Economic growth: What a great idea! Now, if only we could get the Democrats to agree that growth is a good idea, and if only we could get the Republicans to be more persuasive in making the case for growth.
The Democrats don’t want to talk about the almost-stalled economy; they would rather talk about “fairness” and “the one percent.” Whenever possible, today’s Democrats wish to shift the discussion completely away from bread-and-butter economics, to diversity, multiculturalism, #BlackLivesMatter, “climate change,” and so on. And most of all, of course, Democrats want to talk about the purported evils of Donald Trump.
That’s very different from Democratic President John F. Kennedy — whose tax-cutting policy should be a model for the GOP.
The forthcoming book by Larry Kudlow, an economist in the Reagan White House and, more recently, a CNBC host, and Brian Domitrovic, a senior associate at the Laffer Center for Supply-Side Economics, is a strong first step for the GOP.
As Kudlow and Domitrovic remind us in JFK and the Reagan Revolution: A Secret History of American Prosperity, Kennedy confronted relatively slow growth when he entered office in 1961 after campaigning on the stimulative slogan, “Get the country moving again.” Yet at first, the 35th President was at a loss as to proceed; his economic advisers were all over the place, policy-wise, and Congress had its own ideas.
Kennedy’s solution—arrived at only after two years of internal and external wrangling, as skillfully recounted by the authors—was to propose a massive across-the-board cut in income tax rates.
It might seem hard to believe that the top tax rate back in the early sixties was 91 percent (today it’s 39.6 percent); the authors rightly call that nine-tenths rate “nose-bleeding”—and, of course, it was counter-productive, because nobody could be expected to work or invest in the face of such a confiscatory rate.
The Kennedy tax cut was finally enacted in 1964, after JFK’s death; the top rate was reduced to 70 percent, and, of course, every other worker and investor also got a tax cut. The result was an economic boom; as Kennedy himself had said in 1963, “A rising tide lifts all boats.”
Yet in the late 1970s, America was suffering through another patch of slow growth, a perverse combination of joblessness and inflation, dubbed “stagflation.”
Once again, it was across-the-board tax-rate reductions to the rescue. With help from Kudlow, Arthur Laffer, and other “supply-siders”—that is, economists focusing on liberating the productive side of the economy from over-taxation and over-regulation—Ronald Reagan had the same idea as JFK: Cut tax rates, get the economy moving again. As Kudlow and Domitrovic explain, “JFK’s true heirs returned to the White House in the Reagan era.”
So now we can fast-forward to today, when economic growth is once again a major public concern. In the words of Heritage Foundation economist Steve Moore,
For years the polls have shown that Americans are hyper-concerned about the economy and job security. That was when the economy was growing at a meek 2 percent. Now [growing at only] 1 percent, we aren’t just treading water, more families are being plunged underwater.
Then Moore added, acidly, “No wonder Hillary doesn’t want to talk about the economy.”
To be sure, a loyal Democrat would deny that Hillary Clinton’s Democrats aren’t interested in the economy. So all we can do is look at the record:
William Galston, a top White House domestic-policy aide to Bill Clinton in the 90s, commented on the Democrats’ platform as it emerged in July:
The draft is truly remarkable—for example, its near-silence on economic growth. The uninformed reader would not learn that the pace of recovery from the Great Recession has been anemic by postwar standards, or that productivity gains have slowed to a crawl over the past five years, or that firms have been reluctant to invest in new productive capacity. Rather, the platform draft’s core narrative is inequality, the injustice that inequality entails, and the need to rectify it through redistribution.
Meanwhile, a few days later, the urban geographer Joel Kotkin, also a Democrat, went even further, lamenting the victory of the greens over traditional lunch-bucket interests, including energy production. Under the headline, “What happened to my party?” he sighed,
Increasingly, liberals, or progressives, are at best ambivalent about economic growth, particularly in such blue-collar fields as fossil fuel energy, manufacturing, agribusiness and suburban homebuilding.
