Hillary Clinton and the Fatal Conceit
Here are some statistics regarding the speeches that four presidential hopefuls used to announce their candidacies:
- Jeb Bush: 2,217 words; “grow” or “growth” used 7 times
- Hillary Clinton: 5,125 words; “grow” or “growth” used 32 times
- Martin O’Malley: 2,158 words; “grow” or “growth” used 3 times
- Bernie Sanders: 1,729 words; “grow” or “growth” used 0 times
So, is Hillary Clinton 4.5 times more pro-growth than Jeb Bush? No, although she may well be infinitely more pro-growth than Bernie Sanders. If you judge by Hillary’s announced policy proposals, she isn’t pro-growth at all. Rather, Hillary is a “neopaleoliberal.”
David Brooks summed up Hillary’s neopaleoliberal economic philosophy as follows:
“This neopaleoliberalism is built… on a tremendous faith in government to manage the economy more intelligently than the private sector. It’s… an optimistic faith in the power of planning. The private sector is not evil or power hungry, just kind of dumb.”
F. A. Hayek had a term for this: “the fatal conceit.” Rather than relying on price signals to coordinate economic activity, Hillary proposes to give bureaucrats even more power to intervene in economic decisions than they have under President Obama.
Again, in Brooks’ words:
“Hillary Clinton used her kickoff economic address to embrace the idea that government can write rules to govern how much companies pay their workers. Government can direct investors toward more sensible long-term investments. Government can refashion the way companies distribute equity in their companies. Government can determine how companies should structure and manage themselves.”
This is progressive statism, the kind that has produced economic stagnation everywhere that it has been tried. It is the polar opposite of “pro-growth.”
So, why is Hillary Clinton, a leftist that is being forced even farther to the left by Bernie Sanders, trying to convince us that she is pro-growth? Simple. Hillary wants to win the election, and she knows that the voters prefer strong economic growth to government-enforced income redistribution in pursuit of “fairness.”
The 2016 presidential race is shaping up to be an almost pure “Wanniskian” election. In his seminal 1978 book, The Way the World Works, Jude Wanniski noted that democracies tend to evolve two political parties: a party of economic growth, and a party of income redistribution. In the run-up to the 2016 election, America’s two great political parties are polarizing along Wanniski’s axis to perhaps the greatest degree in living memory.
Republican presidential candidate Jeb Bush has made his goal of “4 percent growth as far as the eye can see” the centerpiece of his campaign. The other Republican hopefuls are also running as “pro-growth” candidates, although they have not been bold enough to state a numerical goal.
Hillary knows that if voters come to believe that Jeb Bush would actually deliver “4 percent growth as far as the eye can see,” her candidacy is doomed. Here’s why.
In 2012, the reviled “one percent” received 22.46% of total income, leaving 77.54% for “the 99 percent.” Meanwhile, real GDP (RGDP) growth under Obama (whose policies are more favorable to growth than Hillary’s) has averaged 1.79% thus far.
Even if Hillary could (somehow) maintain Obama’s growth rate while (somehow) instantly rolling the income distribution clock back to 1976 (when “the one percent” claimed only 8.95% of total income, the all-time low), “the 99 percent” would be better off with Bush. They would be earning more total income by the end of his second term, and they would enjoy a much more vibrant economy along the way.
One of Hillary’s most dangerous flights of economic fancy is the notion that it is possible to boost RGDP growth by raising capital gains taxes. Higher taxes on capital mean less capital available for the private economy to invest, and less incentive to invest what capital remains after Hillary’s tax hikes and government-directed “investments.”
Here is the iron law of economic growth:
GDP = 0.44 (nonresidential assets) + 0.08 (residential assets)
If we want more growth (whether “fair” or not) we have to invest more capital. No matter how you do it, raising capital gains taxes will result in less investment.
But wait! Hillary has a clever “sliding scale” capital gains tax plan that would increase incentives for long-term investment.
No, it wouldn’t. Hillary’s plan would reduce total investment, while forcing investors to hold financial assets longer. In the process, it would cripple our venture capital industry, which has been America’s greatest driver of wealth creation.
Hillary does not seem to understand the difference between physical assets (which include intellectual property) and paper claims on the cash flows produced by those assets. (In case Hillary hasn’t noticed, stock goes on the right side of the balance sheet.) America may or may not need longer-term assets, but it definitely does not need longer-term (i.e., less liquid) liabilities.
Consider the situation of the “angel investor” (of which I am one). Angels are typically successful entrepreneurs that like to plow their capital gains back into new startup ventures.
In my case, all of my experience relates to getting a company off the ground. I don’t pretend to be good at running or advising companies that have more than about 100 people. Hillary’s capital gains tax plan aims to prevent me from selling my shares in a successful startup (say, to an investor that specializes in “growth phase” companies), and using the proceeds to fund more startups. Obviously, doing this can only reduce, not increase, economic growth.
Yes, if Hillary knew more about “seed round” and “Series A” venture capital firms, she might not be proposing such a naïve and destructive capital gains tax plan. However, this is the fatal conceit: the notion that central planners can ever know enough to add value in a price-driven market economy.
Under the circumstances, Hillary’s only hope in a general election match-up with Jeb Bush would be to somehow convince the voters that Bush’s 4% growth goal is unrealistic, or that he isn’t serious about it. If the Republicans offer a candidate that is both credible and genuinely pro-growth, Hillary Clinton’s neopaleoliberalism is toast.
Originally posted on RealClearMarkets.com.