Alan Blinder: Is History Siding With Obama’s Economic Plan?

Posted by Kendall Harmon

CLEARLY, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.

Such differences are hardly surprising. Democrats and Republicans have followed different approaches to the economy for as long as there have been Democrats and Republicans. Longer, actually. Remember Hamilton versus Jefferson?

Many Americans know that there are characteristic policy differences between the two parties. But few are aware of two important facts about the post-World War II era, both of which are brilliantly delineated in a new book, “Unequal Democracy,” by Larry M. Bartels, a professor of political science at Princeton. Understanding them might help voters see what could be at stake, economically speaking, in November.

I call the first fact the Great Partisan Growth Divide. Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.

Read it all.

Filed under: * Economics, PoliticsEconomyUS Presidential Election 2008

19 Comments
Posted August 31, 2008 at 7:39 pm [Printer Friendly] [Print w/ comments]



1. Br. Michael wrote:

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve.  He has advised many Democratic politicians.

Hardly unbiased.  And please lets define by what we mean by the “rich”, “poor” and “middle class”.  To hear the Democrats talk we are all JP Morgans or Bill Gates.

August 31, 7:59 pm | [comment link]
2. LeightonC wrote:

We’ve been down this road before with Jimmy Carter: remember the “big-oil bogeyman then”,  Carter’s windfall profits tax which created nationwide shortages and increases prices, lines at the gas pumps, approx 20% interest rates, high unemployment, etc. 

I am beginning to think that the Democrats view of those who are rich are the ones who are not on public assistance.  Fact:  The top 50% of all wage earners pay 97% of all the taxes in this country, and the majority of those the Dems think are rich are small business owners who provide approx. 80% of the jobs in the country.  You put the big O in charge and we’ve all had it financially.

August 31, 8:28 pm | [comment link]
3. SteveCox wrote:

<snark >Well, God knows we’ve all been doing so well under George W. Bush.

August 31, 10:12 pm | [comment link]
4. Chris Hathaway wrote:

Personally, I can’t complain about Bush effecting my economic situation negatively.

August 31, 10:20 pm | [comment link]
5. SteveCox wrote:

Most people can, Mr. Hathaway.

August 31, 10:34 pm | [comment link]
6. John Wilkins wrote:

“You put the big O in charge and we’ve all had it financially.”  Really?  That sounds pretty apocalyptic to me.  He’ll close loopholes and redirect money spent in Iraq to infrastructure here in the US.  Please tell me:  how will thus hurt us? 

To hear McCain talk, anyone who makes less than $5 million dollars is middle class.  We are wealthier than other countries:  but a democracy trhives when people don’t feel the system is stacked against them.  They don’t want to become billionaires, but they want to think that things are getting better.

And the current economic system only guarantees that for the radically wealthy.  They are in the fast lane.  We’re stuck in traffic.

August 31, 10:58 pm | [comment link]
7. Br. Michael wrote:

That what I love about liberals; public policy by slogan.  Lets close the loopholes.  Unfortunately the loopholes aren’t loopholes.  A loophole is always something that someone other than you has.  So lets be specific.

September 1, 6:00 am | [comment link]
8. Katherine wrote:

Raising marginal tax rates and impeding free trade are what Hoover and Roosevelt did, turning a bad situation into something worse.

So, Democrats (no surprise) think major income redistribution is “fair.”  The top tax brackets already pay by far the largest percentage of income taxes.  The insistence on taking more and more sounds punitive and covetous.

September 1, 7:17 am | [comment link]
9. Chris Hathaway wrote:

Most people can

Really? Do you actually know “most people” to be able to make such a claim? Such statements are complete nonesense.

September 1, 7:40 am | [comment link]
10. JGeorge wrote:

Perhaps the fruits of the economic policies of the Republican Presidents were reaped during the time of the Democratic Presidents

September 1, 9:03 am | [comment link]
11. Bart Hall (Kansas, USA) wrote:

What part of the leftist economic menu, now represented by Obama don’t I like? Well, to begin with a half-dozen or so ...

a) It is punitive in both structure and language. Those people aren’t entitled to their good fortune and the role of government is to take it away.

b) It is re-distributive, on the assumption there are people more entitled to that money than the ones who earned it. Have you noticed how the putative beneficiaries are always called “working families” ... as if the vast majority of high earners don’t work (and very hard for the most part) to earn that income?

