Don't Play the Numbers
Chapman, Stephen
Don't Play the Numbers by Stephen Chapman The economy is expanding, unemployment is low, and inflation is at bay-none of which is to the benefit of a political party intent on recapturing the...
...Why the dramatic rise...
...But it does nothing to improve incentives for work and saving, which Republicans are supposed to care about...
...According to Cato Institute chairman William Niskanen, who headed Ronald Reagan's Council of Economic Advisers, the course of interest rates during this period "had nothing to do with fiscal policy...
...A recent example comes in the form of a press release from the House Republican Conference...
...But these ups and downs were unrelated to Clinton's tax increase and the GOP seizure of Capitol Hill...
...Today's Republicans are taking a different approach-at the peril of both the economy and their own political prospects...
...So Republicans, unable to point mournfully to the misery index, have been casting about for bad news to blame on Bill Clinton, even as they try to attribute any good news to the healing capacities of the GOP Congress...
...Ronald Reagan cut marginal rates that were far higher than these, delivering a much bigger windfall to the rich...
...But the incumbent was right on the two important points: Federal action would have been an expensive placebo at best and a positive hindrance at worst...
...In truth, it had ended before the campaign began...
...But he never suffered for it politically...
...The urge to turn the month-to-month fortunes of the economy into a morality play is not hard to understand: Bill Clinton got elected largely because he skillfully exploited this myth, so it could be seen as fitting and just that the GOP retake the White House by turning the myth against him...
...A recognition of the Federal Reserve's crucial role, by contrast, goes with accepting that monetary policy, though the most important influence on the economy's short-term fluctuations, is a clumsy instrument and therefore one to be used with caution and humility...
...But in July 1995, with the economy slowing and apparently on the verge of stalling, the Fed eased off the brakes, allowing interest rates to begin the descent to their current low levels...
...So while congressional Republicans denounce Clintonomics, they have not sought to undo it...
...Their Contract with America ignored the rate increases, and their leadership in both houses has followed suit...
...By explaining broad economic trends as the near-instant products of good or bad fiscal actions, or even good or bad fiscal intentions, it perpetuates the fiction that elected officials in Washington have perfect control over growth, unemployment, and the general financial well-being of the nation...
...It shows instead the danger of grabbing just any available political weapon, something Republicans will be increasingly tempted to do with the approach of the November election...
...If it is critical to block future increases, why is it not important to repeal recent ones...
...He made Americans understand that onerous levels of taxation on the affluent are bad for the economy and bad for persons of modest means...
...Economists may argue about whether Alan Greenspan and Co...
...Furthermore, the Conference's glib analysis is an act of political imprudence...
...The Conference notes that home ownership has reached its highest level since 1982, and guess who it says is responsible...
...By trading on the notion that the economy can be fine-tuned, House Republicans invite the sort of activist fiscal gimmicks that have lost favor even among liberal economists...
...Mortgage rates began a steady drop the month after Bill Clinton was elected and continued falling for nearly a full year, apparently oblivious to his proposed tax increase (unveiled in February 1993) and its enactment (six months later...
...But a closer examination reveals the emptiness of the boast...
...Don't Play the Numbers by Stephen Chapman The economy is expanding, unemployment is low, and inflation is at bay-none of which is to the benefit of a political party intent on recapturing the White House...
...But, contrary to these claims, economic events did not flow from political events so neatly...
...Stephen Chapman is a syndicated columnist on the staff of the Chicago Tribune...
...These actions constituted a deliberate rollback of the greatest economic achievement of the Reagan administration, as well as a repudiation of the supply-side theory that lower marginal rates stimulate output...
...That change can be defended as merely a reclamation of some of the lost value of the personal exemption, gutted by inflation...
...But it remains a myth, and is no real friend of conservative economics...
...were wise in managing interest rates this way...
...Republicans also invite the charge of hypocrisy on their most potent theme: opposition to tax increases...
...They were almost wholly the work of the Federal Reserve Board...
...No Republican voted for the Clinton tax increase-the heart of which was an increase in marginal tax rates for both individuals and corporations-but neither have congressional Republicans taken steps to repeal it...
...This belief did a lot to destroy the reelection effort of President Bush, whose realistic conviction that the 1990-91 recession would be ended only by time was taken to be defeatism, even callous indifference...
...asks the Conference...
...Meanwhile, it boosted the top corporate rate from 34 percent to 35 percent...
...the Clinton measure raised it to 36 percent and added a 10 percent "surcharge" on taxable income above $250,000 (yielding a top rate of 39.6 percent...
...Leery of being attacked for redistributing money to the rich, Republicans have voted to cut taxes in an entirely different way-through a $500-per-child tax credit...
...After the election of the first GOP Congress in 40 years, mortgage rates began a steady decline and are now hovering around 7 percent...
...and the recession was going to end soon anyway...
...They did begin to climb in November 1993 and continued upward until December 1994...
...The top personal rate had been 31 percent...
...It also leaves unrepaired the damage done by the Clinton hikes to Reagan's already-tattered 1986 tax reform...
...what no one really disputes is that it was they, and not others, who were responsible...
...The lesson is presented as clear and simple: "The Republican promise of a balanced budget, pro-family and pro-growth tax relief and our success in compelling the President to agree to these goals . . . have meant lower mortgage rates for families...
...Pat Buchanan, in the GOP primaries, and later Bill Clinton were able to depict Bush's inability to revive the economy with the flick of a finger as unwillingness to help victims of the recession...
...Efficiency-sapping tax dodges not worth the trouble to escape a 31 percent rate can be powerfully alluring when the gouge rises to nearly 40 cents on the dollar...
...He also cultivated an understanding that Washington has the best effect when it concentrates on creating a framework for long-term prosperity, not worrying unduly about passing economic events...
...In 1993, as the economy continued the expansion it began in 1991, the Fed tightened its monetary policy, which had the effect of raising interest rates- including, in due course, the price of a home mortgage...
...After the first year of the Clinton administration, . . . as the Clinton Democrats' largest tax increase in history kicked in, mortgage rates rose from about 7.1 percent in November 1993 to 9.2 in November 1994...
...This neglect is particularly glaring given that one of the first new rules enacted by the Republican House requires a three-fifths vote for any increase in income-tax rates, personal or corporate...
Vol. 1 • March 1996 • No. 25