Kotkin continued, emphasizing the leftward shift wrought by the “Sandersistas” and the harm it will do to blue collars:
In 2012, for example, Democrats touted the environmental and economic benefits of natural gas. This year’s party platform endorses ever-stricter regulation of the industry, while Sen. Bernie Sanders’ faction demands a quickly decarbonized economy. Ironically, such steps will hurt precisely the blue-collar workers Sanders and his minions allegedly care most about. But the Vermont socialist’s base is not blue-collar production workers, but rather millennials, low-paid service workers and academics with few ties to tangible industries. Suspicious of broad-based economic growth’s impact on the environment, they . . . favor redistribution of wealth over seriously growing the pie—in effect, contradicting nearly a half-century of mainstream Democratic thinking.
And the actual platform document, when released, conformed to expectations: “The most progressive Democratic platform ever,” crowed Katrina vanden Heuvel, editor of the left-wing Nation magazine. So let’s let her cheerlead for all the tax increases:
On taxation, the platform pledges to “end deferrals” so that American corporations “can no longer escape paying their fair share of United States taxes by stashing profits abroad.” It supports clawing back tax breaks for companies that ship jobs overseas, eliminating tax breaks for big oil and gas companies, and cracking down on corporate inversions. It calls for a “multimillionaire surtax,” for closing the egregious hedge-fund billionaire “carried interest” tax dodge, and for raising taxes on multimillion-dollar estates.
And since then, the left has moved even further to the left, toward outright green nihilism: Just a few days ago, NPR headlined a piece asking, “Should We Be Having Kids In The Age Of Climate Change?” The article quoted one supposed expert: “Maybe we should protect our kids by not having them.” Yes, that’s the green’s final solution: Stop all those carbon-dioxide producers before it’s too late—before they’re born.
So that’s today’s Democrats: They are anti-growth; they are green zealots, seeking to sacrifice American prosperity on the altar of political correctness.
Okay, so now, what of the Republicans?
Interestingly, both Larry Kudlow and Steve Moore, quoted above, are now top economic advisers to Donald Trump’s presidential campaign. And not surprisingly, they have been advocating for the same sort of supply side tax-rate cuts that Kennedy and Reagan advanced so successfully in their time. Thus Trump’s August 8 speech to the Detroit Economic Club was both Kennedyesque and Reaganesque—and that’s a good thing.
Yes, that’s most definitely good news, because the economy desperately needs effective stimulus. We might pause to observe: Yes, it’s true that American tax rates are a good deal lower than they were before JFK and RR worked their respective economic miracles, but in past decades, the whole world—most spectacularly, China—has lowered its tax rates and opened up to investment, and so we must stay competitive.
We can observe that this opening up has been good news for world freedom, and yet at the same time, it has been a mixed blessing to middle- and working-class Americans. Nobody misses the nuclear-armed fears of the Cold War, but in the last few decades, the expansion of China, in particular, has coincided with the contraction of manufacturing and economic activity in the America heartland.
Under the stinging headline, “Bill Clinton’s True Legacy: Outsourcer-in-Chief,” author Jane White observed four years ago in The Huffington Post,
Manufacturers never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs.
In the meantime, as economist Alan Tonelson reports, during the same period, Chinese manufacturing employment increased by nearly 28 million.
So there we have it: In the same decade of the ‘00s, the US lost five million manufacturing jobs, and China gained nearly six times as many.
Given that backdrop—the erosion of the middle class that has occurred under both Democrats and Republicans over the last quarter-century—the American people have a right to question anyone’s economic plan.
And so to win back public confidence, more must be done to convince folks that the benefits will actually flow to them, as opposed to some other country. As I wrote earlier this month,
Yes, tax-rate reductions, on individuals and businesses, are a help to investment, but what if the money gets invested, not in the U.S., but in Mexico—or China? Until that question can be answered in a satisfactory way, many, perhaps most, Americans will be skeptical of, even hostile to, upper-bracket tax cuts.
