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The Clinton Conundrum

Irwin M. Stelzer

There will come a time when the survivor of the circular firing squad that is commonly known as the Republican primary debates will square off against Hillary Clinton. That survivor will have to grin and bear seeing multiple videos of his Republican opponents attacking him for one thing or another. Meanwhile, Mrs. Clinton will struggle to establish her new grandmotherly image as a caring person who, having arrived from her last stay at the White House in desperate financial condition, empathizes both with the struggling middle class and the Wall Street bankers who feed her campaign kitty, as well as with the oil oligarchs who, seeking nothing in return, pour tens of millions into the Clintons’ charity. The Republican candidate would do well to take a page from the Clinton playbook — never let anything embarrass you.

The campaign will put both parties in an awkward position — they agree that the recovery has benefitted the (in)famous 1%, and more or less left the middle class behind. But they are not certain what to do about it. Clinton has the easier task. She can rail against the glass ceilings that have kept the incomes of women lower than they would otherwise be, a complaint left over from her unsuccessful 2008 campaign before women emerged as CEOs of several Fortune 500 companies and she emerged as a candidate for the nation’s highest office. And she can soothe the disaffected left-wing core of the Democratic party by calling for more direct income redistribution.

Or can she? That would involve raising taxes on her major backers to fund new or expanded entitlement programs, attacking the special tax breaks of hedge funds and similar investors, and reviving the age of big government that one of her predecessors confidently assured voters had come to an end. Clinton is seeking advice from many economists, some of whom have much to offer, but many of whom are in the tax-and-spend school that is less attractive to voters, now more suspicious than ever of the ability of Washington’s political class to spend taxpayers’ money better than can the taxpayers themselves. Many of these economists and advisers were involved in the creation of Obama’s “middle class economics”. Len Burman, an official in what Mrs. Clinton hopes will become known as the first Clinton administration and now director of the Brookings-Urban Tax Policy Center, reckons that fully implemented that program would reduce taxes on families in the middle of the income distribution by $12 per year, since they would be paying some of the increase in the capital gains tax Obama has penciled in. The Treasury puts the figure at $150 dollars, still not enough to propel middle-earners very far up the income ladder, and low enough to make one wonder whether it is worth taking the risk that this complicated set of proposals might just have consequences not captured in Treasury models.

Republicans have an even more difficult task. It has always been the conservative position that economic growth benefits all income groups — a rising tide raises both rowboats and yachts. And by and large that has been true over our history. So Republicans have not paid much attention to how markets distribute wealth, assuming that any market failure that distorts income distribution has more or less been offset by the creation of the welfare state by the New Deal, and more than offset by the excesses of LBJ’s Great Society. Now, however, the market does not seem to be doing a good enough job to satisfy the demands of equity as well as efficiency. So simply calling for the end of Obama/Democratic policies that stifle growth and jobs — killing the Keystone XL Pipeline, raising employment costs by imposing Obamacare on a reluctant electorate, increasing the cost of energy and, now, communications by extending the regulatory state — is not enough. And will not be enough if the economy is in full recovery mode when the real campaigning starts in 2016, which seems likely, and will be taken as verified by a Fed decision to begin raising interest rates. Having blamed the Democrats for the tepid pace of the recovery, Republicans will be hard pressed to deny them credit for what looks likely to be virtually full employment, or at least employment and growth levels that it will be difficult to characterize as unsatisfactory.

The Republican advantage in the ensuing debate is that the conservative think tanks are doing some hard thinking about the problems of income distribution and mobility, and churning out suggestions that do not stand on a soak-the-rich foundation. And that Marco Rubio, the thinking-man’s candidate — and, fortunately, one who does not lapse into unintelligible wonkery — is putting these ideas out there, as are the conservative magazines and blogs that serve as the megaphones for conservative ideas. The danger is that many of these ideas will be unappealing to the corporate/big business wing of the Republican party that, according to the Financial Times, “wants a business-friendly candidate who can appeal to the political middle ground”. That wing is hoping that “moderate” Jeb Bush will be its standard-bearer and hold to the establishment’s priorities: support more free trade regardless of its effect on American workers; lower corporate tax rates rather than eliminate the regressive feature of payroll taxes; ease regulations on risk-taking by banks that are too big to fail, as Republicans did as one of their first acts after taking control of the senate; lower inheritance taxes to be paid by winners of the sperm lottery; preserve deductibility of interest on second-home mortgages. An unappetizing menu from the point of view of most voters, a to-do list for corporate Republicans.

A battle between an establishment Republican — a representative of “the elites in Washington” according to rival Chris Christie — wedded to such an agenda, and Hillary Clinton, will most likely be won by Clinton, who starts with the loyalty of constuencies so devoted that no number of missteps on the campaign trail can shake their faith in her ability to provide them with all that their hearts desire. Some 25% of eligible voters are unmarried women, a group that Obama carried in 2012 by about 37 percentage points, and is likely to believe that Clinton is more certain to address their grievances, real and imagined, than is any Republican. Blacks might not support Clinton as enthusiastically or in as great numbers as they did Obama, but they are unlikely to defect to any Republican candidate in large numbers, even though they have fared so poorly in the Obama years. Jeb Bush and Marco Rubio might speak Spanish, and both might favor or at one time have favored paths to citizenship for illegal immigrants, but establishment leaders of the Republican House and Senate majorities have shown a willingness to hold department budgets hostage to efforts to repeal the (probably unconstitutional) gifts Democrats have showered on them.

It will take an impressive, populist, radical platform and candidate to send the Clintons into retirement, after, the party’s core contends, besting Bush in the primaries, as the core’s latest flavor-of-the-month, Wisconsin governor Scott Walker, has hopes of doing as he rides to the top of the Iowa poll on the back of his multiple triumphs over public-sector trade unions.

Almost 200 years ago Benjamin Disraeli, in a campaign speech, defined himself as “…a Conservative to preserve all that is good in our constitution, a Radical to remove all that is bad.” Applying that to economic policy requires judgment, which just might be the virtue Republican voters should value more than a candidate’s ability to pass some litmus test when selecting their standard-bearer.

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