I know as well as anyone that this is the definition of “easy target,” that Cain’s frontrunner status is a fluke, and that sooner or later the G.O.P. is going to fall in line behind Romney. But I think it’s a good exercise, to keep the old econ muscles toned if nothing else. And all of this passes over in silence the great big elephant in the room, which is that our currently de facto regressive tax system looks practically Marxian when compared with the massive upward redistribution entailed by eliminating the inheritance tax, cutting the corporate and personal rates to 9%, and adding a 9% sales tax on top of existing state and local sales taxes.
Economic Guiding Principles
1. Production drives the economy, not spending.
Assuming “spending” means government spending, he’s got about half a point here. However, production and consumption are two sides of the same transaction. So somebody’s got to be spending at some point. Then again I have a feeling “spending” is only spending, in this context, when it’s the government doing it.
◦ We can not spend our way to prosperity.
Sure we can. Collectively, because there are two sides to every transaction, the more we spend, the more we earn. This is roughly what we’re measuring when we talk about GDP — money changing hands. But again, he’s probably talking about government spending, so yeah. Government spending alone will not make our country prosperous, though it’s tough to argue that it can’t help when the private sector is running well below capacity.
◦ Government spending IS taxation.
This is actually quite clever and essentially true. It’s basically an accounting identity; any spending has to be paid for, and in the long run revenue essentially equals tax receipts.
◦ Government spending is like taking a bucket of water from the deep end of the pool, pouring it in the shallow end. Then they HOPE that the water level will CHANGE.
Now this is the kind of weapons-grade crazy failed metaphor we came here for. Whoever wrote this lost confidence halfway through, and tossed in the “HOPE-CHANGE” stuff as a distraction. Ask yourself, though, what’s the water in this image? What’s the water level a metaphor for?
Economics recognizes a distinction between “stock” and “flow” — between fixed quantities of something, like water in a pool, and quantities moving over time, like water flowing through a hose (or in and out of a bucket a certain number of times per year, if you want to be weirdly bucket-centric about it).
Money supply, very loosely speaking, would be a stock variable — how much money is there in the economy? This seems satisfying on a basic level, but without knowing anything else about an economy, it’s actually not all that informative. If there’s a ton of money sitting around, and it’s not changing hands (sound familiar?), then nobody’s getting richer. That’s why we prefer to measure flows like Gross Domestic Product, which is (even more loosely) basically the sum of everyone’s income over the course of the year. This is the sort of thing that absolutely is increased by moving money around, or, in the swimming pool example, filling and emptying buckets.
So what’s the water in the swimming pool meant to be? Money? No, as we’ll see, Cain is dead set against increasing the amount of money in the economy. Then is it prosperity? Wealth? Freedom? Who knows? It’s a fatally vague metaphor, but economic science (such as it is) is definitely on the side of the bucket-sloshers on this one.
2. Risk taking drives growth .
◦ Business formation and job creation are dependent on entrepreneurs taking risks.
Maybe, maybe not. There’s apparently some business-school research showing that the most successful entrepreneurs are the ones who are the best at identifying low-risk, high-reward opportunities. Anyway, this is one of those nice little Republican bedtime stories, and who am I to argue with it?
◦ Investors who fund those entrepreneurs likewise take risks.
Sure, they just like to know how big the risks are before they sink their pensions into some junk-grade bullshit. But I fear we’re getting sidetracked. I’m sure we’re about to come to the point.
3. Measurements must be dependable.
Sure! Standardize the meter, synchronize your clocks. What does this have to do with anything?
◦ A dollar must always be a dollar just as an hour is always 60 minutes.
Oh, right. There we go. So, zero inflation then? This is the sort of thing that sounds nice in a manifesto or on a bumper sticker but is not actually nearly as simple as it sounds.
◦ Sound money is crucial for prosperity.
Is it? Or is this just a quasi-religious article of faith on today’s Right? We assume here, again, that by “sound money” he means “zero inflation.” Sure, nobody ever got prosperous by spiraling into hyper-inflation, à la Argentina circa 1989. But we’re pretty fucking far from hyperinflation — in fact we’re pretty far from what would historically have been considered normal inflation. Our trade deficit, by the way, is largely an artifact of an overvalued dollar, and a little inflation goes a long way when it comes to paying off debts. “Sound money” sounds like common sense, but taken to its absolute logical conclusion, it’s actually a pretty extreme idea.
[insert a bunch of other hand-waving stuff about changing the tax system in ways that are vague when they’re reasonable, and insane when they’re precise. We’ll skip to the second bulleted item from the end, because it’s excellent:]
• We all know the Fed has tripled the money supply since 2008.
No. We don’t all know the Fed has tripled the money supply since 2008, because it didn’t, and it’s not logically possible to “know” something that’s untrue.
Now look, I didn’t just fall off the turnip truck here. I’m sure there’s some extremely tendentious definition of “money supply” out there under which this is arguably technically true, which has technically increased by a factor of 3 since 2008, but it’d have to be something ridiculous, like “M999: total notes and coins in circulation and in bank vaults, plus Federal Reserve bank credit, plus the number of people who have ever heard of Lady Gaga, squared.”
Seriously, by the Fed’s own preferred measure (M2), the money supply didn’t come anywhere close to tripling. It’s still on the ~6% trend line it’s been on since the 1990s.
They have been printing money out of thin air to finance the Obama spending machine.
Look, all money is printed out of thin air since we went off the gold standard. You’re welcome to go cry to Ron Paul about it, but don’t act like it’s some new-fangled Obama-era thing. And there’s a convenient shorthand phrase a lot of us like to use, by the way, which is shorter than “the Obama spending machine”: we call it “the government,” it’s governed by two parties, and it pays for an awful lot of things nobody, including you, is willing to cut. Back in my day we had a thing called “civil society,” and the government was this institution we all got together and formed, whereby we would pool some of our money and labor and use it to look after everyone’s needs. Check it out sometime, it’s a pretty cool idea.
While true Fed reform that restores sound money may have to wait for my election, the best thing we can do now is to pursue policies that increase the DEMAND for dollars to help mitigate the risks associated with the increase in the supply.
It’s now, approximately 98% of the way through this manifesto (the rest of it is basically Herman Cain’s resumé), that the word “demand” is uttered for the first (and only) time. But why is demand for dollars the issue? People here, in China, wherever, are demanding the shit out of some dollars right now. Does the phrase “global reserve currency” mean anything anymore? Nobody can get enough of the things. The problem is that nobody with any dollars is demanding any goods or services to exchange them for. And nobody overseas is demanding any American goods at all, partly because our maniacal insistence on “sound money” means our exports are too expensive.
Anyway, the point is not that Herman Cain is uniquely bad, or that his economic plan is uniquely half-baked. It’s that a lot of the economic truisms the Republicans chant to one another lie somewhere on the spectrum between “highly debatable” and “absolute bollocks.” Soon Cain will sail off into the night, but whoever replaces him is not likely to be much better. Even Romney will have to pretend to believe in some of this voodoo if he wants the nomination.