Addressing the economic issue, again

Posted on October 17th, 2008 by ecthompson md

joe the plumberOne of my commenters suggested that I was going after Joe the Plumber. Well, he actually said, “this is so typical how the weak intellectually deficient left wing liberals address an issue.” This brings up two issues — first, I did not say that “Joe the Plumber” is a bad guy or was a terrorist or was morally deficient. Instead, I pointed out the facts as they stand. “Joe the Plumber” may not be a plumber nor a contractor since he is not licensed to do either in Ohio. Secondly, I’ve addressed the issues in several posts (here, here). I addressed these issues long before John McCain made Joe the Plumber a household name.

Trickle-down economics doesn’t work and has never worked. Republicans have been unable to create jobs in comparison with the success of the Democrats. Since Truman, Democrats and their policies have consistently been able to create more jobs than Republicans. This isn’t my opinion. This is fact.

Creating incentives to get more money into the hands of the middle class stimulates the economy and causes small business to grow. Again, this isn’t my opinion. This is fact.

John McCain and the rest the Republican Party have proposed nothing new for our country’s economic woes. Their answer to every crisis is tax cuts for the rich. That is their answer. We’ve learned over the past 27 years that what happens is that the rich get richer and the rest of us are left behind.

Finally, I would like to address the notion that empowering the middle class is something akin to Marxism, socialism or whatever other derogatory term the right wing is using today. The middle class is the fiber of our country. As such, they are the engine that makes industry great. Under Franklin Roosevelt we saw increased taxes on the rich and a government that supported unions. Yes, I mentioned unions. Unions work to increase wages for the middle class. Unions are sometimes the only leverage that the middle class has against management. Unions also work to suppress inflated CEO salaries. So in the “40s and “50s, as a result of these forces, there was a compression of our society. The rich were a little less rich but the benefits of these policies made the poor a little less poor. Anything that benefits the middle class directly is something that I will support because it is good for America and good for our economy.

Tags: Blogging issues, Economy // 5 Comments »

  • http://www.scrutinyhooligans.us Gordon Smith

    Hear, hear!

  • http://www.whereistheoutrage.net ecthompson

    Thanks!

  • http://wombat28756@wordpress.com JeffLeon

    Since “Joe the Plumber” has no plumber’s license, shouldn’t he be Joe The Alleged Plumber?

  • Chris

    Doc:

    Sorry I’ve been away, I’ll try to be better.

    Even if taking your statement of “Democrats create more jobs” as true (honestly, I’m very skeptical of that remark, but promise to research it further), that’s only half the equation. In order for more jobs to benefit more people, there MUST be more wealth created, and Liberal policies can’t even hold a candle to Conservative ideas. Please read my friend Don Luskin’s article from the Wall Street Journal:

    http://online.wsj.com/article/SB122117691244025843.html?mod=opinion_main_commentaries

    Let’s get something settled once and for all. Have the stock markets and the economy historically done better under Democrats or Republicans?

    There is no shortage of exaggerated claims on both sides. But on the surface, the Democrats would appear to have statistics on their side. How many times have you heard some Democrat pull out some “study” (they always call it a study, it sounds so scientific) by some professor or some “nonpartisan” think tank that purports to show that since 1948 (it’s always 1948 for some reason) stock performance or economic growth has been better under Democratic presidents than Republican ones?

    So there you go. Forget about the tax increases. Forget about the regulations, the protectionism, the union influence. Democrats are great for growth. The study proves it!

    I’ve run the numbers myself. Superficially at least, the Democratic claims are true: Since 1948, the Standard & Poor’s 500 total return (capital gains plus dividends) has averaged 15.6% when a Democrat was in the White House and only 11.1% when a Republican was in the White House.

    You get a similar result if you look at growth in real gross domestic product. Under Democratic presidents, the average since 1948 has been 4.2%. Under Republican presidents it has been only 2.8%.

