Nickel-pennies and Lincoln dollars or you’re gone.

Two years ago, in the wake of Barack Obama’s historic victory, I offered some unsolicited economic advice to our President-elect on the off-chance that he might be a reader of this august journal. Let’s see whether he’s listening:

Dear Mr. President-Elect,

In no particular order:

1. You want to raise the capital gains tax. Don’t. Do not. Not even a teensy tiny little bit. Ignore the hootin’ and hollerin’ about selling out to “Wall Street” or “Big Business” or “The Man” that would undoubtedly ensue from some of your backers. Higher capital taxes encourage capital flight, i.e., investment dollars would fly overseas.

Next year, the current capital gains tax rates are due to expire and return to their pre-2003 levels. That means they’re going up, on average. There’s still time to fix this (by which I mean “keep these tax rates where they are now”), but somehow I doubt that’ll happen. Capital will fly away.

2. You want to give 95% of “working families” a tax cut, and raise taxes on the other 5%. Don’t. I mean, do, and don’t. Do give the 95% the tax cut, but leave the other 5% alone—especially since you’re planning to go after their capital gains, too.

President Obama still intends to keep the Bush tax cuts for that bottom 95% and make the top 5% of income-earners (aside, of course, from members of his Cabinet) pay their “fair share.” It’s still a mistake, and there’s still time to fix it and extend the current income tax schedule.

3. I don’t know what your energy plan was, because by the time you got to it in the debates I flipped over to the cartoon channel. Anyways, permit more domestic oil drilling and fire up more nuclear reactors.

President Obama has called for more nuclear power plants, which is good, but not as good as, say, actually getting them built. Let’s get cracking.

Re oil. The BP oil spill has made President Obama hesitate to permit much offshore drilling (and perhaps to accept so much money from BP?)–even though the moratorium was lifted a few weeks ago, the administration has been slow-walking drilling permits in both deep and shallow waters. I realize that in the wake of the oil spill, it’s not exactly popular to say “Drill, baby, drill.” But I still think offshore drilling is a good idea and needs to be expanded–assuming we hold the oil companies responsible for damages, and allow the people with the ability to clean up any potential mess to get in there and get the job done instead of delaying them for weeks because (A) they can only make the water 99% clean instead of a bazillionty percent clean, or (B) they’re foreign.

4. Keep your promise of a “net spending cut.” There was some talk in your campaign of reducing federal tax revenues to around 18 percent of GDP. That’s fine, as long as the federal tax spending is around 18 percent of GDP also.

Um… 18% is downwards, Mr. President.

5. This one isn’t advice so much as it is a warning. Even if you try to make the tax code more “progressive” (i.e., the richer pay higher tax rates), some imbecile will nonetheless scream at you for being a shill for the rich. Why? Raising the marginalrates on the rich may increase the percentage of total tax revenues paid by the poor. Why? Because when the rich hear that the government intends to raise their income taxes and their capital gains taxes and their Social Security/Medicare taxes, they’ll become less productive, and there’s less income and wealth to tax. Atlas may very well shrug.

This warning still stands, especially in light of items 1 and 2 above. And since a few meek words of warning from this humble blog have failed to sway you (never having heard of me is no excuse), please allow next Tuesday’s election returns and Ayn Rand’s Amazon.com rankings to do so.

6. Maintain every free trade agreement we have, and sign as many more as possible.

Despite some anti-free-trade rhetoric during the campaign and earlier in his administration (before anybody starts to defend his “fair trade” stance, please stand warned that you may as well claim that the Earth is flat or that Santa Claus sired the Easter Bunny by the Tooth Fairy), President Obama has pushed for freer trade with Colombia, Panama, and South Korea. This is a promising start, and hopefully he won’t screw up NAFTA or our other FTAs.

7. Announce that pennies now count as nickels, and then slowly take them out of circulation, replacing them with real nickels. Put Lincoln on new dollar coins the size of the old Ike dollars. Also, start printing $500 bills again. I am not a crackpot.

My jar of pennies keeps getting fuller, I don’t see any Lincoln dollars, and I’m still waiting on the contest to replace McKinley on the $500. What’s the holdup?

