The Entrepreneurial View #489
Voters, the Economy and the Policies
by Raymond J. Keating
The phrase that most people remember from the 1992 presidential contest is "It's the economy, stupid." That was the focus of Bill Clinton's campaign, as the Arkansas governor challenged and beat President George H.W. Bush.
What about this year?
Well, once again, it's the economy. And once again, it's not pretty.
Real GDP growth slowed to a crawl over the past two quarters. The Federal Reserve's "beige book," released on June 11, painted a picture of continued economic weakness or sluggishness from late April through May.
And the polls confirm that among the public, the economy ranks as the biggest worry.
A May 30-June 3 poll asked adults about "the most important problem facing this country today." Number one was the economy/jobs at 34 percent, and then gas/heating oil at 16 percent. Put those together, and 50 percent are focused on economic issues. Next came the war in Iraq at 15 percent.
CNN-Opinion Research followed with a June 4-5 poll of registered voters, which asked about the most important issue "when you decide to vote for president." Forty-two percent said the economy, while the war in Iraq came in second at 24 percent.
Obviously, economic policy is a major issue that candidates for president and Congress must address as we head into the November elections. Then the question becomes: Does a candidate go with sound economics, or with populist pandering?
So, on energy policy, two choices basically exist. One is what makes sense in terms of the economics. That is, removing governmental obstacles to increased energy production, such as unnecessary taxes and regulations, and prohibitions on energy exploration and development offshore and on federal lands. In essence, get government out of the way and let the market work.
The other option would be to play the politics of bashing oil companies both rhetorically and with higher taxes, while also having the decisions of politicians and their appointees overrule those made by businesses, entrepreneurs and, ultimately, consumers in the marketplace. That could score a political point here or there, but will only work against making energy more affordable.
Likewise, there are options on taxes. Common sense economics dictate tax relief measures that boost incentives for working, investing and entrepreneurship - the engines of growth in our economy. That means, for example, making permanent the 2001/2003 tax cuts that lowered personal income, capital gains and dividend tax rates, would phase out the death tax, and expanded expensing levels for small business capital expenditures. Reducing the non-competitive U.S. corporate income tax rate, and eliminating, or at least indexing for inflation, both the individual and corporate capital gains taxes also would be plusses for economic growth.
In contrast, quite simply, allowing those 2001/2003 tax cuts to expire - thereby imposing a massive tax hike on entrepreneurs, investors and the economy - makes no sense whatsoever. It clearly would restrain economic growth and job creation.
Finally, there is the matter of health care reform. It's an issue that comes into play seemingly every election year, and 2008 is no different. Again, the difference between the two main policy paths is stark.
One choice focuses on the market with consumers in control, and policies geared to reduce costs and expand choices through, for example, less regulation and fewer mandates. The other option is moving closer to or imposing a government-run system, which - given the incentives at work in government - would translate into poorer health care quality, higher costs, and eventually, rationing of care.
Indeed, the 2008 election is about the economy. The question is: Will those running for Congress and the White House offer policies that make economic sense, or not?
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
