Is the GOP Still the Party of Economic Growth?
Imagine if on November 1, 2000 you descended on a completely secluded island. Seeking to truly get away from it all, you chose an island that had no telephone or Internet wires enabling any kind of communication with the mainland. For the last seven years you would have been unaware of everything, from 9/11, to the fighting in the Middle East, to the winner of the 2000 presidential elections.
If you returned today having still not looked at a newspaper, but were updated on the various large economic decisions of the last 7 years, who would you assume won the 2000 election? Consider for a moment what you would have been told:
Upon reaching the Oval Office, the new president’s first economic program meant to reverse an economic slowdown was not marginal tax rate cuts, but $80 billion in tax rebates. Though the latter merely shifted money from one set of hands to another, the president promoted the rebates in a Keynesian light meant to “put more money in peoples’ pockets.”
When it came to trade, this administration quickly slapped a 30 percent tariff on certain kinds of foreign steel, and followed up with tariffs on soft-wood lumber and shrimp. So bad was the administration’s reputation when it came to trade that Brink Lindsey of the libertarian Cato Institute felt compelled to point out that “U.S. credibility on trade, internationally, is hovering near zero.”
Not done erecting economic barriers, the administration chose to harass a country that had recently shed its statist economic policies in favor of a strong embrace of free markets. Though China sought to speed its escape from the crushing drudgery that was communism through a yuan/dollar link, one that facilitated an explosion of trade between two countries formerly at odds, the president regularly sent top Treasury officials over to Beijing in hopes of convincing China to de-link its currency from the dollar. The intent there was to make Chinese goods more expensive (meaning less competitive) in U.S. markets.
In late 2001, and in May of 2002, formerly blue-chip firms Enron and Worldcom respectively imploded before our eyes. Despite the severity of those high-profile collapses, stock markets took the failures in stride. Indeed, the Dow Jones Industrial Average fell a total of 3 percent over the period that both companies went under. Markets adjusted as they always do.
The problem going forward was that the administration felt the need to act in order to rid executive suites of alleged corporate malfeasance. The Department of Justice opened up more than 100 corporate investigations, while filing charges against over 150 people. An indictment of Arthur Anderson alone led to the loss of 80,000 jobs and untold wealth given the firm’s inability to survive the DOJ’s effective death sentence.
Not content there, the president signed Sarbanes-Oxley into law, describing it as “the toughest piece of anti-fraud legislation since FDR.” Among other things, Sarbanes-Oxley foisted strict, time-consuming accounting rules on public firms irrespective of size, and it required public-company CEOs to sign off on the veracity of accounting statements with heavy personal liability if they were later proven incorrect. Talking about the impact of the new rules, Xerox’s Anny Mulcahy noted at the time that there is a “drive for averageness” in corporate suites today. And with the markets sensing the likelihood that CEOs would be forced to act more like accountants than entrepreneurs, the S&P 500 fell 175 points in the three weeks surrounding Sarbanes-Oxley’s passage.
And when we think about Sarbanes-Oxley, we have to consider the power of entrenched political classes to pass laws mostly free of consequence at the ballot box. Canadian economist Reuven Brenner has written about how “unfettered campaign finance allows the decentralization of influence.” The latter is what is required for economies to thrive, so it’s essential that politicians don’t ever become so powerful such that they can retard economic growth with myriad rules and regulations.
This is important considering the president was sent a campaign finance bill (McCain-Feingold) authored by a Republican and Democrat; one meant to restrict the ability of individuals to contribute money in ways that would influence voting, and the making of policy more generally. Though he could have vetoed the unconstitutional restrictions on free speech littered throughout the bill, the president signed it. Thanks to McCain-Feingold, politicians now possess an even greater ability to pass economy-enervating laws without fear of facing a well-financed opponent who might shed light on how those rules impoverish us.
To classical economic thinkers government spending isn’t just unfortunate for the debts incurred on the backs of future generations, but more troublesome for capital being siphoned away from the productive sector into immediate government consumption. When it came to spending, the administration in question was highly profligate.