8. Tell Bernanke to stop watching the Dow Jones and to do his damn job, which is to keep the dollar stable.

Erm… I’m not really sure that this is an improvement. A bit of deflation in 2009, a little inflation in 2010…

9. Abolish the concept of “off-budget” revenues and expenditures. Every dollar spent should appear in the budget, regardless of source and regardless of destination.

Still waiting on this one.

10. Push for my proposal to key congressional salaries to the size of the budget surplus (assuming you’ve implemented #9).

This’ll never happen. I think Congress would go for it, but voters probably wouldn’t because gosh darn it, congressmen should eliminate the deficit and reduce the national debt because it’s the right thing to do and not because of the seven- or eight-figure salary they’d get paid under my proposal.

There’s still time, Mr. President–maybe not to save your buddies in Congress, but to save your own hide in 2012. I had to pay twice as much for an Obama yard sign as I paid for one of McCain’s, the least you could do is everything I say.

15 comments

  1. Macroeconomics was a disaster for me, and I’m dreading the economics classes looming in my future, so I have absolutely nothing intelligent to say about most of this…

    But really? Drill more? What an awful idea. Obama has understandably (although disappointing) put environmental issues on the back burner thus far in his presidency. The oil spill, although terrible, at least forced him to direct some attention to it temporarily. Either way, with or without the oil spill, expanding offshore drilling is both expensive and risky. Money we should be using for alternative energy, and leave the oil in the ground for a rainier day. The risk of more rig explosions and environmental disasters cannot be dismissed so easily, either. This isn’t something we can clean up very easily and/or often without having to deal with legitimate and permanent consequences to the environment and related economies (fishing, etc.,).

    Nuclear energy seems fantastic but we have to first deal with storage of waste. Big bad radioactive waste. That stays big and bad and radioactive for a very long time. Plutonium-239, a particularly lethal waste product, has a half life of 24,000 years. Building big ol’ cement holes in the ground to store the plutonium seems great but we can’t have it too close to a fault line, etc., or run any risk of the radioactive elements contaminating population, soil, water, etc., and typically annually, nuclear reactors produce 20-30 tons of waste. Building more plants will only make the problem grow exponentially, and eventually we’ll have to face it…. (Additionally I think I remember learning that there is an actual moratorium on building nuclear reactors in the U.S..)

    So, alternate energy! Pretty please? With a cherry on top?

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  2. Before responding more fully, I’d like to know what you mean by “understandably.” I think we can draw the inner economist out of you.

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  3. Well understandably in respect to the fact that the administration has had to deal with the economic recession (including but not limited to the housing crisis, unemployment, company failures, stock market crash, depreciation of the dollar, etc.,), two pricey wars, foreign affairs, the national debt, etc., and that they take precedent over spending time on environmental regulations. Which I believe is logical and rational, however disappointed the other tree huggers and I may be… and thus “understandable”.

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  4. Also, I think the democrats inevitable failure this midterm will help Obama win next election – The public will be sick of the republicans and the administration will be able to blame the country’s woes on a conservative congress.

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  5. In reverse order:

    1. If Democrats retain control of both houses of Congress, even if only by thin margins, Obama won’t be able to get much through Congress and he won’t easily be able to blame the Republicans (“The Dems control everything, it’s their fault”). If the Republicans win one or both houses of Congress, Obama will have the opportunity to portray them as obstructionist and boost his chances of reelection–but that depends on (A) his ability to appear (if not actually be) moderate/centrist and (B) the speed of the recovery. I think he’s screwed on A, but for everyone’s sake hopefully B will kick in.

    2. Why is it “logical and rational” to let environmental concerns be such a low priority?

    3. Is there any upside to using nuclear fuel and oil, and is there any downside to using “alternate energy” such as solar power, hydroelectric dams, dilithium, or windmills?

    As an aside, I find it amusing that we refer to solar, water, and wind power as “alternate” forms of energy. In the long view, those are actually quite conventional (sun-drying, sun-heating, watermills, windmills, sails). Splitting the atom is the newfangled idea.

    (By the way, when’s the guy who actually built a vertical-axis windmill and lugged it around in the back of his truck going to chime in?)

