Message to the President: Don’t Be A Populist
Posted on December 15, 2009From the Politico
President Barack Obama’s ratings are steadily declining. His once-impressive poll numbers are sinking faster than a stone in the ocean. Even his allies on the Hill are starting to question his leadership decisions.
The president’s political advisers are, at this moment, probably trying to come up with a strategy to help him get his momentum back. They are looking at the issue set and seeing a populist wave that has engulfed the country and Congress, and they are probably intrigued by the possibilities.
And make no mistake: Populism is ruling the roost in the national legislature. Wall Street titans are routinely hauled before committees and asked to explain themselves. Legislation to bring greater transparency to the Federal Reserve, authored by libertarian populist Rep. Ron Paul (R-Texas), has advanced further than anyone could have imagined.
Burned by bailout fatigue, Congress is in no mood to push for tax breaks for big corporations. Nor is it in the mood to adapt our immigration laws to allow talented engineers and scientists to come to America to work for the long haul. And residual anger about the growing trade imbalance with China and other nations has led congressional Democrats to deep-six any new free-trade agreements, including proposed pacts with Colombia and South Korea.
The American people are in a populist fury. They don’t want bailouts, they don’t want globalization, they don’t want immigration, they don’t want Wall Street excess and they don’t want Washington spending. They are as mad as hell, and they’re not going to take it anymore.
Given this populist anger, the president might be beguiled into thinking that he should join the parade. He might think that by raising taxes on Big Business, by preventing any further trade agreements, by cracking down on immigration and by punishing Wall Street while politicizing the Federal Reserve, he will somehow help his political fortunes.
He would be wrong. Taking the populist approach on taxes, trade, immigration, Wall Street and the Federal Reserve will undermine the long-term health of our economy, make our nation less competitive and result in a more difficult political environment for the president to run in within less than three years.
Take taxes as an example. There is a great desire among some populists to sharply raise taxes on millionaires and corporations. “Let’s get the rich; they don’t pay their fair share,” goes the thinking. America, however, already has the world’s highest corporate tax rates, and surely raising those taxes will only serve to undermine job creation.
Populists hate trade agreements, arguing that they actually make it easier for jobs to be exported overseas. What they don’t realize is that many of those jobs would go overseas in any event, because of the high labor costs in America, and that most of those trade agreements actually make it easier for our companies to export products and not jobs. You want to make a depression out of a recession? Just add high trade barriers (à la Smoot-Hawley), and you can get yourself a nice Great Depression.
mmigration reform is probably the most troublesome issue for both parties. Neither conservatives nor the labor movement likes immigration, legal or otherwise. But the business community understands that without the lifeblood that comes with hardworking immigrants, their businesses will suffer. This is especially true for talented graduates from our top universities. What sense does it make for our universities to train foreign physicists and engineers, only to have them be forced to leave America and go back home once they get their degrees? No sense at all, unless you buy into the populist rhetoric of the anti-immigrant forces out there.
It has also become fashionable to bash Wall Street with threats of confiscatory taxes on salaries, attacks on bonuses, even a transaction tax on each stock deal. Some Democratic populists are pushing to break up large banks and return to the days of Glass-Steagall, when investment banks were separated from commercial banks. All of these ideas might make populists feel good, but in actuality, they will raise the cost of capital creation, hurt job creation and put the American financial industry at a strategic competitive disadvantage to the rest of the world.
Populists love to hate the Federal Reserve, and populists on the left and on the right have threatened to hold up the reappointment of Fed Chairman Ben Bernanke. He probably did more than any other single figure to keep us out of a deep depression, and for all of his good work, this is the thanks he gets. If it doesn’t make you nervous to have politicians assert more control over monetary policy, it should. Politicians don’t do a very good job of protecting the value of currency. If you don’t believe me, ask Argentina what its experience has been.
Populism is an enduring part of presidential campaign rhetoric. But it is rare for a president to actually govern successfully as a populist. (Andrew Jackson is the notable exception.) That is because populism rarely works in the real world.
The president should resist the temptation to govern as a populist. He should push for policies that will help make America more competitive in the long term — things like corporate tax reform, trade enhancement, comprehensive immigration reform and an independent Federal Reserve.