c) It assumes that government is the best way to do things, instead of (usually) the worst. Any charity spending 25% of its donations on overhead would be considered inefficient. With government anti-poverty programs less than 25 cents of every dollar actually gets to a poor person.

d) It proposes nationalization of one-sixth of the economy—health care—and threatens nationalization of energy.

e) It is intentionally misleading, as for example in suggesting that pulling the troops out of Iraq will “free up” that “wasted” money, in order to mask the amount of new taxes they wish to levy. Do you know what it costs to train and maintain 150,000 troops in peacetime, in the States?

f) It increases dependency—both the dependency of “beneficiaries” and (more importantly) the dependency of government on an ever-shrinking handful of highly successful people.
Avoidable dependency is parasitic.

g) It strongly favors economic “security” over economic “freedom” and if implemented for very long will eventually kill the goose.

September 1, 9:09 am | [comment link]
12. Eastern Anglican wrote:

#6 When McCain made his comments he specifically said that they would be twisted against him.  He chose the number to illustrate his idea that people should not be punished for suceeding in their investments and in their lives.  Unlike a leftist plan that would punish me by making my taxes higher if I worked hard and suceeded in my business.  That is the primary difference between left and right: to be rich on the left is to be lucky and feel guilty about it or blame someone else or your circumstances in you’re not.  On the right it’s just the opposite.

Also, redirecting deficit spending will not help the economomy in the long run.  Piling on more debt on my children will destroy their economic future.  There are only two solutions to our government’s economic problems: raise taxes equitably on all to pay of our debt and cut spending (thus destroying opportunity for investment and jobs as well as limiting the entitlement class), or cut taxes and spending (thus creating opportunity and jobs and limiting the entitlement class).

September 1, 11:57 am | [comment link]
13. John Wilkins wrote:

11. Bart Hall (Kansas, USA) wrote:

a) It is punitive in both structure and language. Those people aren’t entitled to their good fortune and the role of government is to take it away. 

Not at all.  People who benfit from the security, infrastructure and education that the state subsidizes aren’t paying their fair share.  smaller businesses have less wealth to start, and the wealthy don’t in fact invest in the American economy.  Of course they don’t have to.  But paying dues for benefitting from wealth and helping others is also a tax on greed.

b) It is re-distributive, on the assumption there are people more entitled to that money than the ones who earned it. Have you noticed how the putative beneficiaries are always called “working families” ... as if the vast majority of high earners don’t work (and very hard for the most part) to earn that income?

like Paris Hilton? Nobody denies that most people don’t “work” for their income.  But security, infrastructure, and education cost money.  The rich benefit from the taxes they pay.  In the end they are getting a free lunch. 

c) It assumes that government is the best way to do things, instead of (usually) the worst. Any charity spending 25% of its donations on overhead would be considered inefficient. With government anti-poverty programs less than 25 cents of every dollar actually gets to a poor person.

If you look at the privatization of the military, it has been disasterous.  Sometimes the government does things well, sometimes it doesn’t.  Bart ignores that the government can transfer wealth to private entities, which administer the program.  It also helps if the government has auditors to ensure the money is spent wisely. 

d) It proposes nationalization of one-sixth of the economy—health care—and threatens nationalization of energy.

Where did you get this from?  Its false.

e) It is intentionally misleading, as for example in suggesting that pulling the troops out of Iraq will “free up” that “wasted” money, in order to mask the amount of new taxes they wish to levy. Do you know what it costs to train and maintain 150,000 troops in peacetime, in the States?

Have you read Obama’s tax plan?  We’re spending $10 billion dollars a day.  Who is going to pay for that? 


f) It increases dependency—both the dependency of “beneficiaries” and (more importantly) the dependency of government on an ever-shrinking handful of highly successful people.
Avoidable dependency is parasitic.

helping people out is not dependency.  Unless you mean, say, agribusiness, the sugar and oil industries, and lots of corporations who benefit from government largesse.  Further, Obama seeks not “dependency” but investing in America’s infrastructure.  By investing in green INdustry, he would create jobs. Have you read his plan? 

g) It strongly favors economic “security” over economic “freedom” and if implemented for very long will eventually kill the goose. 

No - it says there should be more economic freedom for struggling families who are tied down by health and education costs.  When you have to pay hundred of thousands in health costs, have mediocre schools, and that pot hold just wrecked your car, and you make 45,000 a year, how do you get “economic freedom” now?  For the sake of “economic security” for the wealthy, you would sacrifice economic freedom for the people. 

