“It was this administration which saved the system of private profit and free enterprise after it had been dragged to the brink of ruin.”
– President Franklin Delano Roosevelt, bragging a little.
It’s a common belief that the right wing in the US is the political alignment of business. They stand for lower taxes, lower regulation, and a generally lighter hand on the economy. That may work out well in good times, but hard times call for more. It’s when things get dark that the true Liberals, capital “L”, stand up and make things happen.
Hillary Clinton, with a good shot at being the FDR we really need, may just have stepped up to do that.
In a speech to NYU’s Stern School of Business, Sec. Clinton assailed what she called “Quarterly Capitalism” railed against the tendency of large corporations to not think beyond the next quarter. She outlined a range of proposals to study, but the centerpiece was a change in the capital gains tax – to lower it gradually from a high rate in the first year to a much lower rate in five years.
It seems so simple, but the effect is powerful. Where this proposal may not have made the mainstream media due to its snore-inducing wonkishness it got the attention of the financial press. They were, on the whole, cheering loudly.
The basic problem we face right now is this: expectations for growth in the economy are for 2% growth out as far as the eye can see. As long as everyone expects that there is no reason to invest in growth. So it’s a self-fulfilling prophecy.
We’ve commented here in Barataria about the potential rise in investment, which may be the main reason that corporate profits are sluggish lately. There’s a chance things will turn around on their own. But if you’re looking for solid policy reform, encouraging long-term investment is definitely the way to go. As Clinton outlined, there are likely many things that need to happen, including shareholder empowerment, that can make a big difference.
This runs completely at odds with the prevailing views on the progressive wing of the party, which is more focused on tapping business profits to increase income equality. The truth of it is that solid economic growth will help everyone, the poorest included, but only if we can build a genuine, lasting long-term relationship between workers and capital again.
It’s good old fashioned Liberalism at its best.
How can policy genuinely encourage investment? It’s hard to say for sure, but there is a weak correlation between higher marginal tax rates and higher investment and thus higher economic growth. The theory is that rather than pay taxes a corporation will invest in itself. It’s a belief that hasn’t been popular since the 1980s, when lower taxes (and especially lower marginal rates) came into vogue, but it may be correct.
At the very least it’s clear from all the data gathered that no nation can simply cut its way to prosperity. There are bills to pay no matter what.
Sec. Clinton isn’t going quite that far yet, but the perspective and principles she is starting from are right on. The key to a successful system is that it works for the long term, where free markets are at their greatest power. Yes, “In the long run we’re all dead,” as JM Keynes famously observed, but we can’t reasonably expect the market itself to make us all fat and happy. It just does a damned good job of it when it’s at its best.
It doesn’t mean that some of the progressive demands can’t be met as well. The drive for a much higher minimum wage might also make sense, especially if a way is found to reduce employment taxes and make it mostly pay for itself. A stock transaction tax might still be a better way of taxing corporations, especially if it’s phased out based on the length of time that a stock is held. But these are all options.
What matters is that Sec. Clinton is finally making the case that she is the kind of Democrat we have long been looking for – another FDR. Let Sen Sanders play Henry Wallace for a while, and let’s cast Bill as Eleanor reaching out to feel the pain of the world.
With this speech, Sec. Clinton made the case for the old fashioned Liberalism of the kind that makes use of the great power of the free market for everyone. She may have even defined her candidacy. Here’s hoping.