Presidential Debate #1: The Comments

Dear Readers,

Many people have already given their opinion on the debate last night: who won, who told the truth, who distorted reality, who had better expressions, and so on.  There is no need to do that here.  Some of the reactions were considerably overblown; one so-called liberal commentator said President Obama performed so poorly that:

“He choked. He lost. He may even have lost the election tonight.”

This seems unlikely.  Despite the usual spin-room antics and the typical facebook denunciations on all sides, both candidates actually performed quite well.  Perhaps Governor Romney did slightly better: his answers, especially in the first segment, tended to be more concise.  Some of President Obama's answers appeared to ramble on a bit too long and include too many filler words: "uh...", etc.  This is really small potatoes, though.  Americans have not seen such a competent and evenly matched Presidential debate... certainly in a long time, if ever.  Neither side made any obvious terrible mistakes. 

There are more sources for extensive analysis of the debate - a quick search around the usual suspects will give a variety of views.  Our own pre-debate comments about whether or not these even matter: located here.  The goal in this article is to point out a few things you may not have heard somewhere else.  We have two contributions to make:  (1).  Is it clear someone is correct?  (2).  Have we heard any of this before?

(1).  Is someone correct?

Cutting through some of cheaper shots (of which there were relatively few, actually), the President and Governor Romney have a serious substantive disagreement about the way to solve the problems of high unemployment, government debt, and slow growth.  The short version (as presented yesterday):

     President Obama:  to solve the problem of the economy, we need a balanced approach that includes three parts.  Part (i): small tax increases on the wealthiest Americans and small businesses (which pay the individual tax rate) - but low taxes on the rest of Americans.  Part (ii): Some cuts to wasteful spending programs to reduce the amount of new government debt.  Part (iii): selected investments in critical sectors of the economy like green energy and education.   

     Governor Romney: to solve the problem of the economy, we need to do two things: Part (i): lower taxes while also eliminating loopholes and, Part (ii): fixing the regulatory structure so that business can operate more effectively.

Under the ideas the President explained yesterday, the key to his plan is that Part (i) --- the tax increase --- has little distortionary effect on the behavior of rich people or small businesses.  It raises just enough revenue to pay for Part (iii) --- the targeted investment --- while Part (ii) --- the cuts --- allow the tax increase to be small enough to not damage the economy.

Under Romney's ideas, the key is that the government actually would collect more money by lowering rates.  How?  He thinks that lower tax rates would generate more small business jobs that would generate economic growth.  This is what he said in the debate:

 So how do we deal with it? Well, mathematically there are -- there are three ways that you can cut a deficit. One, of course, is to raise taxes. Number two is to cut spending. And number three is to grow the economy because if more people work in a growing economy they’re paying taxes and you can get the job done that way.

The presidents would -- president would prefer raising taxes. I understand. The problem with raising taxes is that it slows down the rate of growth and you could never quite get the job done. I want to lower spending and encourage economic growth at the same time.

In many ways, the debate between the President and the Governor centered around the notion of the Laffer Curve (link to wikipedia article: here), with a twist.  The traditional argument about the Laffer Curve is that if the government taxed at 100%, no one would ever do anything and the government would get $0.  If the government taxed at 0%, there would be a lot of economic activity, but the government would still collect $0.  So there must be an optimum somewhere between 0 and 100% tax rates at which the government collects the most money. 

(Note: there is not necessarily an academic consensus on this stuff --- this is just the argument, and not even necessarily my own view.)

The twist in this debate has to do with the role of economic growth.  The objective is not to just tax optimally this year, but to generate high revenues in the future AND to put people back to work.  But the same notions more or less apply: as individuals and companies face higher rates, the incentive to engage in economic activity and the amount of money they have available for it goes down.  The President's policy must be underlined by a belief --- which he did not specifically articulate, but that must be there --- that we are still on the side of the optimum when slightly higher taxes will not cause economic damage.  Governor Romney, on the other hand, thinks we have passed the optimum and that decreasing taxes will increase revenue by generating more economic activity (and jobs).

The point we want to make: This is a serious debate.  While many people have opinions, and you can bet that there is a large academic literature on these types of issues, there will not be --- to steal from the NFL --- "indisputable evidence" that one side or the other is right.  These are challenging academic problems without clear answers.  Despite the claims of pundits and partisans, this is what really separates the two candidates and the two parties on the important issues of government and the economy. 

(2).  Have we heard this before? 

Since much of the news today focused on Mitt Romney - for better or worse - it seemed appropriate to mention something I ran across by accident last night.  As I read the latest book in Robert Caro's series on President Johnson (link here), one part jumped off the page at me: President Obama's plans, if we take the whole of the things he mentioned in the debate last night, sounded an awful lot like Johnson's first State of the Union speech.  Part of that text:

Unfortunately, many Americans live on the outskirts of hope -- some because of their poverty, and some because of theft color, and all too many because of both. Our task is to help replace their despair with opportunity.

This administration today, here and now, declares unconditional war on poverty in America. I urge this Congress and all Americans to join with me in that effort.

It will not be a short or easy struggle, no single weapon or strategy will suffice, but we shall not rest until that war is won. The richest Nation on earth can afford to win it. We cannot afford to lose it. One thousand dollars invested in salvaging an unemployable youth today can return $40,000 or more in his lifetime.

Poverty is a national problem, requiring improved national organization and support. But this attack, to be effective, must also be organized at the State and the local level and must be supported and directed by State and local efforts.

For the war against poverty will not be won here in Washington. It must be won in the field, in every private home, in every public office, from the courthouse to the White House.

The program I shall propose will emphasize this cooperative approach to help that one-fifth of all American families with incomes too small to even meet their basic needs.

Our chief weapons in a more pinpointed attack will be better schools, and better health, and better homes, and better training, and better job opportunities to help more Americans, especially young Americans, escape from squalor and misery and unemployment rolls where other citizens help to carry them.

Very often a lack of jobs and money is not the cause of poverty, but the symptom. The cause may lie deeper in our failure to give our fellow citizens a fair chance to develop their own capacities, in a lack of education and training, in a lack of medical care and housing, in a lack of decent communities in which to live and bring up their children.

But whatever the cause, our joint Federal-local effort must pursue poverty, pursue it wherever it exists -- in city slums and small towns, in sharecropper shacks or in migrant worker camps, on Indian Reservations, among whites as well as Negroes, among the young as well as the aged, in the boom towns and in the depressed areas.

Our aim is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it. No single piece of legislation, however, is going to suffice.

A lot of what President Obama had to say last night included the same themes: health care, job training, education, providing opportunity.  In his closing remarks, he said:

But I also believe that government has the capacity -- the federal government has the capacity to help open up opportunity and create ladders of opportunity and to create frameworks where the American people can succeed.

The main difference is that Johnson declared war on Poverty, while President Obama declares his support for the famous "Middle Class."  Otherwise, many of the values and the ideas are largely the same. 

Whether or not that is a good thing is open to interpretation and I will certainly not wade into the debate about whose ideas are better and who should win.  It is interesting, though, that Republicans mention ad nauseam the President on whom they theoretically model themselves: Reagan.  It's going to be quite some time, if ever, that a Democratic candidate for office will admit to borrowing from President Johnson.  Last night President Obama actually used President Lincoln as a model instead.

Something to think about.  Transcript of the debate available from the NYT, here.  Johnson's speech available: here.

--- Stag Staff