Democrat “economic wedge issue” playbook failed in 2014, but they’ll probably re-hash it in 2016 anyway.

Hillary Clinton 2016

After suffering a historic beating at the polls in 2014, many leading Democrats now say a big reason for their losses is that they failed to drive home with voters a message of economic populism; namely, income inequality, wage stagnation, and the need to raise the minimum wage. They say they are determined to fix that failure in their quest to win back seats from Republicans in 2016.

Democrats, fleeing from Obama’s myriad failures and seeking wedge issues with which to win close races, actually did implement quite a bit of economic populism in the months leading up to the midterms; it just didn’t resonate with voters. As for why it did not resonate, it might be that after six years of Obamanomics – from the “stimulus” package that actually increased unemployment by more than 2%, Son of Stimulus, Cash for Clunkers, Summer of Recovery, Summer of Recovery 2, Summers of Recovery 3 and 4, and so on and so forth - voters simply no long gave Obama and the Democrats credibility on economic matters.

And with good reason. The issue of raising the minimum wage polls well, but in actuality has little bearing on the lives of most voters. The reality is that, according to a report issued by the U.S. Department of Labor earlier this year, only 2.8% of the U.S. labor force earns at or below minimum wage. Of that 2.8%, many workers, such as restaurant servers, make much higher than that due to tips, which reduces the number of Americans actually earning minimum wage to just 1.1%. Of those earning minimum wage, roughly half are workers between the age of 16 and 24 years, and most of these are students working part-time.

The man who ended Eric Cantor: Dave Brat’s unusual traits as professor make him a promising congressional candidate

Dave Brat

Robert Thomas is an alumnus of Randolph-Macon College, Class of 2011, where he completed his B.A. in Economics/Business and Philosophy. He currently resides and works in Arlington, VA and is pursuing an M.A. in Philosophy with a concentration in Ethics and Public Affairs at George Mason University.

Dave Brat’s name has been splashed across national media headlines ever since his upset primary victory over Eric Cantor. Most of the coverage has focused on speculation about the reasons for his electoral success, what it means for national political trends, and its impact on the House Republican leadership structure.

By contrast, little ink has been spilled and few keyboards have clattered with discussion about what to actually expect from him as a prospective congressman, and what he might achieve within the House. Maybe a firsthand perspective can help fill that gap.

Over the course of four years as a student at Randolph-Macon College, I had a chance to get to know Dave Brat well before his appearance on the national political stage. He was my professor in my studies in economics, my supervisor in my work as a student assistant with the Department of Economics and Business, and, alongside his colleague Ed Showalter, my coach as a member of Randolph-Macon’s team in the Virginia Foundation of Independent Colleges’ annual Ethics Bowl competition.

Across those four years and many experiences, I came to know him well and to respect him deeply.

As a professor with distinct conservative and libertarian leanings teaching courses on subjects like economics and ethics, it was a rare moment when he didn’t have a clear position on the topic of the day’s lecture, but he always pushed students to understand competing points of view and the arguments behind them.

Happy Birthday, Adam Smith

The author of The Wealth of Nations would have been 290 years old today, had we discovered warp capability in the 18th century.

Adam Smith

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.

Adam Smith, The Wealth of Nations, Book I, Chapter II

It was in this work and in this passage that Smith first began to describe the “invisible hand” of the market — the way that the rational self-interests of individual actors in a market, acting in concert with each other, yield efficient allocations of resources.

By the design of some grand cosmic joke, noted George Mason University economist Don Boudreaux in 2011, today is also John Maynard Keynes’s birthday.

Image via Wikimedia Commons

Another speech from Obama, another huge disappointment

Obama gives State of the Union

Last night during a joint session of Congress, President Barack Obama gave his fifth the State of the Union address where he laid out his agenda for the next year. As was anticipated, the speech carried over the Leftist themes of last month’s inaugural address and was more aggressive in tone.

Despite recent GDP numbers showing that the economy contracted in the last quarter of 2012, President Obama started off the hour long speech by repeat a familiar line, explaining that “[t]ogether, we have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger.”

After a couple of shots at Congress, President Obama spent a few minutes discussing the sequester, claiming that “both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans.” Obama claimed, “we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

If only that were true. In Cato Institute’s response to the State of the Union address, Michael Tanner explained, “Let’s be absolutely clear — there have been no spending cuts under this President.”

In 2010, the first year that this President was responsible for the budget, the federal government spent $3.4 trillion,” noted Tanner. “Last year, the federal government spent $3.5 trillion, and for the first four of last year, we’re spending at a fast pace than the first four months of last year.”

We Are All Modern Monetary Theorists Now

As a consequence of loose monetary policy with a fiat currency, the United States is rapidly descending into an economic reality of Modern Monetary Theory, or MMT.  While MMT (also known as Chartalism) is typically associated with its Keynesian predecessor and the policies of the Left, new developments reveal that both parties are responsible for the slip into a brave new economic world.

