To be fair, it wasn’t all bad. The moderators, particularly the Wall Street Journal’s Gerard Baker, asked well-informed questions on the economy. Oddly, Donald Trump’s policy illiteracy seemed to bring out the best of some other candidates. I disagree completely with Sen. Ted Cruz’s position on immigration, for example, but Cruz did offer a cogent economic defense for why he wanted to crack down on illegal immigration. It was far better than Donald Trump’s “WE ARE A NATION OF LAWS!!” mantra that he invoked whenever he was asked about how he would implement his deportation policies. (Trump’s post-debate explanations are even more disconcerting.) Similarly, Sen. Rand Paul took Trump to town for his ignorance about the Trans-Pacific Partnership. And the foreign policy portions of the debate did produce a genuine debate between Paul and everyone else on the stage.
The problem is that the rest of the candidates’ economic musings were problematic. And by “problematic,” I mean “so God-awful and wrong that even GOP-friendly observers were nauseated.”
Take, for example, the candidates’ bizarre fixation with tethering the dollar back to gold or some other commodity standard as a way to avoid loose monetary policy. As Megan McArdle noted at Bloomberg, this is something of a bizarre complaint right now.
Why was complaining about loose monetary policy such a prominent feature of the debate? Inflation is low. “Core” inflation — the consumer price index minus volatile food and energy prices — has been under 3 percent since the Bush administration, and is now resting a hair under 2 percent. At this rate of inflation, it would take more than 35 years for prices to double. The dollar is extremely strong against the euro, its major competitor currency, and also strong against the yen, which is the opposite of what you’d expect to see if loose Fed policy were destroying the value of the dollar.
McArdle’s column is worth reading to see why candidates might be making this argument for political reasons. I’ll just point out — again — that tethering the dollar back to gold is a really, really bad idea.
Meanwhile, Politico’s Michael Grunwald reviewed what the candidates had to say about regulating the financial sector, and it turns out they did not say much that was true:
Jeb Bush, a former Lehman Brothers adviser, said the biggest banks now hold less capital and take more risks because of the Dodd-Frank financial reforms; in fact, their Tier One capital levels have doubled from about 6% to 12%, while leverage in the financial system has been cut from about $16 trillion to about $9 trillion.John Kasich, a former Lehman Brothers banker, seemed unaware that FDIC insurance protects ordinary depositors at failing commercial banks.Ben Carson, asked whether the biggest banks should be broken up, said no, but also that they shouldn’t be allowed to “enlarge themselves at the expense of smaller entities,” then added some word salad about low interest rates and 18th-century entrepreneurship and the cost of soap that did not signal deep knowledge about the banking sector.Marco Rubio claimed that new government regulations have increased the size of the biggest banks, when in fact new surcharges for the largest institutions are encouraging megabanks to get smaller.
As Grunwald notes, the problem here is that the current GOP still can’t digest awkward facts. The success of the TARP bailout is ideologically antithetical to everything the GOP stands for right now. More generally, a robust call for greater deregulation in the financial sector evokes the ghosts of financial bubbles past. In this sector, it is difficult for traditional Republican policies to resonate. The response to this seemed to be just asserting things that were not true.
Finally, there’s fiscal policy. The one thing that unites all Republicans: tax cuts. Except, as AEI’s James Pethokoukis notes in the Financial Times, most of the GOP tax plans feel 40 years out of date:
If Hillary Clinton becomes the 45th U.S. president, it would be the first time since 1948 that the Republicans have lost three consecutive elections. Their “supply-side” orthodoxy would merit much of the blame. Big tax cuts, particularly for the wealthiest, do not work in an age of high inequality and heavy debt. Republicans need an economic agenda that respects markets while also recognizing the challenges facing America and its anxious middle class. …[T]ax cuts look like an answer desperately searching for a problem. Today’s top U.S. marginal tax rate is 39.6 per cent, compared with 70 per cent before the 1981 Reagan tax cuts. The U.S. is almost certainly not an example of the veracity of the Laffer curve, where lowering rates sometimes boosts tax revenue. Nearly half of households pay no federal income tax. And while targeted reform might help U.S. economic dynamism, faster growth seems insufficient for broadly shared prosperity. Middle-class incomes have stagnated as inequality has risen.
Indeed, every time that candidates were asked how they would pay for their massive tax cuts without causing the national debt to swell even further, the answer proffered was the magical mantra of “growth will rise!” Ted Cruz, Donald Trump, Jeb!, and every other GOP candidate on the stage repeats it. But no matter how often they say “dynamic scoring,” there is little evidence that the United States can sustain the better-than-4 percent economic growth necessary to fund make their fiscal policy a responsible one. There is zero evidence that the tax cuts they are proposing would be the driver to accelerate economic growth.
Look, I could go on about how welders are not out-earning philosophers, American wages are not too high and other factual gaffes. The basic, scary point is this: the GOP’s economic policy cupboard is intellectually barren. This is not a new problem, but it’s one that is going to get more acute as the 2016 election approaches.