Monday, May 27, 2013
The Republican Economic Model
Having finished with the online Principles of Macroeconomics I'm now trying to apply some of the lessons by paying more attention to financial news. It is something of a challenge as most of the news one comes across is dealing primarily with short term financial trading oscillations which hold little interest for me.
I did recently stumble on a financial news program - I think it was hosted by PBS - in which there were some interviews which touched on macro fundamentals. The first two talking heads were traders responding about recent interest rate and exchange rate fluctuations and the reactions to rumors that the Fed might be backing off on the current low rate. The comments on monetary policy seemed rather sensible and non-inflamatory - unlike the usual WSJ cant which routinely denigrates Bernanke, calls for less discretion in rate setting, morns the demise of the Gold Standard, and by-the-way advocates eliminating any kind of business and financial regulation. Then came Carly Fiorina.
Fiorina, ex-HP CEO, was asked for her opinions on the Senate hearings in which Apple's Tim Cook was called on to explain how the company escapes paying billions in taxes by transferring huge sums to Irish investments. I couldn't really argue with Fiorina's initial reaction, which was that the Senators were mostly trying to look like they were poised to take action in fixing the tax laws without really planning on doing anything of substance.
Then came Fiorina's prescription for fiscal soundness. The message that the Senators should be taking from the Apple hearings, according to the (failed) ex-CEO and (failed) Senate candidate, was that Apple had behaved just as it should and, furthermore, if the Senate was really interested in fixing our economy they should emulate the example of Ireland by lowering our business taxes. Now, the last time I looked, the Irish economy was a total train wreck with GDP growth expected to hover around 1% for the next couple years and an unemployment rate likely to hit 15% next year.
Where in Fiorina's picture is there a semblance of reality? One might excuse such a world view in the boom leading up to the 2008 crash, but not now. A picture of actuality was provided in one of Krugman's March columns about the Irish experience:
So, what useful lessons are to be learned from the Fiorina interview? The thing that occurs to me off-hand is that the fabulously rich can say just about any damn fool thing over and over without any real penalty because:
a) they aren't the ones who pay for the mistakes their views engender, and
b) The Wall Street Journal will treat their opinions as serious commentary.
On a more serious note, Fiorina and the rest of the corporate tax bashers simply never get around to providing convincing evidence that lower corporate U.S. tax rates will actually result in economic benefits beyond shifting yet more lucre to the 1%. It is worth reading the December report on the subject from the Congressional Research Service.