In the Long run, Bart, we’re all dead. 

Bart, you have not read anything about Obama’s economic plan.  You may have listened to Fox News or some supply sider.  As a beginning, check out the recent article in the New York Times Magazine if you want an accurate description of his economic plan.  Otherwise, you’re spreading falsehoods.

September 1, 12:17 pm | [comment link]
14. John Wilkins wrote:

#7:  Public policy by slogan?  Like “no taxes, small government?”  Tu quoque, my friend.  I’d also note that your attack on Professor Alan Blinder classifies as “ad hominem.”  You didn’t address his arguments.

September 1, 12:21 pm | [comment link]
15. Bart Hall (Kansas, USA) wrote:

JW wrote in #13 “the wealthy don’t in fact invest in the American economy.” Absolutely risible.

Assuming your statement is true—which most decidedly it is not—the wealthy have but two other options: They can pile up cash in their closets ... or they can spend it all.

If they spend it, they buy goods or services, overwhelmingly from American businesses, of which mine is one. If I decide to keep even part that extra income, rather than reinvesting it all in my business or taking better care of my employees, then (as is my present plan) I’ll spend the part I keep on an energy-efficient heat pump, made in Tennessee and installed by a local guy.

What you’re saying instead is that 1) You have the right and the ability decide what someone else’s “fair” share actually is, and 2) The most efficient way to apply the money you would confiscat from its rightful owner in the name of “fairness” is to channel it through the government.

Unfortunately, when you confiscate “excess” wealth in the name of “fairness,” the wealthy person has to cut back on spending ... with direct negative impact on my own enterprise, worsened by the indirect negative impact on my employees, the factory workers in Tennessee, and the 68-year-old guy I’d hoped could install the heat pump, but which I can no longer afford.

Consequently, such hare-brained Marxist ideas are a direct threat to my small business, my family, and the people with whom we choose to spend our money. We are a “working family” and so long as you and your allies continue to advocate such naked socialism we shall consider you a hostile threat and act accordingly.

That’s “what’s the matter with Kansas.” That’s why Obama is behind by dozens of points in this state. We have the experience and good sense to see Marxism for what it is and we recognize it as hostile not only to classic American values, but also to our personal economic well-being.

September 1, 1:21 pm | [comment link]
16. libraryjim wrote:

I’ve benefited greatly by Bush’s tax cuts, and at a time when I earned under 25,000, but had some investment stocks from an inheritance. 

The capital Gains were killing me, I was paying out each time I figured my taxes under Clinton.  When the Bush tax cuts were enacted, I actually got a refund for the first time in YEARS!  Plus the added earned child credits also helped tremendously.

Thank you George W. Bush and the Republican Congress!!!

If Obama gets in (shudder!) and enacts his repeal of these programs, I’m going to be paying again. And I really can’t afford it.

September 1, 5:44 pm | [comment link]
17. libraryjim wrote:

A quickie formula:

80% of the American People pay only 20% of all taxes.

20% of the American People (the top wage earners) pay 80% of all taxes.

The rich already have an unfair tax burden if we use this formula.

September 1, 5:46 pm | [comment link]
18. Tom Roberts wrote:

I’d agree with John W. on one thing, the rich should pay for political and economic stability. The one thing that isn’t clear is whether either party can guarantee such stability by active governance, hence the appeal of small government.

However, Blinder’s article is pretty bad. There might be an historical trend favoring Democrats in some ways, however this analysis lacks any rigor for two reasons:

1. The past is no mirror of the future. Why should we think that FDR’s and JFK’s economic policies would inform Obama’s, when they would resemble McCain’s more precisely? For that matter, why would Eisenhower’s or Nixon’s (remember price controls, eh?) inform McCain’s? Extrapolation the past into an uncertain future is… silly, to be polite.

2. The comparison between the Clinton policies and GWB’s is about as apt as comparing the 1920’s to the 1930’s. Both FDR and GWB were assailed by events rather out of their control with the rapid demise of banking liquidity in FDR’s case and 9/11 in GWB’s. Blinder ignores how external events affect economics, just as economics affects history. In any case, the fact that the 20’s and 90’s were halcyon decades led directly to their follow on decades’ troubles. Sort of like Joseph’s 7 fat years and 7 lean years dream.

