Seeing pictures of Mitt Romney doing his laundry reminded me why
I am not a populist. If I were a populist, I’d actually care if a
presidential candidate did his own laundry. Though I want my
president to have a strong grasp of how an economy operates, I’m
really not that concerned whether he knows how to get out those
really tough stains, or knows the proper way to fold a shirt. To be
honest, I really don’t spend much time considering if the
multi-millionaire former venture capitalist and governor is more
“in touch” with the average American than is the multi-millionaire
consultant and former congressman, or how either one of them stacks
up in this regard with the multi-millionaire Harvard-educated
lawyer who has never attempted to make a living outside of
government.
The problem with populism, whether on the left or right,
is that it tends to play to the prejudices of the “common man”
whether or not those prejudices are based in fact. Both the “Tea
Party” and “Occupy” rail against Wall Street as a symbol of
corporate greed that has fleeced the common man. Now it is true
that the focuses are a bit different. Occupy argues for Wall
Street’s destruction; the Tea Party argues against government
“bailouts.” But both tend to portray Wall Street (by which they
usually mean investment bankers, mortgage bankers, and commercial
banks generally) as inherently corrupt, a leach on society whose
members are paid more than they “deserve.” Occupy, apparently not
following the stock prices of Bank of America or Morgan Stanley,
argues that Wall Streeters actually engineered the financial
collapse for their own benefit. Newt Gingrich, taking on the mantel
of conservative populist, portrays successful private equity firms,
responsible for the growth of numerous business enterprises (like
Mitt Romney’s Bain Capital) as “vulture capitalists” and argues
that owning stock in Goldman Sachs is evil.
People involved in finance, especially those who make a
lot of money at it, are inherently far removed from the common man
and hence an easy populist target. Aside from making money, many
people have very vague notions of what the financial industry
actually does. Even Democratic Senator Max Baucus, chairman of the
Senate Finance Committee, commented that the financial industry is
not part of the “real economy.” Everyone knows that manufacturing
(idealized as it is) is “real” but services are a bit harder to
grasp. But the fact is that those ghouls on Wall Street who make
the flow of equity and debt capital remarkably efficient play a key
role in bringing together those who need capital to expand
businesses and those who have capital to invest, and thus are
responsible for keeping the cost of capital (a major cost to most
every business) significantly lower than it otherwise would be. It
might not play well on Main Street to defend Wall Street, but
demonizing Wall Street is not good economic policy.
The so-called bailouts to banks and other financial
institutions may be hard to swallow, particularly given the
culpability of many of those institutions in engaging in bad
lending practices, not understanding financial instruments they
were buying or insuring, and doing a poor job of managing risk. But
many were more sinned against than sinners — victims of government
policies that essentially mandated risky lending, corrupted rating
agencies that routinely gave AAA ratings to securitizations they
knew carried far greater risk, and being blindsided by the ripple
effect of forced deleveraging and imploding home prices resulting
from the collapse of the bubble caused by other, more reckless
lenders. Stepping in with support to prevent the financial collapse
from wiping out most of Wall Street and the banking industry, and
with it a good deal of Main Street, may not have been popular, but
it was nonetheless imperative (though certainly the execution by
the government and the Federal Reserve may have been far from
perfect).
Good economic policy, however, does not usually make for
good populist politics. Take for example President Obama’s push for
the so-called “Buffett Rule” that would effectively double the tax
rate on capital gains on those who do the most investing by taxing
anyone who makes more than $1,000,000 a minimum tax rate of 30%.
Raising the tax rate on capital gains from 15% to 30% effectively
raises the cost of capital to all those businesses that need that
capital. There could hardly be a more effective job killer. But
this is “fair,” argues Obama, because millionaires and billionaires
shouldn’t pay a lower rate than their secretaries. Fairness is a
big populist war cry. The problem is that fairness is rather
subjective. It’s easy to argue that a billionaire shouldn’t have a
lower effective tax rate than an average office worker. The
reality, however, is most high income people pay effective average
tax rates well above those paid by the middle class. In fact,
according to the CBO, the average effective average federal income
tax rate (federal income tax paid divided by total taxable income)
in 2007 for middle America — the middle 60% of Americans — was
4.2%, well below the 14% paid by Romney. So, is that “fair”? Is it
“fair” to have one person paying many multiples of what another
person pays in taxes simply because he works more hours, or took
his education more seriously, and/or put a lot of capital at risk
in a business enterprise that prospered? Fairness is a tricky issue
when you get beyond populist rhetoric and actually look at the
facts.
Obama, however, is merely playing the populist card. Does
he really believe that sticking it to the rich is more important
than creating jobs? Probably not. But he knows that much of the
voting populace can not make the connection, and so he can
potentially win needed votes with a populist rallying cry against
the rich, knowing full well that the “Buffett Rule” has no chance
of passing in either the House or Senate. Obama also knows that
even if a “Buffett Rule” became reality, the effect on revenue to
the Treasury would not make a dent in his trillion dollar deficits.
There simply are not that many Buffett’s and Romney’s out
there.
Sticking it to some bogeyman should not be an end in
itself, regardless of how satisfying it might feel. Yes, I
understand that politics is politics and populist pandering will
always be a part of it. It is far easier to play to a crowd than to
educate a crowd. But we should always understand that playing the
populist card is inherently dangerous, particularly when it seeks
to place the blame of our problems on some small group of people
who we deem to be not much like ourselves. Conservatives have
always competed well in the realm of ideas, and that’s where we
should strive to keep any political debate. When government becomes
more beholden to populist politics than to sound policy
considerations, we all lose in the long run.
