We're $22 trillion in debt, and President Trump must hold Congress accountable.
America Needs to Relearn Economics
It will take more than a Presidential address for America to relearn that when it comes to economic policy, we need to put markets and property first.
Alexandria Ocasio Cortez is more important than Nancy Pelosi. That’s because whether infamous or impolite, Congresswoman Pelosi’s snub of President Trump will pass. With her proposal to raise the top marginal rate on the income tax to 70%, the junior congresswoman from New York has managed a larger feat. Ocasio Cortez has shoved the edifice of economic discourse to the left.
A few years ago, economic consensus stood solidly in the center. Even the wildest proposals from progressive Democrats in Congress could not budge it. They simply did not gain attention when they argued for raising top tax rates beyond 50%. Ms. Ocasio-Cortez’s proposal differs only because it seems to be gaining acceptance among fellow Democrats and more importantly, many citizens. Especially younger ones. Coming on top of another successful push, that of Thomas Piketty on income inequality, the movement is not mere “slippage.” It’s the beginning of a landslide.
Why does an idea gain traction now when it couldn’t in the 1990s? The trouble is the instability of the (formerly centered) economic consensus. In the 1990s or the 2000s the public remembered, in some kind of general way, what a 70% top rate did to the economy in the 1970s. In today’s squeaky tight labor market, few imagine that unemployment could stay above 5% for long. Few imagine the stock market could stay flat for a generation. But for an entire decade in the era of the 70% rate, the decade of the 1970s, unemployment could not get below five percent. From 1966 to 1982, almost a generation, and all years when the 70% rate was in force, the Dow Jones Industrial Average hung in the same frustrating place, just below the 1000 level. If you’ve experienced that, you remember it.
It took a while for the country to see the link between high tax rates and slow growth. There were other factors at work – inflation. And people of in the 1970s could tell themselves that back in the 1950s, good years for employment and markets, the top income tax rate had stood even higher, above 90%. But taxes did matter in the 1960s and 1970s. The difference was that in sealed economy U.S. business confronted scant competition. But when markets began to open, our tax competitiveness hurt our growth. In a global economy, a 70% tax rate was and is fatally uncompetitive. Only when more pro-growth tax policy became consensus, in the 1980s, did our economy begin to improve—the shift had bumps and took a painful half-decade –and gradually return to being the engine young people assume it always was.
President Trump ought indeed to recall this record when and if he gives the State of the Union. But an exhortation, even from a President, or a Senator, or a 2020 presidential candidate won’t waken the country from its economic amnesia. Nor will training up potential candidates in supply-side bootcamp, as valuable as that is. The amnesia is simply too powerful. The 1970s and its miseries lie too far back. For common sense to penetrate, we need changes in our educational and policy institutions. Those changes are tough, but not more costly than funding elections. Schooling up new candidates in supply-side doctrine is useful, but insufficient. When it comes to imparting economic knowledge, free marketeers should be playing the long game, not merely the election cycle.
Undertaking to change curriculum in established grammar and secondary schools is like undertaking to eliminate a cabinet-level department of the federal government – near impossible. But fortunately nowadays there are workarounds. As I type this, both the charter and the independent schools are expanding. Many of them do teach economics: the Basis Schools, growing fast, are a good example. So are extracurricular programs that impart economics to secondary school students. “Extracurricular” sounds ditsy, but it does not have to be. Eagle Scouts will tell you that the scouting experience did far more to shape their character than any individual curriculum. Alumni of high school debate will report the same thing. At the Coolidge Foundation, we developed a high school debate program in which, by now, thousands of teens have debated tax increases, pro and con. If we and other debate programs could reach hundreds of thousands instead of thousands, we would shore up the discourse of the center.
Attempting to penetrate faculties of established colleges is again, too often, a fool’s errand. Colleges offer more promise, as Hillsdale, Claremont, Pepperdine, Grove City, and the King’s College in New York have shown. But we need more colleges. Penetrating faculties of other established colleges is again, too often fool’s work. But starting new colleges is possible: my fellow Coolidge board member, Robert Luddy, is in the process of creating one in North Carolina.
Think tanks too have the capacity to open minds. Without Heritage, the Hoover Institution, Cato, and the American Enterprise Institute, the tax cuts of the recent decades would scarcely have been possible.
Each generation though needs its own new think tanks. What could the markets think tanks of the 2020s look like? First of all, they’d put markets first. My own sense is that using the tax code to foster social goals, a strengthening trend in the profit world, is counterproductive. That’s simply because doing so diverts from the main emphasis of straightforward growth. A child credit is nice. But economically speaking, a child credit is to a capital gains tax cut, as a playpen is to a race car. Only truly markets-oriented cuts permit the quality of growth that can preclude large tax hikes in future.
Another neglected area is property rights. Many of our current institutions demur when it comes to spotlighting property rights, for fear the term “property” sounds selfish. But the truth is that property is the beginning of all markets. (“Ultimately property rights and personal rights are the same thing,” as Coolidge said.) Particularly valuable nowadays would be institutions that analyze data through the lens of classical liberalism. For though Rep. Ocasio Cortez is liberal, she’s not liberal in the classical sense. Advice for the new era can be boiled down. Introduce policies, along with policy-appropriate candidates. Play the long game, not the short. Build your institutions.
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