September 1, 6:05 pm | [comment link]
19. John Wilkins wrote:

Bart, there are lots of options in between socialism and capitalism.  There is distributivism (standard Roman Catholic Social teaching), Georgism (the only tax is a rent) and then there is the idea that the only tax we should pay is a confiscatory inheritance tax (the kind the Buffet supports).  There is also Keynsianism, which seems, according to most professional economists, to have things generally right.  It was generally responsible for prosperity until 1972, when other problems arose. 

The superrich only invest so much in the US.  They also invest in the rest of the world.  One rich family only needs so many things.  And they don’t spend it “overwhelmingly” in America.  Not as much as one alternative, which is Keynsian investment in the economy: which creates a ripple income effect.  If you create 5 million Jobs in America (say, through investment in infrastructure), those families are much MORE likely to invest in local American businesses. 

You say: 
If they spend it, they buy goods or services, overwhelmingly from American businesses, of which mine is one. If I decide to keep even part that extra income, rather than reinvesting it all in my business or taking better care of my employees, then (as is my present plan) I’ll spend the part I keep on an energy-efficient heat pump, made in Tennessee and installed by a local guy.

this is a classic ripple effect:  but it’s not only the “rich” who can do this - the government can invest i a greater number of small businesses than the rich do, who have no necessary commitment to the US. 

You say:
“What you’re saying instead is that 1) You have the right and the ability decide what someone else’s “fair” share actually is,”

Actually this can be computed.  The rich have more to protect, and they use the legal system more.  they have employees who go through the state system; their businesses benefit from good roads and government subsidies.  The legal system that protects their property is expensive.  Yes the rich have a right to their money.  But protecting those rights cost money in the form of a bureaucracy.  Without it, its just might makes right.

“and 2) The most efficient way to apply the money you would confiscat from its rightful owner in the name of “fairness” is to channel it through the government.”

Its dues for being a citizen of this great country that protects them. 

“Unfortunately, when you confiscate “excess” wealth in the name of “fairness,” the wealthy person has to cut back on spending ... with direct negative impact on my own enterprise, worsened by the indirect negative impact on my employees, the factory workers in Tennessee, and the 68-year-old guy I’d hoped could install the heat pump, but which I can no longer afford.”

Not necessarily.  A wealth transfer then goes to middle class people who then spend more in other businesses, some of whom may accumulate wealth and buy the products you make.  Or they might support another small business. 

“Consequently, such hare-brained Marxist ideas are a direct threat to my small business, my family, and the people with whom we choose to spend our money. We are a “working family” and so long as you and your allies continue to advocate such naked socialism we shall consider you a hostile threat and act accordingly.”

I’m not sure if you understand Marxism.  Marxism is about long term centralized planning over needs and resources.  It is much more clumsy than the market.

The market is clumsy when it comes to things like education, health and natural monopolies.  There is ample evidence for this.  Governments can either regulate natural monopolies, or they can run them with independent, non-political boards. 

Part of this has to do with the culture.  In France, they have a strong governmental system, but this is because they expect the smartest students to enter the government.  In the US the smartest people enter banking or the market.  Of course, France has lots of huge multinationals with students who went to those government training schools.  My point is that if you want government to be bad, it will be bad.  If you want it to be good, then let it be good.  It’s about attitude. 

It sounds like we agree that Marxism is bad.  But Blinder (who is no Marxist.  The guy headed the Federal Reserve Board!) simply said the following:  “The two Great Partisan Divides combine to suggest that, if history is a guide, an Obama victory in November would lead to faster economic growth with less inequality, while a McCain victory would lead to slower economic growth with more inequality. Which part of the Obama menu don’t you like?”

That’s the question.

As far as Obama being behind in Kansas, or wherever you are, I wonder why Obama is so ahead in the wealthy states that benefit from capitalism.  California and New York are two of the richest states in the country.  Why is it that rich people love New York, when it has such high taxes?  Part of it is because they know they benefit from good schools, good roads, a walking city, and lots of other things that taxes afford.  Why are there fewer rich people in the delta of Mississippi?  It has lower taxes, after all….

If you really think Obama is a Marxist, I can’t convince you otherwise.  Maybe you are smarter than people like Warren Buffett, a supporter of Obama, unless Buffett is also a Marxist.  Or perhaps you know Obama better than Susan Eisenhower. 

Again:  the name of the economist I’m suggesting is Keynes.  Not Marx.  And if you want to know where I stand, I’m more in the distributivist camp.  But I also think that taxes are just ways for the government to offer a disincentive to greed.

September 2, 5:26 pm | [comment link]
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