Ray Fair, a fine Yale economist, has the best economic model for predicting the outcome of presidential and congressional elections. The model has the virtue of simplicity, weighting incumbency, length of time a party holds the Presidency, and news about the economy on growth and employment relatively shortly before election. It has not been perfect in predicting each party’s share of the two party vote, but it has been good–good enough to be taken seriously outside the academy. The New York Times in fact devoted a whole interview to him, sadly marred by the seeming inability of the interviewer to understand why, Fair, despite being a Democrat, used his model to predict a Republican victory!
But the relative success of his model makes one doubt how strong is democratic accountability for the economic performance of government. Few, if any economists, would say that the news about growth and unemployment shortly before an election is a good proxy for that party’s economic stewardship. Business cycles are not in the control of the government. And perhaps more importantly, the most important policies a government undertakes likely take longer than a few years to bear fruit. Thus, the tax cutting policies of the Reagan era may be largely responsible for the prosperity of the Clinton years as businesses and people invested more.
2016 is shaping up as an election in which one of our parties will emphasize the need for growth and the other will call for greater economic equality. These concepts are often seen in substantial tension with one another. In my view, however, if the government encourages innovation we can have both growth and greater equality in the relatively short run.
As I wrote in yesterday’s Washington Times for the celebration of Liberty Month:
In this age of accelerating technology, there is no more important policy than to encourage innovation. Innovation is the primary source of economic growth. New innovative businesses, like Google and Uber, transform our lives for the better. And innovation builds on innovation, compounding growth from generation to generation. As the Nobel Prize winning economist Bob Lucas once said: “Once one thinks about exponential growth, it is hard to think about anything else.”
Innovation in the modern era also tends to make us more equal. Innovation creates a stream of new ideas that are rapidly enjoyed by the great mass of people. Material goods are scarce, because individuals can by and large not enjoy the same material simultaneously. But ideas can be enjoyed by all. To be sure, some innovations are patented, but these patents expire. And, as better innovations come along, the old patents rapidly become less valuable. That is one reason that smart phones have so rapidly become available to people of modest means. Thus, the greater the supply of innovations, the great the common pool from which almost everyone can benefit quite rapidly.
We thus need to ask all Presidential candidates what they will do to promote innovation.
Over the weekend Elizabeth Warren, the Senator from Massachusetts and a former professor at Harvard Law School, outlined eleven propositions, dubbed by the National Journal as “eleven commandments” for progressives. Warren is a very bright leader of today’s progressivism. Her propositions provide a window on the future trajectory of the Democratic party and its approach to law, three aspects of which seem particularly notable:
1.Opposition to crony capitalism. Warren wants government to make sure the banking system and Internet are run for the benefit of the people not big corporations.
2.Use of the regulatory system rather than tax system. Nowhere does Warren expressly call for higher taxes. But she does endorse a slew of regulatory interventions—a higher minimum wage, stronger protections for unions and “equal pay” provisions for women.
3. A relentless focus on equality. In marriage, in pay, and in access to higher education and contraceptives paid for by the government.
If these are the tenets of future progressivism, friends of liberty need to sharpen their critique.
1. They need to co-opt the attack on crony capitalism.