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  6. You are such a teacher.

    1. I think he does a relatively okay job at appearing moderate/centrist. (I actually got a response on an article on that topic published in Time!) In any case, he’s more successful at appearing that way when we’re not in the middle of a midterm election. But yes, B would be the best case scenario especially when the Republicans storm Congress, which I fully expect them to do.

    2. It’s “logical and rational” because there are more timely issues to be dealt with, such as our economy, but also because the voters care more about instant gratification – and it’s only logical and rational for politicians to satisfy their constituents.

    3. Of course! Nuclear energy is extremely efficient and clean, France being the best cheerleader for it. As of right now, alternative energy is relatively expensive and inefficient. Dams can create environmental issues, windmills can be considered “environmental degradation” due to aesthetics and noise pollution, and so on.

    4. (That’s right, I’m adding a 4) The mobile version of the blog is very snazzy!

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  7. Back to Blonde…

    Sounds like you made the case for nuclear energy all by yourself in point #3. Weigh the benefits against the costs, take into account the likelihood/probability that those benefits or costs will materialize, and nuclear energy looks pretty darned good. And just wait until we figure out how to turn the nuclear waste itself into fuel. No less an authority than your former APES teacher favors nuclear power “if it’s done right”–which would be the precondition for any energy source.

    Back to oil… you say “we” should be spending money on alternative energy instead of taking on the expense and risk of offshore drilling. OK. Based on what grounds? We all know the upside of offshore oil, and you reiterated the downsides. That’s one side of the coin.

    What about the other side? You were gracious enough to grant that there were potential downsides to alternative energy, but what about the upside? How efficient is alternative energy now? How efficient can we expect it to be in 10, 25, 50 years? How long should we sputter along trying to find out before we use more of the fuels we already rely on, and find more efficient ways to use them? And precisely how much time, money, and effort should we be willing to spend on that conjecture?

    Don’t get the wrong idea–I eagerly await the day when we figure out how to turn the roads and highways into a network of solar cells, or how to make solar-receptive paint for our cars and houses, or how to absorb the energy of hurricanes with walls of windmills, or how to do whatever else might satisfy our hearts’ greenest desires. But I’m not going to hold my breath, and I’m not going to slow down economic growth (or human progress, or wealth creation, or whatever you’d like to call it) while I’m waiting.

    And I don’t want my tax dollars spent on alternative energy sources that private companies should be free to attempt to develop on their own, reaping profits if they succeed and suffering losses if they don’t. Of course, that also applies to oil companies, auto manufacturers, savings and loans, railroads, financial firms, and anybody else Uncle Sam might consider bailing out.

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  8. If I made the case for nuclear energy then I’ve certainly already made the case against it. I was only answering your question as unbiasedly and straightforward as possible.

    While I think nuclear energy would just move the world away from one inevitable dependency disaster to another, I still think nuclear energy is a massive step up from expanding oil drilling. Oil will eventually be exhausted, just as the space for nuclear waste will be, too. You’re hopeful for the time when we can turn waste into fuel, but dismissive of the idea of waiting for alternative energy technology to become more efficient and advanced. Tsk tsk!

    As for the economic growth, the debate between private or public, etc., the only economics expertise I can boast as of right now is a whooping 1 on the AP. So, whatever you say. 🙂

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  9. I applaud your straightforwardness, and I acknowledged that you’d made the case against nuclear before asking you about the upside. I think you made the benefits sound much larger than the costs.

    I’m not sure what you’re tsking, though. I don’t think I sound dismissive about alternative energy (see “I eagerly await…”). I just don’t think there should be public funding for it, and I don’t think our government should try to move us towards it. The more our government nudges us in directions other than where markets guide us (i.e., if they subsidize alternative energy), the more they slow down short- and long-term growth because the alternatives are horribly inefficient compared to oil and nuclear. When the alternatives become comparably efficient–as alt energy technology improves, as we run out of space for nuclear waste storage, as we run low on oil–then we’ll start using them as much as we use oil and nuclear today.

