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The Disappointing Economics of Rick Santorum

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Rick Santorum seems to be (if the bloom isn't off by the time this article comes out) the latest anybody-but-Romney Flavor of the Week, so it's work taking a look at his economic ideas.

I know, I know: he's got some interesting, er, cultural baggage. But I'll leave that to the culture warriors.

The first thing that strikes me about Santorum's economics is that, of all the Republican candidates save the admitted long-shot Buddy Roemer (whom I interviewed here), he is the one verbally farthest from the piggy-piggy give-me-more hyper-capitalist mentality and the libertopian fantasy that the Fwee Mocket will solve all our problems if we just give it a chance.

Anyone who knows their history will know that neither of these attitudes are actually required to be a conservative in good standing, or even a good Republican. There's not room here for a dissertation on American history, but neither Abraham Lincoln nor Teddy Roosevelt worked this way.

So perhaps what we have here is a rational Republican response to our present economic situation. Everyone who's not a hopeless ideologue knows that American capitalism has gone off course in recent years, and somebody is going to have to reform it. It can potentially be done from the left or the right, but done it must be if we are to avoid national decline.

It's no secret where Santorum is getting this stuff. Its lineage in Catholic social teaching is obvious. Broadly speaking, it's distributist economics. Google "distributism" and you'll see what I mean. It's the capitalism of Main Street, not Wall Street. It has a long intellectual history, and in many ways it's actually more conservative, with small "c," than what the current Republican establishment believes in.

Those dollar-sign patriots have been busy selling off the country piece-by-piece for personal profit. There's a glimmer of hope out there that Mitt Romney represents their quiet repentance, and coming turn towards economic nationalism, but I'm very unsure on this.

So I'm fairly sympathetic with Santorum's overall mentality on economics. It's when I look at his detailed proposals that I start to get worried. The substance behind his populist pitch isn't that solid, and a lot of it is clueless.

Let's take as the baseline of what he thinks this page on his campaign website. He says, to pick the interesting items out of a sea of Republican boilerplate,

10. Eliminate the corporate income tax for manufacturers - from 35% to 0% - which will spur middle income job creation in the United States and will create a job multiplier effect for workers

Now this is a classic case of doing someone a favor that they never asked for. I work for one of America's leading organizations devoted to fixing the decline of American manufacturing, so I have some idea of both what would help this sector, and manufacturers want. And I have never, in the five years I've been working this issue, heard any manufacturer say they thought they should be exempt from taxes.

So this is, frankly, bizarre.

What do American manufacturers want? They want our government to stop the foreign-currency manipulation that puts them at a horrendous (and contrary to treaties) disadvantage relative to their competitors in China and elsewhere. They want an end to foreign trade barriers that open our markets to the world without getting the same treatment in return. They want an end to the theft of their intellectual property and proprietary technology. They want an end to the disadvantage of having to compete with nations that don't impose the cost of serious pollution controls. They want a reasonable balance of regulations here at home. They want government programs that serve their sector--like the Manufacturing Extension Partnership--to get at least some token fraction of the largesse that Uncle Sam lavishes on sectors like finance and agriculture. And they want a public education system that trains the skilled employees they need.

But a free ride on taxes? No, I never heard that one. This makes me wonder if Santorum even asked any actual manufacturers what would help them.

14. Spur innovation in America by increasing the Research & Development Tax Credit from 14% to 20% and make it permanent.

OK, this is good. It's a well-established fact (first noted by Alexander Hamilton in 1791) that society should subsidize innovators because they can't capture the entire value of their innovations, which spill over to benefit the rest of us without our paying.

15. Eliminate all energy and most agriculture subsidies within four years, letting the markets work.

Now I'm actually (depending, of course, on that weasel-word "most") impressed. Telling people the truth about agricultural subsidies--that they're a racket--takes a fair amount of bravery, as most people still suffer the delusion that they're a kind-hearted attempt to rescue family farms from the Dust Bowl. The reality is that corporate agribusiness pockets most of the cash, and any subsidy that does trickle down to genuine family farms just enables them to stay alive to get squeezed harder by the agribusiness oligopolies that overprice their inputs and underprice their outputs.

18. Pass a Balanced Budget Amendment to the Constitution capping government spending at 18% of GDP.

This, I am afraid, can only be described as disingenuous and stupid.

For one thing, you can't even have a true balanced-budget amendment unless you are literally willing to put the federal budget under the control of the judiciary--which, after all, would enforce anything set up as a matter of black-letter law. And I flatly don't believe any Congress would really allow this.

For another, whatever one may feel about limited government or the desirability of a small public sector, the reality is that if you don't run deficits during recessions, recessions will be much worse. John Maynard Keynes doesn't get much respect from conservatives (except Richard Nixon), but he was right, as shown by the fact that all Republican administrations use his playbook when actually in office.

FDR slammed on the deficit brakes in 1937 and got the Recession of 1937-8.

I wish I could dismiss this proposal as mere posturing, but Santorum seems to be going deep with it, as shown by "31. Audit the Federal Reserve and return it to its original purpose - a single charter to only manage inflation." This indicates a disturbing seriousness of intent.

Unfortunately, I don't know of any document establishing that the sole original purpose of the Fed was to control inflation. It's not the European Central Bank or its predecessor the Bundesbank--which really does and did have such a mandate. When the Fed was founded in 1913, the U.S. was on the gold standard, so controlling the value of money wasn't within its brief; arguments over inflation vs. deflation focused on so-called bimetallism, or the dilution of the gold standard with silver, which Congress determined.

Anyhow... the main purpose of proposing a balanced-budget amendment is to win the hearts of fiscal conservatives without actually having to name real budget cuts. Everyone's in favor of small government; no-one's in favor of actually throwing their own mother off Medicare. Proposing such an amendment enables one to keep one's ideological purity while postponing the cost until some distant future day when it is (supposedly) going to be passed. Disingenuous.

19. Negotiate 5 Free Trade Agreements and submit to Congress in first year of Presidency

This is really witless. If Santorum truly got the nature of America's current economic mess, he'd know that the expansion of "free" (free for them, not for us) trade over the last 15 years has been one of our big economic mistakes. We need to be dialing back, renegotiating, and withdrawing from trade agreements, not signing more. (Buddy Roemer understands this.) And this is despite the fact that Santorum has voted against some free-trade agreements in the past.

And as for that "5" ? Why does the number of trade agreements mean anything? It's the dollar amount of the trade that counts, not racking up treaties with a large number of small economies. This minor detail gives me the feeling Santorum doesn't have advisors who know their stuff on the most basic level. It reads like something strung together by a bunch of bright but inexperienced volunteers.

Santorum's last item is something I actually agree with:

32. Strengthen our national security and national defense so that we are not dependent upon our foes or competitors for critical manufacturing, technology, energy and other security needs

Forgiving, for a moment, the fact that this quote has the direction of causality between the industrial base and national security backwards, it is correct. So I'm glad to see Santorum's heart is in the right place here. But I'm still not glad that he hasn't proposed the key measures that would actually make this happen. To wit:

• He's actually come out against doing something about Chinese currency manipulation, invoking that old bogey-man trade war.

• He's against domestic-content laws--which aren't perfect, but would still be a step in the right direction if rationally implemented.

• He's denounced the auto bailout--which, again, wasn't perfect, but the U.S. simply can't be a serious industrial power without an auto industry.

All told, my take on Santorum on economics is that he's partly well-intentioned on some level, but has little grip on the really key policy questions, is susceptible to dangerous Republican clichés pushed by various obsession groups, and is given to posturing. Better than some of the other candidates, but still no great shakes.

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