Obama's Economic Policy and Reagonomics 18 comments
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This article by David Leonhardt describes Barack Obama's view of economic policy, and it is very similar to my own. Most of the time, it is best to leave markets alone, to let them work without intervention, and that should be our starting point. But markets fail, and part of the disagreement with those holding more conservative views is over how often markets fail, whether they can easily self-correct when there are problems, and how effective the government is at fixing problems when they exist.
On the last point, I am a proponent of market-based regulation when it is possible to use it. For example, if you want to regulate the profit of a public utility, one way to do it is through rate of return regulation. Under this approach, prices are set so as to guarantee investors a particular "fair" rate of return. The problem with this is that there is no incentive for the firm to control its costs, the rate of return to investors will be the same whether it is efficient or inefficient.
An alternative to this approach is to set a price cap and then tell the firm that it can keep some fraction of any profit over a certain amount, with the rest to be returned to its customers through rebates or lower prices. For example, regulators could set a base return of 5%, and anything over that amount is shared equally with taxpayers (you occasionally see these rebates on your phone bill). Thus, if the firm makes 8%, it would keep 6.5%, and 1.5% would be returned to customers. Under this form of regulation, there's an incentive to cut costs - every dollar saved is another dollar in profit - and there's also an incentive to innovate (unlike with rate of return regulation). The price cap, which can be adjusted to target the 5% base rate, prevents the firm from exploiting monopoly power through its pricing behavior. There are important considerations involving commitment by regulators (e.g. they won't change the split when gets gets larger), but the important thing here is that profit is regulated, yet market incentives are preserved.
I bring this up because as I read Obama's economic philosophy I find myself very much in agreement (with some caveats, see below), but the actual policies that are implemented do not always seem to be faithful to the grander vision he expresses in the article. The windfall profits tax is one example that comes to mind (though in other areas, e.g. health care reform, there is at least an attempt to follow market-based regulation principles, though I'd question whether the market failure in the provision of health care can be solved with this particular approach - not every market failure can be overcome through market-based regulation - and universal coverage may require mandates).
I also think there has been too much emphasis on behavioral economics due to the presence of economic advisors invested in this approach when it is just one part Obama's belief in market-based regulatory principles rather than command and control.
One place I do disagree is with Obama's belief in the value of some aspects of Reaganomics. I think both Obama and the article give Reaganism too much credit. The article says that, under Reagan:
The government has deregulated industries, opened the economy more to market forces and, above all, cut income taxes. Much good has come of this — the end of 1970s stagflation, infrequent and relatively mild recessions, faster growth than that of the more regulated economies of Europe.
There were some areas in need of deregulation, but to attribute the fall in inflation, the enhanced stability of output, and faster growth to these factors is inconsistent with research pointing to things such as technology and monetary policy as key factors behind the lower inflation rates and enhanced stability we experienced.
Obama echoes this theme:
In Obama’s second book, “The Audacity of Hope,” he goes further: “Reagan’s central insight — that the liberal welfare state had grown complacent and overly bureaucratic, with Democratic policy makers more obsessed with slicing the economic pie than with growing that pie — contained a good deal of truth.”
The article says:
he also says he believes that there are significant parts of Reaganism worth preserving. So his policies often involve setting up a government program to address a market failure but then trying to harness the power of the market within that program.
As I said above, if that's all he means, I have no problem with this idea. In fact, my criticism is that he seems to depart from this when he actually implements policy (however, I do understand he needs to get elected, and that a stronger populist appeal may be needed). But he seems to go beyond this in his embrace of Reaganomics.
Finally, I should also say that I was impressed by what I heard from Obama in terms of his knowledge of economics. He has taken the time to learn about the topic and he has intelligent things to say about it. Better yet, I agree with most of what he says. The contrast to McCain, who doesn't seem the least bit interested in learning about economics and prefers instead to rely on the Phil Gramms in his party to tell him what his positions ought to be, was very clear. [Link to article]
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This article has 18 comments:
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I hope you’ll join with me as we try to change it.” — Barack Obama
www.factcheck.org/askf...
It is not wealth that has been created in the last 30 years in the US, but debt.
If you want to leep spending more than we have, fighting wars in countries we shouldn't be in at all, or trying very hard not to say anything or do anything that might upset your voters, then go with McCain.
If liberalism means to keep going in the direction we're going, (i.e. changing and charging the people more and more to do it), then I'm a conservative. If conservatism means staying the course we're currently on, then I'm liberal.
Why didn't we vote for Romney or Paul instead of these two wishy-washy say and do nothing candidates?
But both parties are now spending like fiends. And the US public, like spoiled brats before Xmas, expect Santa Claus to come down the Federal Chimney and open us a bag of manufactured in Asia goodies.
We have to eliminate all our foreign bases, stop all our foreign wars, erect tariffs and barriers to imports and rebuild this nation before we go totally zombie. Anyone who thinks the present system can run another 25 years is insane.
Our entire nation is entirely in debt. We are against the Great Wall of China. Our creditors are communists!!!! Hey, ever think about what this really means, anyone?
We are so messed up. Go ahead, America, cut taxes even more.
It is unfortunate that the editors of SeekingAlpha.com have chosen to allow you spew your cheap discussion group-type propaganda on this site.
Unfortuntely there are probably far too many self interested parties with a firm foothold in place already for him to make the hard choices needed to pull the once great nation of the US out of the hole it has so happily dug for itself over the last 20 years or so.
Perhaps people need to get our there and open their eyes and see that we all need to take responsibility for our own mess and work together to clean it up. Stop trying to blame Marxists or Communists for our problems.
The current system has to change, it is not going to happen overnight and it won't be finished with one person but shouldn't we try to start?
Do you have any idea what the Constitution you so lovingly reference says? For one, America is NOT a democracy, it is (supposed to be) a Republic. The founding fathers loathed democracies (look it up).
Second, America was built to be a place of limited government, where the private citizens (not the government) had the power. There is no way to enslave ANYONE to a corporation in a free market. That's the point, that's why our system of government was based on private industry and the individual. What your boy Obama wants is for everyone to be enslaved to the government (even more so than we already are).
What you Obamanuts fail to recognize is that *someone* always has the power and the wealth, in every single system. In captalism, the private citizens have the power and the wealth. In socialism, the government has all the power and all the wealth -- they own YOU, they own your time, they own your business through taxation -- and you are TRULY enslaved, through the threat of laws and force. When's the last time a *company* you worked for had you thrown in jail for quitting?
I am so saddened by the fact that people who obviously mean well haven't the faintest grasp of their own history or system of government. Little wonder we're falling apart as a nation.
For the record, I am not a Bush fan, either. Bush has not acted as a conservative, he has acted like a liberal and has taxed us all silently through running up the debt. I will, however, be voting against Obama in the upcoming election. Obama is truly clueless (as are most of his supporters). But, worse than that, the change Obama speaks of will make things much worse than they already are. He doesn't offer real change, he offers to drive us further along the destructive road we are already traveling: the road of limited personal freedom, bigger government, greater regulation and greater control of people and industry.
If you care at all about this country and its citizens, go and learn your history (start with learning about our proported system of government). Then go read some of the older books on economics (not the "new economy" crap, try for example "Economics in One Easy Lesson"). Then you can start making "changes that make a difference." We can start by eliminating 90% of what our government does "for us." And maybe, just maybe if enough people educate themselves (god knows the public schools and colleges won't do it) we can start returning this country to some shadow of its former greatness, and some shadow of our former freedom.