The Myth of the Rational Voter, and the Honest Economist

There is an excellent “Opinion” piece in today’s US print edition of the Wall Street Journal.  It is titled, “A Vote for Trump Is a Vote for Growth“.  It is written by Wilbur Ross, a private equity investor, and Peter Navarro, a business professor at the University of California, Irvine.  Both are senior policy advisors to the Trump Campain. So we can assume that they are in Trumps’ camp.  However, the article is not political per se and actually discusses the economic differences between Trump and Clinton.

As we have all heard via the initially exciting, then later boring, presidential debates, Trump is looking to lower taxes, cut regulation, and overall encourage enterprise.  Clinton wants to raise taxes (on the “rich”), increase regulation, and otherwise beat out of us all the desire and even natural need for enterprise.  Yet Clinton told us all that “economists have looked at both plans and Trump’s adds 3m unemployed and Clinton’s plan adds 10m new jobs.  For all the rhetoric, which is the right answer?  Does increasing taxes and regulation create more growth?  No, never in a million Sunday’s.  So why are these economists all in favor of Clinton’s plan?

First we have to ignore the temptation that such economists are in the Clinton camp and are therefore inclined to support the status quo.  We gave the same credit to Messers Ross and Navarro so we should do the same for the “other side”.  Second, perhaps there is some truth in data that we are missing?  And this is where the article comes in.  The authors suggest, with some credibility and some additional data, that the scope of the analysis is the key.  For example, if you only look at tax revenue as an indicator of fitness, a simple tax reduction will reduce receipts, and a tax increase will lead to an increase in receipts.  At least that’s the theory.  The scope of this point is the issue – it only looks at tax receipts.  What happens to the money? Where is it invested?  What returns does it get?  What kind of multiplier is involved?

Tax cuts tend to create, over the long term, increased tax receipts.  This is somewhat counter intuitive. It takes place since with more money in our pockets and business balance sheets, all other things being equal we tend to spend more.  Private industries multiplier effect, the knock-on spend that follows from an initial saving or investment, tends to be larger than that seen in the public sector’ not least since public sector tends to “pick winners” and investment based on ideology and policy, whereas the private sectors invests based on performance criteria and is more objective. 

Tax raises tends to reduce tax receipts over the long haul.  Again, this might seem counter intuitive.  As tax rates increase we are all motivated less to work harder and seek that promotion since more of what we earn will be taken by Uncle Sam (or Auntie Hilary). As such the marginal volume of work as a result of the tax hike tends to fall.  Overall then the tax receipts fall. 

So the key to the argument over which plan – Clinton’s or Trump’s – will actually grow the economy and lead to more jobs – depends on the scope of the analysis.  Some economists, noted in the article, take a long view and they argue convincingly that Trump’s plan is economically viable, and Clinton’s is not.  From experience in the UK where the same diametrically opposed plans have been promoted and tried, over and over, it is self evident that Trump’s plan is better.  Yet the mass population does not understand the details, and worse it is being fed a diatribe by so-called “experts”.

Alas the innocent vote is being hood winked.  And worse, the real experts, such as the Federal Researve, are complicit in this issue.  I can’t include “Treasurery” here as that is political role, not an economic or independent role.  If only we couldn’t the facts out; and if only we can get Trump to be a little more humane.

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