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Disagreement

- September 29, 2011

I disagree with the claims made by Bruce Bueno de Mesquita and Alastair Smith in their recent post, where they wrote the following:

Politicians of all stripes want to take resources from those not in their coalition and give them to their core supporters. The jobs bill is no different. The Democrats want to tax the rich to pay for increased social spending for the poor. The logic is straightforward. Rich people tend to vote Republican and poor people tend to vote Democratic. The Democrats’ plan is really to tax Republicans and spend their money on Democrats. And the Republicans want just the reverse: to cut social spending that helps the poor (AKA Democratic voters) in order to finance tax cuts for rich Republican voters.

The economics behind which plan best stimulates job creation is immaterial to the proposals politicians put forward. The debate is over coming and staying in power.

I agree that deliver-goodies-to-your-supporters is part of the story, but only part of it. Here are a couple things that I think Bueno de Mesquita and Smith are missing:

1. “The economics behind which plan best stimulates job creation” is actually central to the debate. It is generally believed (correctly, I think) that the trend in the economy in the year leading up to the presidential election is a key determinant of the outcome. To be reelected, Obama wants economic growth in the next year—it’s that simple. So the economics are crucial: he wants a plan that actually works. Giving money to his supporters is not enough.

2. If it were simply about counting the voters, the above-quoted argument won’t work. Consider the debates about raising or lowering the upper-income tax rate. These changes would affect the taxes of only a small fraction of Americans (and only a small fraction of voters). If it were simply a count-the-votes story, the answer for either party would be obvious: tax the upper 1% or 5% or 10% or 20% and give the money to everybody else. But it’s not so simple: first, rich people are influential beyond their votes—and not just for Republicans. Barack Obama got a lot of Wall Street money in 2008. Second, many economists oppose higher taxes on the rich arguing that they inhibit economic growth. This is related to the starve-the-beast argument that higher taxes will just lead to wasteful government spending.

In short, beliefs about macroeconomics matter, both for the instrumental goal of being reelected and for the economic policy goals that motivate both parties as well as their supporters.