WHAT COULD POSSIBLY GO WRONG?
Today, one of my students came into my class with an editorial in the Wall Street Journal written by Phil Gramm. Gramm is a visiting scholar for the American Enterprise Institute. the American Enterprise Institute, according to its own website, is “committed to expanding liberty, increasing individual opportunity and strengthening free enterprise.” In other words, it is a corporate “don’t think” tank dedicated to spreading whatever propaganda the economic elite issues. As a self described research institute, the American Enterprise Institute specializes in shrouding their propaganda in official sounding statisticy verbiage that lends its claims a patina of legitimacy. As a visiting scholar, Phil Gramm is a corporate lap dog. His time in the US Senate is proof of his qualifications for this servile position.
Consequently, it was no surprise to read the usual platitudes about how horrible the Obama recovery is, and ‘secular stagnation.’ If you have read any conservative critique of the so called Obama economy in the last year, you have read Gramm’s editorial already, so spare yourself the time. There’s the standard “taxes are too high” and “regulations are too burdensome” lines. He references some mystical, magical research without actually taking on the burden of citing any. He camouflages his data with dubious percentages, “Marginal tax rates on ordinary income are up 24%, a burden that falls directly on small businesses. Tax rates on capital gains and dividends are up 59%.” The percentages are accurate, but say little, as is characteristic of percentages that are not grounded in context. For instance, calculating increases in tax rates are tough because there are different tax brackets. So if we look at top marginal rates on dividends alone, we see it increase from 15% to 20%. A thirty-three percent increase. Using the percentage, rather than the raw numbers makes it sound worse than it is. Also in context, the tax rate on earned income, income from wages and salary, for a person making $37,450 a year is 25%. It’s doubtful that someone making #37K has the much of a dividend portfolio. Another problem for Gramm is the fact that taxes and regulations are much lower today than they were in the 1950’s and 1960’s when the United States experienced its greatest, most equitable, period of economic growth.
Gramm also claims, “Compared with the average postwar recovery, the economy in the past six years has created 12.1 million fewer jobs and $6,175 less income on average for every man, woman and child in the country. Had this recovery been as strong as previous postwar recoveries, some 1.6 million more Americans would have been lifted out of poverty and middle-income families would have a stunning $11,629 more annual income.” See what he did there? Gramm, you are a master. He begins the paragraph by comparing Obama’s performance to the “average postwar recovery.” Okay. Seems reasonable. Of course, most postwar recoveries were not building from a recession quite as bad as 2008. Regardless, he then makes inference to “previous postwar recoveries.” Technically truthy, but deceptive. He does not specify which previous post war recoveries. Certainly he’s not referencing the W. Bush recovery, when taxes were the lowest and the regulatory burden was lax at best. Doing so would be problematic for Gramm’s thesis, as Obama’s recovery, albeit anemic, outshines Bush’s hands down.
The bottom line is this. Phil Gramm’s prescriptions for strengthening the economy is not to be taken seriously. As Senator, Gramm has two major accomplishments. First is the Gramm Rudman Act of 1985. This bill was a response to the dangerously high deficits run up during the Reagan Administration. What’s that you say? That can’t be true. Saint Ronald would never do such a thing. Oh, it’s true! It’s true. And Phil Gramm had a plan. He and his cohorts created something called sequestration. If the President and Congress could not come up with a deficit reduction plan, then automatic, across the board cuts would take effect. The Gramm Rudman Act was largely ignored. The best anyone can say about it is that it forced the government to take deficits seriously…ish.
But wait a minute! This plan sounds awfully familiar. This sounds like the sequester that was passed into law by the Budget Control Act of 2011. Indeed, it does! So, let’s put this in perspective. Gramm’s first major piece of legislation worked best when it wasn’t implemented. But now that it really has been implemented, Gramm is criticizing the weak results of a recovery for which his plan was a part. Only Gramm!
Gramm’s next big accomplishment was the Gramm Leach Bliley Act of 1999, otherwise known as the Financial Modernization Act. The FMA effectively repealed the New Deal era Glass-Steagall Act of 1933. For over sixty-five years Glass-Steagall provided a firewall between consumer banking and more risky investment banking. It worked. Yes, there were recessions and banking crises, but for the most part, two-tiered banking provided for stability in the market. In 1999, Gramm and his cohorts, prodded by about $300 million worth of lobbying, decided that this worth while legislation had to go. It was too much of a regulatory burden, and we all know how Gramm feels about regulatory burdens. Gramm Leach Bliley was instrumental in setting the stage for the 2008 financial crisis.
In short, Gramm’s two major accomplishments in the Senate both set the stage for economic catastrophe and helped slow the economic recovery from said catastrophe.
At this point any legitimacy that Gramm may pretend to because he once held an important job, and is now considered a scholar for what is in essence an advertising firm, is defunct. Phil Gramm is the last person anyone should listen to for economic advice.
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