In that same piece, I argued for greater investment in infrastructure and public works as a way of targeting money into the US, and of creating assured jobs in hard-pressed areas.
Of course, another solution is to rethink international trade, as Trump proposes to do; something must be done to restore manufacturing to our sovereign shores.
Indeed, such a pro-Main Street rethink can come none too soon. Ed Rollins, my old boss at the 1984 Reagan re-election campaign, now a strategist for the pro-Trump Great America Super PAC, noted with regret the increasing disconnect between the Republican Party and Middle America:
The Republican Party became the Chamber of Commerce party and lost its appeal. It was no longer the party of small businesses—it was for Wall Street and big business. These debates on trade are because of that shift more than because of Trump.
Some Republicans, especially on the Establishment side, might insist that this disconnect isn’t real, or isn’t really a problem: After all, Republicans did quite well in the 2010 and 2014 midterms. And it’s true: The GOP is now in possession of the House, the Senate, and most governorships. However, Republicans have not done well, at all, at the presidential level; they have lost four of the last six presidential elections, and five of the last six popular votes.
Moreover, a closer look at the midterm elections shows something troublesome for Establishment Republicanism: Turnout is declining.
In fact, turnout in 2014 was the lowest since the wartime year of 1942, when millions of men were away in the military.
To be sure, a win is a win, and the GOP can be happy that it has gained all those elected positions.
Yet at the same time, it’s evident that discontented citizens will eventually find a way to register their discontent in unpredictable ways.
And that’s what we’ve seen in 2016 with the rise of Trump—and also, as a somewhat related phenomenon, the rise of Sanders. And although Trump’s rise is cheering to Trump and his supporters, it is most definitely a threat to orthodox Republicans.
Thus the GOP faces a challenge: Can it keep Establishment Republicans and Trump Republicans in the same coalition? Can the Party retain even a modicum of unity? In the short run, that’s no certainty, as we see every day—and in the long run, it’s perhaps even less of a certainty.
None of these points about Republican troubles invalidate the larger wisdom of the tax-rate reductions enacted by Kennedy and Reagan, as well as the new reductions now proposed by Trump. Today, supply-side economics is as good an idea as it ever was; indeed, it’s urgently needed.
However, as we can see, we need more: We need attention to the demand-side as well. That is, we need to think more about boosting the buying power of Americans, both as individuals and as a collective nation. Tax-rate reductions are good, but so, too, are plans to directly boost buying power—that is, add strength to the demand side.
Perhaps I should explain: The surge in production—in China, the rest of Asia, and around the world—has created an over-supply of goods, relative to demand. That is, even as productive capacity has been built up in what seems to be a bubble, buying power has dwindled. So we might say: “Bubble, meet trough.”
We can also add: We are now seeing the deleterious impact of the now-familiar syndrome of stagnating workers’ wages; after decades of income flatlining, Middle America simply has less money to spend.
Yet we can step back and observe that demand-deficient world of oversupply today is different from the supply-constrained world of yesterday. That is, in both the fifties and the seventies, the problem was on the supply-side, not the demand side. And so the tax-rate-cutting supply-side reforms of the sixties and the eighties were fully justified and necessary.
However, today is different. Yes, America is choked with taxation and regulation, but the world is increasingly deregulated—there isn’t much red tape in China that a bribe can’t unravel.
So this era is starting to resemble, in ominous ways, the world of the twenties. That decade, culminating in the October 1929 stock market crash, was followed, of course, by the Depression. And that’s obviously dreadful precedent.
Hence the need for pre-emptive public-sector investing—on infrastructure and technology, including an upgraded defense, which we need anyway—as well as private-sector tax-rate-cutting.
As we have seen, the Democrats have, by their own ideological choice, dealt themselves out of the economic-growth debate. That is, in pursuit of their green multicultural utopia, they have chosen to downgrade the basic need for good jobs at good wages.
So now it’s up to the Republicans to step up and make the case for growth—and to do so with a persuasive and comprehensive agenda, fully marshaling the supply side, of course, and also the demand side.