Clinton rejects economic growth policy for social welfare
WASHINGTON, June 8, 2016 — Hillary Clinton will make history as the first woman to be nominated as the presidential nominee from a major party. Two women have appeared at the bottom of the ticket, but Clinton is one of very few to shoot for the top, and will be the first to make it.
Now that she is the presumptive Democratic nominee, let’s look at her economic policies and see how they might work.
Almost every economist agrees that economic growth should be the president’s top economic goal. This is especially true since the economy has averaged about 2 percent annual growth in the last seven years. After a recession, growth should be twice that rate. The slow growth has cut job and financial opportunities for many Americans. Millions have dropped out of the work force or taken part-time, low- paying jobs. Income inequality has worsened.
Clinton wants to create a family leave plan that will entitle every worker to 12 weeks of paid family leave and 12 weeks of paid medical leave. It would be subsidized by the government and funded by taxes on the “wealthy.” This is a social welfare program that can be argued on that basis, but not a program designed to promote job creation. The increase in the deficit from more government spending, higher taxes, and the cost to businesses in lost productivity are all counter-productive to economic growth.
Clinton wants to increase the minimum wage to $12 or even $15 per hour. This again is a social welfare policy, touted as a way to combat poverty. But for low-income people and the economy, the plan is a disaster. Paying $15 per hour, adding in the Social Security tax the employer pays and the Obamacare health care cost, a full-time worker with no skills would cost a business owner $36,000 per year.
There is already a push to automate more jobs out of existence. In itself, that is probably a good thing—if we have time to adjust. If the minimum wage is doubled, however, the relative cost of automation will plummet; the number of jobs will plummet as well when capital replaces labor. Touch screens will take your order instead of a person at fast food restaurants. And the change won’t be gradual; it will be right now.
Past minimum wage hikes have been small, and have been introduced in tight labor markets. Their impact has been relatively minor. (The impact on unskilled minority youth has not been minor, but that group is politically unimportant.) Clinton’s proposed hike is huge, up to 100 percent, and the labor market is loose. This higher minimum wage is a job killer.
Clinton has withdrawn her support for the Trans-Pacific Partnership, even though she helped write most of the agreement and once called it the “gold standard” of trade agreements. The Bernie Sanders faction of her party has convinced her otherwise. But restricting free trade slows economic growth.
Clinton now feels she has a social responsibility to save American jobs. She may in fact save jobs in those sectors that compete with imported goods. Slowing or killing trade will help keep some manufacturing jobs in the U.S. It will also raise the prices American consumers will pay for formerly-imported products, leaving less to spend on other products. If every component of the iPhone were made in the U.S. and the phone were assembled in the U.S., it would cost about $1,800 instead of the $600 that you now pay.
Not considered by the Sanders faction is that America is also an exporter. Blocking trade will preserve some jobs in manufacturing, but it will kill jobs in the export sector. Restricting free trade is a growth killer, and it is also a job killer.
Clinton says that the largest Wall Street banks should be dissolved if the government decides they pose a risk to the economy. She would appoint government regulators who would take a hard line with the banks. She would increase federal authority over banks by expanding Dodd-Frank. And she would increase taxes on bank’s liabilities.
All of those actions would limit banks’ ability to raise capital for the financing needs of large corporations, which will limit their growth and slow the economy. A stronger Dodd-Frank would further limit a bank’s ability to lend. By reducing bank lending, the expansionary effects of monetary policy are minimized, further slowing economic growth.
Clinton’s banking policies will reduce economic growth.
Clinton wants to raise the highest tax rates by about 4 percent. This would presumably hit just the “wealthy,” but the wealthy aren’t just those who make as much as Clinton or Donald Trump. They don’t all enjoy the perks and trappings of wealth. They are also small-business owners whose wealth and income are tied to their businesses.
Clinton’s tax hikes would hurt small businesses, the businesses President Obama said “you didn’t build.” They would reduce capital for expansion, while the higher minimum wage hiked costs and banking reform shut of avenues for borrowing. None of that will hurt GE or Monsanto much, but the businesses that form the fabric of your community? This is a business and job killer.
Clinton wants to raise the capital gains tax rate. Bill Clinton cut capital gains rates by nearly 30 percent. The economy grew at a 4.5 percent annual rate for four years following that cut.
Hillary proposes to do the opposite of what helped the economy grow when Bill was president.
As she says, her policies would be a continuation of President Obama’s policies. Obama has never made economic growth a top priority. His policies were geared to cure social injustices. If elected president, Clinton would continue Obama’s slow-growth economic policies at a time when the U.S. desperately needs a sustained period of high economic growth.