Essentially, there are four preconditions in Modern Monetary Theory:

1) Money enters the economy through government spending, as the total amount of money is constrained not by gold but by the total output of the national economy;
2) Government spending is speculative as it prints as much money as it needs to control production and, as a byproduct, employment, and spending beyond productive capacity leads to inflation;
3) Taxes do not pay for expenditures but are instead a way to throttle private sector demand; and
4) The government is the issuer of the currency, sovereign governments that issue their own currency are never insolvent, so debts essentially don’t matter.

Tax Rates Impact Economic Performance, but other Policies also Matter

Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.

I’m a big fan of fundamental tax reform, in part because I believe in fairness and want to reduce corruption.

But I also think the flat tax will boost the economy’s performance, largely because lower tax rates are the key to good tax policy.

There are four basic reasons that I cite when explaining why lower rates improve growth.

  1. They lower the price of work and production compared to leisure.
  2. They lower the price of saving and investment relative to consumption.
  3. They increase the incentive to use resources efficiently rather than seek out loopholes.
  4. They attract jobs and investment from other nations.

As you can see, there’s nothing surprising or unusual on my list. Just basic microeconomic analysis.

Rising from the ashes: Why bailouts ultimately hurt

It was just a couple of years ago. The housing market wasn’t doing so hot, and these things called derivatives were supposedly making things very difficult for the banks. President Bush stood behind a podium and addressed the American people. He told us that the government needed to buy these derivatives because it would help the banks, and then when the value went up, the government could sell them. It sounded fine.

What we got was something else entirely as various banks began to fail. Then auto companies were barely limping. There was panic in Washington, and they said we simply had to do something. But did we?

Economic matters are always tricky, and there’s always another point of view that will disagree with whatever you think. However, the biggest mistake we made was believing in the idea of “to big to fail”.

Take a hypothetical bank called Bank of Tom (BoT). BoT starts out as a small community bank, but grows and grows. Thanks to government assistance, it becomes one of the largest banks in the United States. It buys up smaller competitors with loans from the government, as well as lobbies Congress for laws that are favorable to it while hurting smaller competitors. It’s massive, employing thousands and controlling a huge part of the market.

Then the economy goes to crap and BoT is in serious trouble. If it’s going to stay, it needs help from the government. This is where we found ourselves just a couple of years ago. We already know what can happen if BoT gets the help. The economy stagnates for at least a couple of years and the company continues doing business as it always had, confident that they’re “to big to fail”. But what if we had taken the other road? What if BoT had been allowed to fail?

Blinder’s Blindnesses

Alan Blinder, the well-known professor of economics at Princeton, wrote an opinion piece in the Wall Street Journal today. He claims that the fiscal hawks who fear that the stimulus hasn’t worked are wrong, and that their refusal to give in on the unemployment benefits issue is misguided—what he labeled “pretty anti-Keynesian thinking.”

Well yes, Professor, that’s on purpose.

Blinder later specifies that he is referring to Keynes’s recommendations to increase federal spending, and to the idea of reducing taxes so as to increase consumers’ discretionary income and hence consumption.

But Blinder himself differs from Keynes (taking permission for his inconsistency from Ralph Waldo Emerson) in that he does not endorse tax reduction. Blinder’s own Keynes-bis prescription is, on the contrary, to raise taxes by allowing the Bush tax cuts to lapse (because “we can’t afford them”), and to “combine more stimulus in the short run with more budgetary restraint for the long run.”

This means, I assume, that the government should allow the tax cuts to lapse and use the increased tax revenue to prolong unemployment benefits (basically a redistribution of income). Then Congress should increase federal stimulus deficit spending and worry about the consequences later (believing, I guess, that wishful thinking today will restrain tomorrow’s budget in spite of itself).

Thus, he declares, “Obama’s Fiscal Priorities Are Right.”

I see several problems with his reasoning.

Is This The Climax Yet?

I particularly enjoyed this non sequitur today in my inbox, from one of my favorite news providers,

“The G20 has agreed to pursue programs of austerity while also preserving and enhancing the recovery.”

When I clicked on the link, I got the real headline:

“G20 Officially Reveals Its Total Pointlessness.”

Yes, the politicians are stymied. The only good thing going for them is that they are finding lots of occasions to practice their talent for talking out of both sides of their mouth. But the straight-talking intellectual academics aren’t faring much better.

A few blogs ago, I described this slow-motion movie we’re all watching as this recession unfolds. The movie’s climax will approach when the Federal Reserve finds itself in front of a dilemma: They must withdraw central bank assistance to maintain credibility in the U.S. bond and dollar, but when is the right time to begin?

Their problem is that no one seems to know. Bernanke and his colleagues are reportedly hunkered down as I write, trying to figure out how to handle what is looking increasingly like another slowdown, or to be precise the second V in the W. But this is not what they expected to happen. This is not AT ALL what they expected to happen.

Podcast: $13 Trillion Debt, BP Oil Spill, Alvin Greene, 2011 Budget, and Economic Failing Guests: Mike Hassinger, Doug Mataconis

This week, Jason and Brett gathered a crack team of drinkers, fiscal conservatives, or both to “celebrate” the recent record-breaking $13 trillion national debt.

The discussion covers:


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