Rick Santorum's Naive Blast To An Impoverished Past

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Any attempt to analyze the economic programs of the Republican presidential candidates is fraught with danger. While some have some interesting ideas, none measure up in total.

Certainly Ron Paul's desire to truly cut spending recommends him economically, Newt Gingrich presents an interesting plan for taxation (Mitt Romney's taxation scheme is certainly the weakest), and then many of the candidates at least pay lip service to the notion of ridding the Fed of our economic ball-and-chain of a Chairman, Ben Bernanke.

And then there's Rick Santorum. While it's very likely that the Iowa caucuses will easily represent the high water mark of his nascent campaign, what he stands for is truly scary. A conservative in the anti-classical liberal sense whereby he would use the power of government to dictate winners and losers, his main policy proposals, if implemented, are retrograde in such a way that the U.S. would unquestionably be made worse off economically if he were to be elected.

On income taxes, Santorum isn't awful, but then thanks to a bipartisan rush away from the '50s-‘70s tax consensus which said the top tax rate should be above 70%, no candidate of either party could ever credibly mount a run for office if seeking any kind of major increase in the nominal penalty on work. Though not ideal, both sides today see the semi-virtue (true virtue would involve a very low consumption or flat tax) of fighting out minor changes in tax rates, and seemingly none would suggest bringing the top rate anywhere past 40%. The latter is still way too high, but it's progress.

The problem is that Santorum doesn't stop there. A career politician who believes that tinkering among the political class will bring prosperity to the masses, Santorum views the tax code as a way to achieve the behavioral outcomes that he desires.

Assuming for a minute what's not true, that his command tax system would bring us happy results, not considered by the alleged candidate of the moment is that much as his tax proposals might foster positive activity, future politicians could follow his lead on the way to very unfortunate behavior.

Indeed, if we ignore for a moment how very bad it might be for some families and their children if his tripling of the child tax deduction is implemented, why should families who delay procreation, or who don't procreate because they cannot, pay more taxes than those who can and do? Furthermore, has Santorum considered future officeholders who might choose to penalize the fertile under Malthusian or climate change pretenses, and how they might reverse his supposed positive tinkering?

After that, what is remotely conservative about giving the government and its taxation powers even greater control over how families go about their lives? Shouldn't conservatives promote policies that minimize the government's involvement as much as possible, particularly considering the constitutional reality that at best (more likely, worst) Santorum would only serve two terms?

Santorum promises tax rate simplification of the 28%/10% variety, but as his aforementioned child tax deduction makes plain, under his interventionist leadership even more Americans would be excused from paying taxes altogether. Tax simplification is ideal from an economic perspective for releasing numerous bright minds from the lawyering and accounting professions, but it would also bring greater fairness to a taxation system that is the opposite.

There it would be interesting to hear Santorum (Romney too for that matter) explain why it is that the most productive in our midst owe a greater percentage of their earnings to the federal government than do those with lesser commercial instincts. For a politician who purports to be a man of the people, Santorum might explain how the poor and middle classes are advantaged by higher rates of taxation on the very individuals who, by virtue of their wealth, are most likely to offer economic opportunity through company formation and investment in others who might build successful businesses.

Even scarier is Santorum's plan to zero out the corporate income tax for manufacturers. Politicians as a rule seek to appear "in touch", but here Santorum reveals a staggering misunderstanding of the commercial direction of the world. It's not high corporate tax rates that have moved manufacturing jobs overseas, rather manufacturing jobs have moved because the very investors who confer capital on productive entities no longer see manufacturing as a remotely profitable way to deploy their capital.

Indeed, as evidenced by manufacturing jobs in China the daily wages of which would buy an American one Starbucks latte per day, investors would prefer to leave low value work of the manufacturing variety to the least productive overseas. We complain about depressed economic times now, but if readers really want to see a Depression, lure manufacturing jobs and their incredibly low pay as dictated by investors back to these shores. If so, lots of Americans will be working in factories; that is, if they want to work at wages far below what they've grown used to.

Not understood by Santorum is that far from an economic negative, the offshoring of the kinds of work investors won't pay high sums for has occurred in concert with more and more Americans moving into the jobs that investors will pay for. Once an agricultural economy, the U.S. evolved into a manufacturing economy, and then has since evolved into more of a service-oriented, intellectual economy.

Amid this positive departure or disappearance of agricultural and manufacturing jobs (this is called productivity, and if you decry the latter and its impact on jobs the only moral response is to destroy the computer on which you're reading this), both wages and the labor force participation rate have risen. Assuming the reverse Santorum desires is allowed by investors, are Americans so eager to work in factories once again such that they would accept a fraction of their existing pay? They might ask the Chinese how much they enjoy working in factories; factories that investors will in time move to even poorer countries in Southeast Asia. Put simply, it is the destruction of jobs wrought by computers, cars and innovations that enable the offshoring of low-value work that frees up capital for higher value work.

Most scary of all with Santorum's elevation of our not-so-grand manufacturing past are the implications for the dollar. Though the weak dollar since 1971 surely hastened the inevitable departure of manufacturing work, it's wrongly assumed that those who "make things" stateside are advantaged by a cheapened currency. Tell that to the Big Three automakers whose fortunes fell with skyrocketing oil prices in the ‘70s that were the direct result of the collapsing dollar.

In short, if Santorum's elected there will exist no reason for the markets to presume that the weak dollar policies of George W. Bush and Barack Obama will be reversed. That being the case, we can expect difficult job markets as far as the eye can see. Investors are the source of capital for all job creation, but lots of luck convincing them to commit capital to job-creating concepts if any returns will come back in the form of cheapened greenbacks.

On the positive front, Santorum's rise occurred in Iowa, a state whose false economic existence is very much a function of taxpayer largesse. If Iowa predicted anything, we'd have had in modern times Presidents with last names like Gephardt and Huckabee. In this sense Santorum's rise will likely be short lived; the latter something all who care about economic growth should embrace with intense vigor.

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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