To:       2016 Presidential Candidates

From:   Douglas Holtz-Eakin

Date:   August 18, 2015

Re:       Talking About the Economy

Despite its importance to voters, the first major party’s primary debate featured little discussion of the U.S. economy. This is unlikely to continue, as it is the issue voters most care about, and one that tripped up candidates in the past. It is important that free-market conservative candidates present a vision for a brighter economic future that includes a strategy to counter the liberal and socialist candidates’ focus on inequality and redistribution. With this in mind, I offer a few suggestions:

Dos

  • Teach voters about how a market economy benefits consumers, workers, and American families in general. The left’s approach to economic policy is very simple for voters to understand: “government writes check, you get check, you are better off. Repeat.” They offer free stuff.

We offer freedom. It is a more complicated discussion to show how free people, pursuing their hopes and dreams, competing vigorously, creating businesses, inventing new products and technologies, saving, and investing can generate a rising standard of living for families. But the emergence of the United States as the greatest economic power in the history of the globe is tangible proof that it works. Our commitment to freedom – personal freedom, religious freedom, freedom of speech and economic freedom – has literally made the United States the exceptional country it is.

Americans, especially young voters whose short history is a skewed example of typical economic performance and government policy, need an economic education – not merely slogans – before the bribes start from the other side.

  • Critique the progressive economic history.
  1. The “new normal” is unacceptable economic performance. In its efforts to sell its economic record, the administration and its progressive allies have relentlessly sought to set a low bar for success. No conservative should accept a record of growth averaging less than 2.5 percent or an outlook for the future that promises more of the same.
  2. The progressive argument for exclusively redistributionist policies is that (1) Household incomes have been stagnant for decades, except for the rich; (2) This stems in part from the fact that wages have not risen along with higher worker productivity; so (3) It is only fair to use the power of the federal government to move income from the rich to everyone else, and it makes sense to use policies like the minimum wage to move profits from firms to workers.

The data do not support these assertions. Adjusting, for example, median household income for innovation and quality improvements, household size and the ability to live independently, and other factors makes the data match evidence of one’s eyes: 2015 is better than 1975. Similarly, the supposed decoupling of pay and productivity is a tribute to statistical cherry-picking.

A correct reading of the data changes the policy priorities. If the market economy is providing a rising standard of living, it is more important to get people to work than to expand government programs and subsidies. If middle class incomes are rising, policy should put a higher priority on poverty alleviation than pure redistribution. And most importantly, if the middle class really was getting ahead over all those decades perhaps the focus should be on taking the policy in place prior to the recent stagnation and strengthening it instead of performing the u-turn experienced since 2009.

3. Employers do not free-ride on the social safety net. Progressives would have voters believe that U.S. corporations – especially large retailers – pay low wages because they know employees can take advantage of food stamps, Obamacare/Medicaid, and other aspects of the social safety net.  This is backwards. The fact that individuals can receive benefits from federal/state programs means that employers have to offer more to induce workers to take a job and give up some or all of their benefits. ]

In addition, the workers on public assistance is not a stagnant group, but a dynamic one as the individual employees move up in pay and reduce their dependence on public programs.  This is the way it is supposed to work, and conservatives should feel comfortable countering claims to the contrary with sound data.

  • Faster long-run growth requires structural reforms. Economic policy under this Administration has taken two forms: anti-growth taxes and regulation or government-centric “stimulus.” Neither addresses the core need for faster productivity and long-run growth. That requires permanent, structural changes to:
  1. Entitlements, to make the social safety net sustainable, control spending growth and avoid a sovereign debt spiral;
  2. Taxes, to support saving, investment and growth as well as improve international competitiveness;
  3. Regulations, to unwind the Administration’s added compliance costs of nearly $100 billion annually; $670 billion in anti-growth drag and prevent another explosion of regulation in the future;
  4. Education, to give workers the ability to prosper in a global economy and genuinely take on the source of dispersion in wages; and
  5. Immigration, to speed population growth, enhance the skills in the labor force and take advantage of the vision of immigrant entrepreneurs.

These policy reforms are central to U.S. success in the 21st century.

  • Have a vision for addressing poverty. In the half century since the War of Poverty was begun one thing has changed – the size and scope of government – and one thing hasn’t – too many Americans live in poverty.
  1. The dividing line between the poor and non-poor in the United States is work. Poverty strategies and social safety net reforms must be relentlessly pro-work.
  2. The dividing line between success and failure in the labor market is skills. Effective education reforms that emphasize more and informed choice, greater attainment, and improved accountability from kindergarten through college will be an essential part of the future.
  3. There is a strong element of personal responsibility in achieving greater success. The data show that there is a best practice: (1) finish school, (2) get a job, and, if you choose to have children, (3) get married, and (4) have children. In that order. Doing it in any other order dramatically raises the odds of poverty.

Don’ts

  • Don’t’ get into a bidding war with progressives. The fact that progressives are rallying behind a $15/hour minimum wage – the equivalent of $31,000 a year for the most unqualified teenager – shows there is no subsidy too large, tax too high, or mandate too onerous for them to support. From the progressive perspective, “free” stuff is economic policy; more “free” stuff is better economic policy. You will never outbid those who look at federal policy from this perspective.
  • Don’t buy the idea that all inequality is bad. Markets operate on the basis of greater effort or accomplishment meriting more reward. Thus, some inequality is good and valuable. The intellectual Achilles heel of the progressives’ argument on inequality is that they cannot identify the right amount of inequality and simply oppose any inequality (or increases in inequality). Do not accept debating on their inequality playing field. The issue is about stronger growth and better anti-poverty programs.