Magic Capitalism

Mitt Romney seems to genuinely believe at least one thing: that capitalism is the answer to every economic question and the solution to every economic problem. He gets the best applause when he talks like this:

Is it easier to make ends meet? Is it easier to sell your home or buy a new one? Have you saved what you needed for retirement? Are you making more at your job? Do you have a better chance to get a better job? Are you paying less at the pump?

And so on. His program for economic improvement is less regulation, especially of the financial and energy sectors, and lower taxes, paid for largely paring back government retirement and medical programs.

The thing is, we have been trying that for 30 years, and I think we have pretty much proved that it does not work. From Reagan to Bush II we tried lower taxes and less regulation as economic tools, and the overall effect is that the rich have gotten much richer, the poor have gotten a little poorer, and the median income has stagnated. Surging inequality is the order of the day, as it was the last time we tried these policies, in the late 1800s. I wish there were an easy way to create the economic conditions that make ordinary people better off, but all the evidence is that this is a very hard problem.

What creates economic growth is mainly the deployment of new technology, with some assist from added investment in old technologies. We got a spurt of economic growth in the 90s, not from anything to do with tax rates, but from the deployment of internet technology. Tax rates went up and then down without having any impact on economic growth.

We cannot magic new technology into being with low tax rates. Nor can we mandate that the new wealth created by financial manipulations and the like be distributed to the mass of the people. The more equal distribution of wealth in the mid 20th century came about from a convergence of factors that included rapid technological progress, business innovation, strong unions, strongly nationalist ideologies, and strong government action in fields like retirement and the minimum wage. Whether we could recreate those conditions, even if we tried, is not at all clear.

There are no magic bullets. The problems of poverty and inequality are ancient and very hard to solve, and creating a society in which most people feel reasonably well off seems to be all but impossible. Looking around the world you see that wherever countries are doing reasonably well at these things, government in fact plays a big role.

Romney's economic plan is just more Bushism, and it will only help him and his rich friends.