    For the record, subsidizing oil companies would also be a push in a direction other than where markets guide us, and governments shouldn’t do that either. But I don’t view permitting offshore oil drilling as a subsidy. I view capping the liability for economic damages caused by oil spills at, say, $75 million (as was the case for BP) as a subsidy, because that’s the government saying you won’t be held responsible for your damages. I think liability caps like that should be thrown out. If no one chooses to drill under those circumstances, then so be it.

    Sorry you missed out on the awesomeness that was my econ course.

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  10. “And just wait until we figure out how to turn the nuclear waste itself into fuel” compared to “How long should we sputter along trying to find out…” and “But I’m not going to hold my breath…” – Your tone would indicate that you’re more accepting of waiting for developments in nuclear waste and less patient when waiting for advancements in alternative energy.

    And I’m sorry I missed out on your econ course as well, or maybe I’d have a better developed argument for wanting alternative energy to be publicly funded. I just think that if done through the government, alternative energy will gain more support and attention. NASA didn’t develop a space program second to none or compete with the Soviet Union through privatized funding. Advancements come from big, government signed checks – and bringing alternative energy to the forefront of political debates and agendas will at the very least get the idea going and the American passion flowing. Yeah okay so even to me this sounds utterly idealist, but I think you get the point I’m trying to make.

    I also think its irresponsible to say that we’ll just deal with it when we have to. We should be making arrangements for the day when waste storage space is filled and oil reserves depleted before they are ever filled/emptied.

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  11. If my tone suggests that I am more accepting of waiting for “nuclear waste as fuel” than alternative energy, it’s because as far as I know, there are no serious efforts by the feds to subsidize it. (There may be such efforts, but it’s fantasyland and it would likely be an inefficient use of government spending.) However, I know of many serious efforts by the feds to subsidize other forms of energy. I don’t approve of them, for reasons mentioned above.

    Also, I didn’t say “we’ll just deal with it when we have to.” “We” should make arrangements for the future. “We” are making arrangements for the future. But you and I are using different definitions of “we,” or at least different views of the government’s role in “we.” Look at futures markets in alternative energy–there’re all kinds of people and companies who are willing to put their money into it. Energy companies spend billions of dollars every year trying to figure out the future of energy, because that’s their future. The government, meanwhile, is dumping money into Iowa to subsidize ethanol–to turn food, of all things, into fuel–and it’s not paying off nearly as well as expected, except in terms of looking good in the Iowa caucuses every four years and in terms of driving up the price of corn.

    “Advancements come from big, government signed checks.” They certainly can, but experience tells us that generally, advancements paid for by government come at a much larger cost (in time, money, oftentimes blood, and, of course, energy) than they would have from the private sector. This is a generalization–there are exceptions, and non-excludable, non-rivalrous public goods (sorry, those are econ terms) like military ventures (e.g., NASA during the Cold War) usually considered exceptions. Energy is excludable (you can keep others from using yours) and rivalrous (using a unit of energy precludes others from using that particular unit of energy), so it’s not a public good. However, you could make the argument that alternative energies warrant public funding because they serve a larger, non-excludable, non-rivalrous public purpose such as weakening the “petrocracies” in the Middle East and Russia. But you could make the same argument for subsidizing oil, nuclear, etc.

    (This reminds me, I need to write an entry about markets for clean air and property rights in lungs.)

    Final point. You write, “bringing alternative energy to the forefront of political debates and agendas will at the very least get the idea going and the American passion flowing. Yeah okay so even to me this sounds utterly idealist…” It is idealist, which is fine, but I think you’ve got it backwards. Usually, American passion and private action precede the political agenda and government action. The exceptions usually involve military action.

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  12. I’ll begin with the latter.

    That’s how it’s supposed to be, sure. But considering that ““The best argument against democracy is a five minute conversation with the average voter”, I don’t see many Americans getting impassioned over anything of use. (Unless you consider DADT and mosque building paramount issues)

    I LOATHE ethanol. It’s the biggest fraud of alternative “green” energy there is. Rather than having a positive effect, it’s environmentally detrimental. I’ll just consider biofuel an exception to my support of alternative energy.

    And it seems soon enough that I’ll be able to partake in intelligent discussions of the economy/economic action. My spring schedule has been made, and macroeconomics is wedged between my comparative politics and diplomacy classes.

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