the senior citizens, making it looks like this if enacted [methodology here].

Federal Budget Deficit as a Percentage of GDP

What we have, then are Republican policy proposals that objectively make the deficit worse while creating more income inequality and having almost no stimulative effect at all.

In a few years we’re going to need a very serious discussion deficit and debt reduction. Like “socialist” Europe, we’re going to need to make some adjustments in our social safety nets and entitlements. Social Security will need be means test (meaning Warren Buffet would no longer receive his checks) and we’ll likely need to raise the retirement age a year or two. Once Afghanistan winds down we’re going to need an evaluation and discussion of our security needs and which weapons systems and bases around the globe are needed and which aren’t. We’re going to need more  health care reform to copy Europe’s success in spending half as much as we do and getting very similar, and much more equitable, public health results vis-a-vis infant mortality and healthy life expectancy.

I think an honest discussion, without the ideologies of tax cuts and militarism, will show that we can have a healthy, growing, equitable economy with a balanced budget and comparatively low taxes by international standards. If we can have the discussion, we’ll see carbon taxes can replace business taxes. Right now, I can’t see that discussion happening for at least another five or ten years.