With the wind at his back after signing farm and prescription-drug bills, the president oversaw what Cato Institute scholar David Boaz describes as “the biggest expansion of entitlements since the LBJ years.” Though the president parroted his predecessor (Bill Clinton) in promising to “cut wasteful spending and be wise with the people’s money,” his desire to show “compassion” meant he never vetoed a spending bill of any kind during his first seven years in office.
Of course, one way for governments to reduce the level of debt wrought by spending is to debase the currency. And when it came to poor dollar management, this president and the monetary authorities he appointed were particularly effective.
Beyond the aforementioned tariffs and jawboning of China that were an implicit admission on the administration’s part that it would prefer a weaker dollar, the president appointed Treasury Secretaries who publicly mocked the value of a strong greenback. His first Treasury chief noted that a “strong dollar” meant little in policy terms. The latter’s successor asked at a G-8 meeting in France, “What’s wrong with a weak dollar?”
Talking up the qualities of his third Treasury secretary, the president said he “will insist on fair treatment for American businesses, workers and farmers,” plus he’ll seek to “maintain flexible, market-based exchange rates” for currencies of trading partners. The comment about “market-based exchange rates” was a clear signal from the president that his new appointee would utilize strong ties within the Chinese government in an effort to convince Chinese officials to end the dollar/yuan peg.
The president also got the chance to select a new chairman of the Federal Reserve, and when given the opportunity, nominated someone of ambiguous political leanings. The nominee was a self-professed expert on the causes of the Great Depression; his alleged insight the incorrect view that our being on the gold standard was the cause. And when asked what would solve Japan’s economic problems back in 2000, the nominee perhaps tipped people off to his broad economic views given his assertion that, “Perhaps it’s time for some Rooseveltian resolve in Japan.” The comment about Japan of course raised further questions about any expertise when it came to understanding our Depression in the 1930s.
When we look at the dollar, since 2001 the president’s chief monetary authorities have overseen its fall to levels previously unseen. Indeed, gold is presently at all time highs, while the dollar has reached new lows against every major currency. Despite the aforementioned signals which scream inflation, the Treasury secretary maintains a stance of “benign neglect” toward the dollar, while the Fed chair remarkably sees inflation moderating in the coming quarters given his view that slow growth is an inflation cure.
As one would expect, the falling dollar led to quite a bit of economic dislocation such that our economy is now thought by 75 percent of Americans to be in recession according to the latest polling data. Seeking to fend off any downturn in what is the president’s last year in office, rebates have once again been offered up to increase “aggregate demand.” This has occurred in concert with Treasury interventions in the mortgage market along with a recent Federal Reserve bailout of a collapsing investment bank.
The Wall Street Journal recently reported that the result of all the economic uncertainty “will be a heavier hand of government in the form of corporate bailouts, fiscal incentives and regulation.” When asked for his thoughts on the increasingly muscular actions of federal officials, the president said, “My comment is that the Treasury Department and the Fed are taking swift action.”
So who is this president? There’s no riddle here in that presumably none of us have been on an island over the last seven years. President George W. Bush, a Republican, has overseen a massive increase in the size and scope of government on his watch, and did so in conjunction with a collapsing dollar that has surely marginalized by now any of the gains enjoyed from the tax cuts he signed into law in 2003.
Still, if any of us had been secluded for the past seven years, a description of the Bush years without attribution would likely have had most any Republican assuming a Democrat had been in control. Is there an explanation for this? The first one would be that all politicians disappoint. By definition. Beyond that, given the statist direction taken by the Republican party in this decade, it’s fair to ask if it any longer represents laissez-faire growth. Many would point to the even harsher anti-growth views held by Hillary Clinton and Barack Obama, but it seems a lot of their stances at present are pure politics.
Even if they’re not, it would be hard to find an administration in modern times that has been more interventionist than the present one. That in mind, stinging losses for the GOP may be just what the doctor ordered. Indeed, maybe the pain of being out of power will force them to look inward, and in doing so, perhaps understand that when a Democrat runs against a Democrat, a Democrat always wins.