Obama's Economic Plan

A Presidential candidate with an economic plans in a free market liberal democracy would seem like an oxymoron. After all, a free market has limited government intervention so how exactly could the President—or any politician—affect the economy?

If the last month has taught us anything it's that the United States is not a totally free market. Sure we aren't like the former Soviet Union or Cuba with a central planner who decided how many shoes to make, but government intervention in private corporations does exist. So while the President does not have as much control over the economy as voters may believe, he certainly does have tools that he can use that have some sort of influence over the economy.

To make this easy, I'll do each candidate's policies/proposals separately starting with Obama.

Obama has called himself a "pro-growth, free-market guy" and judging by his past and economic advisers there is little reason not to believe him. For starters, Obama taught at the University of Chicago Law School, which doesn't sound like a place that has anything to do with economics, but it has given the world a Nobel Prize winner in Economics—Ronald Coase. Obama has also surrounded himself with highly respected economists from academia—Austan Goolsbee, 37, a University of Chicago professor, Jeffrey Liebman, 39, a pension and poverty expert at Harvard University, and David Cutler, 41, a Harvard health economist.

The Economist ran a story last week about an (unscientific) survey of top economists in the U.S. and who they think would handel the economy better. Obama won hands down as most economists feel that "Obama has a superior economic plan, a firmer grasp of economics and will appoint better economic advisors."

So what is Obama's economic plan? You can look it up here, from his website, and I'll break it down bellow.

-- The first thing that jumps out is the $25 billion that Obama wants to spend on improving public infrastructure (think of roads, water pipes, rail roads, even broadband Internet, etc) arguing that doing so will also create jobs. There is a lot of truth to this, federal investment in infrastructure over the last decade has declined to the lowest levels since 1950. Hopefully there are not any more bridge collapses, like the I-35 bridge in Minneapolis last August, on the horizon, and the U.S. cannot afford a crumbling or outdated public infrastructure system. The U.S. economy, in part, runs on a fast, open, safe, and modern infrastructure . Investment in infrastructure to ensure that it continues to be the most efficient and a world class system isn't a bad idea. And yes, it will create jobs also.

-- Obama also wants to offer each family a $1,000 tax rebate (because of high energy costs). Personally, I'm a little more lukewarm on this proposal... but if you compare 2nd quarter spending in the United States to the soon to be released 3rd quarter figures, you'll see a growth in spending in the 2nd quarter and a huge decline in 3rd quarter spending (if August is any indication). Say what you will about those tax rebates back in the late spring, but they did have some effect on the economy—a good effect. Policy like this is not limitless and does stink of populism, but there are worse policy ideas out there.

-- Obama will keep taxes (i.e. the W tax cuts) at there current rate for anyone making less than $250,000 a year. For those making more, the income tax rate will rise from 33/35% to the Clinton Era 36/39.6%. According to economic theory we should see those who make over $250,000 to not work as hard, but there was little evidence of this being true during the 1990s.

I should also mention that the Bush tax cuts of the first half of this decade widened the gap in after-tax income between the rich and poor. The U.S. has seen its Gini Index increase in recent years (the Gini index is a coefficient that measures the gap between the rich and poor). The current gap is probably higher than most policy makers and economists would like to see. I personally would like to see the gap fall to where it was in the 1980s (or even lower) and Obama's tax policy should bring about a decrease in the U.S.'s Gini coefficient.

-- However, despite his claim of being a free market guy, Obama has opposed many of Bush's free trade agreements in the Senate. He has also had a protectionalist platform during the primaries and general election. More on this another day however.

-- Maybe the most interesting proposal is that Obama will keep the current rate of 15% in dividend and capital-gain taxes for anyone making less that $250 thousand. He would raise the rate to 20% for the "rich".

For a second pretend the stock market isn't falling tanking, keeping the tax rate low on investments is a good thing. For far too long the government has not encouraged Americans to save money, and while Obama is not proposing anything that would be an incentive to increase savings, keeping the tax rate at 15% for most Americans also would not be a disincentive.

As for how you feel about the increase on the wealthy, well that's up to how you take your politics. It's a disincentive to the rich to invest, but at the same time spending probably would not increase too much and we would most likely see the rich just shifting their investment patterns. (Also, let's face it, unless you put a ton of time and energy into the stock market, you're pretty much guessing; don't let anyone tell you other wise. So making money in the stock market is a little luck, should you be taxed for being lucky? Again, personal choice...).

-- Any senior citizen who makes less than $50 thousand a year would not pay income taxes under Obama's proposal. I'm not sure what percentage of senior citizens pay income taxes as it is, but this appears to be an obvious political poly to get seniors (who vote) to vote for Obama. I won't call it bad policy, but it's definitely not good policy.

-- Odds and ends... Obama will cut spending but he hasn't told us how... sadly, Obama has not reveled any plan on how to deal with Social Security, and the even bigger problem in the years to come, Medicare.

Over all, Obama's economic policy seems fairly level headed. It leans a bit to the left, but it is light on the side of bad policy and filled with some good ideas. And maybe the best thing about Obama's economic plans are the people he has surrounded himself with—these are economists than even those on the right will have a hard time disliking, let alone disagreeing with.