Before the first presidential debate fades into the next news cycle, there are three economic points that bear revisiting:
We need a new paradigm for trade policy. The outsider campaigns of Trump and Sanders, along with the realities of many people and communities hurt by globalization, have elevated international trade as a major issue in this election. Trump advertises an unrealistic nostalgia, a return to a time when trade flows were a fraction of their current size. His word salad on the issue the other night underscores the fact that there is no coherent plan to get back there even if we wanted to. Clinton correctly points out that “we are 5 percent of the world’s population; we have to trade with the other 95 percent.” She aspires to reshape, not restrain, globalization.
What’s needed is a framework for the type of “smart, fair trade deals” that Clinton says should be the norm. Yes, that framework should include enforceable disciplines against other countries’ currency management, something both candidates support. But much more is needed.
Trade expert Lori Wallach and I just published our proposals in this space, which include both process reforms and new negotiating objectives. Our ideas, if adopted, would increase the transparency of trade negotiations, reduce corporate influence over the eventual agreements, discontinue protectionist practices and provisions that put sovereign laws and taxpayer dollars at risk, and strengthen environmental, health, and labor standards both here and abroad.
Trickle-down economics still doesn’t work. Trump bragged that his “tax cut is the biggest since Ronald Reagan” and asserted that “[i]t will create tremendous numbers of new jobs.” To say the least, the empirical record belies that assertion, as I and others have often noted. The graph below shows that, on the individual side of the tax code, there is no historical correlation between the United States’ top marginal tax rate and employment growth, a far different relationship than you’d expect to see if claims like Trump’s were correct.
On the corporate side of the code, tax expert Bill Gale and his colleagues summarize that “there is virtually no evidence that broad-based [corporate] tax cuts have had a positive effect on [economic] growth…That has been amply demonstrated at the national level, where tax cuts have eroded revenue without discernable effect on economic activity.”
One of the most striking and recent real-world rebuttals to the narrative Trump continues to push comes from Kansas, where one of his top advisors made similarly rosy predictions about a massive tax cut that “have proved strikingly inaccurate.”
As I’ve said before, if facts could kill trickle-down propaganda, it would have died long ago. The one thing I can say is that, while it does seem to be the case that such tax plans may buy some votes from their beneficiaries, the rest of the electorate doesn’t buy it, and there are fortunately a lot more people in the latter group.
Federal Reserve policy matters and deserves discussion during election season. As I recently wrote, Trump’s comments about the Fed’s decision-making were completely wrong. But the fact that the Fed came up in the debate was a positive; “there’s no reason such an important public institution – one with such a large impact on people’s lives – should be off limits in political debates.” It was also great to see some discussion of the Fed during the Democratic primary, when both Bernie Sanders and Clinton indicated support for making the nation’s largest bank more representative of the general population.
There’s much beyond these points that matters to the economy, of course, and last night’s debate didn’t even mention several issues that affect millions of people and which the next president absolutely must address: poverty, health care, and immigration, to name a few. But if we can get our trade policy right, debunk trickle-down tax nonsense once and for all, and inject progressive monetary policy discussions into the political debate, we’ll be introducing a lot more substance than I dared to hope for in an election season that’s been a touch devoid of such matters.