Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate on February 25th. US Democrats are moving to the left, we are told. It is not yet clear that the median voter is in fact moving left, nor the median congressman who was elected last November. But it is clear that many of the candidates for the 2020 Democratic presidential nomination are experimenting with “bold new ideas”, or at least bold rhetorical formulations. They are receiving what seems a disproportionate amount of attention for doing so. Many of the policy proposals, if interpreted literally, are not entirely practical, either economically or
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Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A appeared in Project Syndicate on February 25th.
US Democrats are moving to the left, we are told. It is not yet clear that the median voter is in fact moving left, nor the median congressman who was elected last November. But it is clear that many of the candidates for the 2020 Democratic presidential nomination are experimenting with “bold new ideas”, or at least bold rhetorical formulations. They are receiving what seems a disproportionate amount of attention for doing so. Many of the policy proposals, if interpreted literally, are not entirely practical, either economically or politically.
Fortunately, few of the Democrats — the announced candidates or those considered likely — have yet committed irrevocably to extreme policies. Any of them could build a campaign on solid practical proposals to address inequality and other pressing problems, without sacrificing economic growth or fiscal sustainability.
Perhaps the practical ideas are most likely to be supported by established “moderates” like Joe Biden or centrists among the national newcomers like John Hickenlooper and Beto O’Rourke. Or Michael Bloomberg. But not just them.
Democrats like Barack Obama and Nancy Pelosi, to name two, have long pushed for the practical ideas. They made some important progress with these policies, in health insurance, financial regulation, progressive taxation, and other areas. Often the progress has been blocked or reversed by Republicans. There is no reason why newer faces like Amy Klobuchar cannot follow in the sensible Democratic path of Obama and Pelosi. Or, for that matter, Senators Cory Booker, Kirsten Gillibrand, Kamala Harris or Elizabeth Warren. [It is hard to remember that a short time ago the talk was of a dearth of serious candidates!]
Ideas in 5 policy areas
What are these bold new ideas, and why are they less practical than some older ideas?
- Some Democrats have proposed a marginal income tax rate of 70% on the super-rich. There exist more efficient and enforceable ways of improving the distribution of income. Abolish the carried interest loophole. Make work pay, by expanding the Earned Income Tax Credit. Make the payroll tax more progressive. Restore the estate tax on all estates worth, say, $5 million and eliminate the “step-up” of the valuation of the estate that allows generations to pass on capital gains without ever paying tax on them. Reverse some of the other substantial Republican tax cuts for the rich as well, such as on capital gains.
- Some have proposed that the government pay for universal 4-year college. This would be expensive, and not optimally designed to help the children of families that have been left behind by national economic growth. In my view, an effective program toward equality of educational opportunity might start with universal quality pre-school, so that all students are able to make the most of their education later on. To be sure, we should also expand student grants for higher education (and expand support for public institutions), including not just 4-year colleges, but also 2-year programs and vocational training.
But the most urgent policy priority in higher education is pushing back the scam by those for-profit-colleges that leave gullible students with high student loan debt (at tax-payer expense) but show low rates of graduation or post-graduate employment. Veterans are particular targets. Democrats had achieved some appropriate reform of student debt; but they lost the upper hand when Donald Trump came to office and appointed Betsy DeVos Secretary of Education and neutered the Consumer Financial Protection Bureau (originally the brainchild of Senator Warren).
- Some propose “Medicare for All.” Americans should all want to continue the expansion of health care coverage rates that Obamacare achieved. A good start would be reversing the damage that Republicans have worked to inflict on it (for example, with respect to pre-existing conditions and the universal mandate). If “Medicare for All” were simply a slogan, understood to mean the addition of a public option for those who can’t get private health insurance, it would be a worthy initiative.
But Bernie Sanders — not a Democrat — has been clear that he intends the phrase to mean the elimination of private health insurance. A single-payer system is fine – for other countries. Most Americans do not react well when they understand that the proposal is to eliminate the private health care industry, to force the many who are currently happy with their employer-paid plans to give them up, and to incur an enormous fiscal burden for the US taxpayer. A recent poll by Morning Consult/Politico reports that half of “Medicare for All” supporters change their minds when told that it would mean eliminating private insurance.
- Some have proposed a “Green New Deal.” When the unemployment rate exceeded 8 % in 2009-2012, the United States could have used a larger and longer increase in government spending on environmental projects than what Obama was able to get past Congress. Today, with unemployment under 4 percent, is not a good time to be expanding the budget deficit. If the Green New Deal were interpreted as simply a rallying cry to mobilize support for strong action on climate change, then fine. But the extreme impracticality of details of the Green New Deal is striking, such as the plan to expand renewable energy quite so far as to constitute 100% of electric power (evidently in an impossibly short span of 10 years), not to mention some of the extraneous parts of the package. The efficient way to achieve climate change goals is not via a truly massive expansion of the size of government, but rather via the price mechanism, meaning either a carbon tax or tradable emission permits, together with other sensible steps.
- Some other new ideas are also not worth pursuing. Bernie Sanders and Chuck Schumer recently proposed limiting firms from buying back their shares. It is true that corporations have spent more of their big winnings from the December 2017 tax cut on share buybacks and dividends than on investment or workers. But the proper remedy is to broaden the corporate tax base and retroactively make the tax rate cut revenue-neutral, not ban buybacks, which would just divert firms’ extra profits into buying Treasury bills or other companies.
Bold ideas versus old ideas
Media, both mainstream and non-traditional, tend to pay disproportionate attention to the latest “bright, shiny objects.” And, let’s be honest, it is the reading and viewing habits of we the people which are the source of this problem. But just because a new idea seems more exciting than an older idea does not make it better.
There may be an analogy with the attention lavished on the pronouncements of candidate Trump in the last presidential election, but it only goes so far. The left-leaning proposals coming from some of the Democrats this time differ from the Trump phenomenon in critical ways. First, I am unaware of any economic malpractice on the left to compare with Republican claims that their tax cuts would pay for themselves, let alone the frequent outright falsehoods we have come to expect from this White House. Second, the goal of helping lower-income workers seems to me a worthier one than the goal of helping the upper 1 percent.
Still, let us try to keep in mind the distinction between the passion with which a goal is pursued and the efficacy of the means chosen to pursue it.
This post written by Jeffrey Frankel.