US economy

Since its postwar rise, the American conservative movement has staked its reputation on defending the free market as an abiding principle. Conservatives pointed to the liftoff in the American economy caused by the Reagan tax revolution and the deregulation of heavily controlled parts of the economy. Less government and less regulation were better for the American economy. The left disagreed with this fundamental axiom of conservative wisdom. Now, surprisingly, many on the right have joined them. Something obviously changed in the post-Cold War period. China’s entry to the World Trade Organization in 2001 resulted in the so-called China Shock, or the loss of 15 to 20 percent of manufacturing jobs in America.

On the American right today, economics trumps all else. While conservatism has always been bedeviled by the tension between economic science and traditional, family-focused values, the last four decades have witnessed a decided shift toward embracing economics as the sole indicator of a successful society. Those who create wealth, in theory and in practice, are accorded the closest thing to nobility an egalitarian society will tolerate. And indeed the American free market remains the most powerful lever the world has to erase class, poverty, and privilege in the equal pursuit of opportunity.

Many are familiar with the old aphorism that in real estate the three most important determinants of value are location, location, location. Things are a bit different in making economic forecasts and predictions, where two variables matter most: accuracy, of course, but also timing. Regarding accuracy: a lengthy list of economists — some quite eminent — have ended up with egg on their faces because of inaccurate predictions and forecasts. In this regard, there’s the observation by the distinguished economist Irving Fisher, 92 years ago today on October 16, 1929, that stock prices had reached 'what looks like a permanently high plateau’. Since the Great Crash occurred two weeks later, Fisher’s timing wasn’t so great either.

Montpellier, France I got a letter from Joe Biden, which doesn’t happen every day. In the envelope was a check, made out to me, for $1,400. The letter is headed THE WHITE HOUSE WASHINGTON and dated April 22 although it has taken some time to drop into the boîte aux lettres due to the President experiencing confusion over my address. ‘My fellow American,’ he began. Although I am not one I did once work there and paid Social Security contributions, apparently qualifying me for the President’s generosity. ‘I am pleased to inform you,’ he continued, ‘that because of the American rescue plan, a direct payment was issued to you.’ Having attracted attention, Joe, my new best friend, continues. ‘This has been a hard time...brighter days are ahead...

President Biden wants to nearly double the tax on income from capital gains, currently at 20 percent, to 39.6 percent. Add to that the 3.8 percent Obamacare surcharge and you’re up to 43.4 percent. Many states tax capital gains as well and in 13 of them (plus the District of Columbia) the total tax on capital gains would be over 50 percent with the proposed new federal rate. In California it would be a staggering 56.7 percent. But it gets worse. Unlike the tax on regular income, the capital gains tax is not indexed for inflation. So with long-held assets, much of the gain is illusory. For instance, if you bought an asset in 1971 for $50,000 and sold it this year for $1,000,000, you would owe taxes on a nominal capital gain of $950,000. At 56.

If the Democrats want to surf a real blue wave in the midterm elections they will have to stop conceding the economy to President Trump. Look at a current snapshot and consider: job numbers are great, minority unemployment is at record lows, the stock market is happy. But beneath this cheery – temporary – façade, the same problems that caused the 2008 financial crash are still lurking. In fact, the contributing factors of the last recession have, in many respects, worsened. Ultra-high-risk financial behaviour, increasing deregulation and rosy political rhetoric telling us all to forget about the problems of the past: these are a few hallmarks of the current situation that also echo loudly with the lead-up to the 2008 collapse.