    But it’s not so simple when you study that “study.” First, not all Democrats act like Democrats, and not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.

    If you assign those four presidents to the opposite party based on that — make the two Democrats into Republicans and the two Republicans into Democrats — the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.

    In fact, it turns out that if you do just one single switch — if you make Richard Nixon into a Democrat — it’s enough to reverse the numbers. Then stocks average 14% under Republicans and only 12.1% under Democrats. This fact discredits this whole study more than it does Republicans, or even Richard Nixon himself. Any analysis that can be undone by omitting or changing a single data point isn’t very robust.

    There are other problems with this study as well. While stocks could be expected to react very quickly to changes and expectations of changes in the political environment, the whole economy doesn’t just turn on a dime. So when we compare real GDP growth under Democratic and Republican presidents, maybe we should lag the results by a couple years. That is, we’ll assume that the growth in a given year was the result of the president’s policies from two years ago.

    When we do that (putting Nixon back as a Republican, by the way), we find that the economy performed pretty much exactly the same regardless of the president’s party: 3.5% under Democrats and 3.4% under Republicans.

    But then who ever said that the president alone determines the economy or the stock market? It’s Congress that makes the laws. The president just signs them. Based on congressional control, the study results look very different. Under Republican Congresses, stocks have averaged a 19% return, while under Democratic Congresses only 11.9%. Real GDP growth, lagged two years, has averaged 3.7% under Republican Congresses, and only 3.2% under Democratic ones.

    Then there are the various party mixes between the president and Congress. If John McCain wins and we have a Republican president and a Democratic Congress, history leads us to expect an average 10.3% total return from stocks and 3.3% real GDP growth. If Barack Obama wins, and we have a Democratic Congress too, then according to history stocks will average 13.8%, and real GDP growth 3.3%.

    But that’s no argument for voting for Mr. Obama. Vote for Mr. McCain — but vote for Republican senators and representatives too. When Republicans have controlled the whole government, it blows away anything Democrats can do. Stocks have averaged 17.5% and real GDP growth 3.3%.

    By the way, as fond as Democrats are of saying how poorly stocks have performed under George W. Bush, here’s a sobering fact: Stocks averaged 14.1% return in those Bush years when Republicans controlled Congress — and when Democrats got in there and mucked things up, the average has been a loss of 8.9%. That’s not even including 2008 year-to-date, which doesn’t look so pretty.

    If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return, and real GDP averaged 4%. That tells us that economic and stock market success isn’t really about partisan politics at all. Sadly, nobody has a political incentive to conduct a study about that.

    Mr. Luskin is chief investment officer at Trend Macrolytics LLC.

  • http://www.whereistheoutrage.net ecthompson

    Chris, I really appreciate your comment.

    The Wall Street Journal article was perfect. It proves exactly what I’ve been saying. The author gives statistics which don’t affect the everyday man. The author is talking about gross domestic product (I’m not sure where he got the statistics things is not what I recall from what I have read), average return on stock and various variations of those two numbers.

    The average return on stock is not put money in the pocket middle-class. Instead, that puts money in the pocket of the rich. We’ve seen time and time again that the Republicans have lined the pockets of the rich and forsaken everyone else.

    The question isn’t how the line the pockets of the rich. Instead, the question should be how can we raise poor out of poverty and how can we make the middle class viable again? None of those nice numbers that are quoted in your Wall Street Journal article explaining how we actually get money into the pockets of the lower class and the middle class. How do we raise wages? We seen record profits of large corporations yet wages are stagnant. Why?

    Again, I will point you to my post Supply-Side Economics Never Made any Sense.

    By getting money into the lower-class and the middle class, we directly stimulate the economy. They go out and buy things at Wal-Mart and Target. They buy clothes for their children and a swingset for the backyard. This spending in fuses both small and large corporations with money. Then in turn, these corporations are able to expand and upgrade their facilities. It doesn’t work the other way around.

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