Thursday, February 16, 2012

Economics by Mitt Romney – The “Zisi”-Effect

By M. Ulric Killion


Photo source; “I’m so scared of this anti-Wall Street effort. I’m frightened to death,” Frank Luntz, an influential GOP pollster and strategist, warned the Republican Governors Association at a meeting in Florida last month, referring to the Occupy movement. “They’re having an impact on what the American people think of capitalism,” Peter Dreier, Is Capitalism on Trial?, Dissent, January 27, 2012.

1. The Capital Gains Tax Dilemma

Following the earlier scuttlebutt on Mitt’s Romney’s tax returns and his having to pay only a capital gains tax of “about” fourteen (14) percent, the news sources were inundated with the pros and cons of the capital gains tax. In other words, the lively discussions centered on whether the capital gains tax helps or harms.

The question of whether it helps or harms presents issues of whether it helps or harms the recovery of the U.S. economy, and also “who” does it help or harm, being Mitt Romney or/and other American taxpayers.

As concerns Romney having to pay only a fourteen (14) percent tax on his earning, there are pundits on both sides of the issue. Some argue that the capital gains tax fosters economic growth, while others are urging a more equitable tax system or simply tax equity for Americans.

Adam Sorensen, in Time Magazine, writes,

Mitt Romney stammered on Monday night when debate moderators asked him whether he’d release his tax returns. “I hadn’t planned on releasing tax records, because the law requires us to release all of our assets, all the things we own. That I have already released. It’s a pretty full disclosure,” he said. “But, you know, if that’s been the tradition, and I’m not opposed to doing that, time will tell. But I anticipate that most likely I am going to get asked to do that around the April time period, and I’ll keep that open.” It wasn’t actually an answer–he’s already been asked–and worse yet, it was much more awkward than Romney’s usual Pomade pivot from unwelcome questions. On Tuesday he gritted his teeth and gave an answer that shed more light on his reluctance.

“What’s the effective rate I’ve been paying?” he said when prompted by reporters in South Carolina. “It’s probably closer to the 15 percent rate than anything because my last 10 years, my income comes overwhelmingly from some investments….” The answer confirmed Michael Scherer’s guestimation in early October: Because of capital gains, Romney pays a tax rate that’s much lower than what most U.S. wage earners will ever enjoy (Adam Sorensen, Why Mitt Romney’s Tax Rate Matters, Time, January 17, 2012).

The obvious problem is that Romney, like other wealthy persons, pays a tax rate that is “much lower than what most U.S. wage earners will ever enjoy” (Sorensen, 2012).

Then there is the source of his reluctance to both provide a full disclosure, as he says “a pretty full disclosure,” and discuss the issue of his tax liabilities, as he grits his teeth when answering questions about the taxes or tax rate he pays.

Initially, one would think that his reluctance to answer these questions might be attributable to guilt, but for the venture capitalist, it seems unreasonable to think so. The other possible source of his reluctance might also be simply “selfishness” or what in the Chinese language they refer to as “zisi.”

It is a selfishness that one should measure against the claims of some pundits that attribute a boost to the U.S. economy from the artifact of a capital gains tax. This is because, and borrowing from philosophical parlance, an artifact is “an object that has been intentionally made or produced for a certain purpose,” (Hilpinen, Risto, “Artifact”, The Stanford Encyclopedia of Philosophy (Winter 2011 Edition), Edward N. Zalta (ed.).

It is simply put: with this being said, the capital gains tax benefits Romney (i.e., selfishness or “zisi”), the economy (i.e., a boost to the economy that benefits all taxpayers), or both Romney and the economy.

In a perfect scenario or world, the capital gains tax ought to benefit both Romney and the economy by fostering economic growth.

The problem is that it may not do both, and herein might lie the key source of Romney’s reluctance to answer questions about his tax returns.

A recent Organisation for Economic Co-operation and Development (OECD) study demonstrates how a combination of labor market reforms, tax and transfer systems, and high-quality education can actually yield a double dividend, which is boosting gross domestic product (GDP) while reducing income inequality.

The latter study addresses the issues of income equality and tax equity. This is not an issue of class warfare, as so phrased by many, it is an issue of whether it is possible to have tax equity while also boosting economic growth.

In other words, the two goals are not in conflict. Those justifying the capital gains tax because it serves as a boost to the economy are impliedly arguing that you cannot have both – tax equity and economic growth.

The OECD study also addressed the impact of taxes and/or tax reforms on equality and growth. The study found that it is possible to reduce income inequality while also boosting economic growth.

As for role of the capital gains tax in reducing income inequality while promoting economic growth, according to the study,

Reduce distortions in taxing capital income. . . . Specific tax relief may also provide tax avoidance instruments for top-income earners. In particular, there is little justification for tax breaks for stock options and carried interest. Raising such taxes would increase equity and allow a growth-enhancing cut in marginal labour income tax rates, (Reducing income inequality while boosting economic growth: Can it be done?, OECD 2012, (forthcoming: Economic Policy Reforms 2012 - Going for Growth)).

The study also found that most tax expenditures benefit high-incomes groups, and cutting them will both increase income equality and promote economic growth. There are exceptions, however, which pertain to “in-work tax credits and other tax expenditures targeted at low-income groups”.

Although Romney earlier announced that he is not worried about the “very poor,” if he is worried about the economy, then he should be (Roland S. Martin, Romney’s Campaign GPS Ignores The Poor, Roland Martin Reports, February 3, 2012; his exact words were, “I’m not concerned about the very poor”).

However, like all other issues, he seems to employ capitalism in defense of his deeds, misdeeds, spoken words and even the ill-spoken ones (See cf., Joe Klein, Romney’s ‘Poor’ Mouthing, Time Magazine, February 2, 2012; he writes, “The real problem that Romney seems not to be acknowledging is that there are increasing millions of working poor in this country — people who earn just enough not to qualify for Medicaid or food stamps, people too poor to buy their own health insurance.”).

2. Republican Nostalgic-Capitalism

Romney keeps telling us that he is a capitalist or believes in capitalism, though he has yet to explain what exactly he means by his assertion. A problem is that his meaning of capitalism could arguably take on many shapes, forms, and animals, because capitalism defies a meaning or definition in the singular sense.

Quoting from an earlier article,

In terms of a potential new model or models, it is also critical to understand that in the twentieth century the classical model of capitalism experiences evolutionary changes (i.e., Darwinism). This is because capitalism evolves from its earlier origins, such as Adam Smith’s modern capitalism and even Max Weber’s rational bourgeois capitalism. The evolution did not commence (e.g., 18th-century France, Pierre-Francois Tubeuf and proto-industrialization (Lewis, 1993)) and then end with the advent of the nineteenth century-form of capitalism, which many also hail as modern capitalism. In terms of a historiography of modern capitalism (the 20th-century form), capitalism actually continued to evolve into new and different forms.

As many now recognize, especially those economists who are proponents of the varieties of capitalism theory, modern capitalism (commencing in the 20th-century) defies description of being a model in the singular sense (Deeg and Jackson, 2006). For instance, Michel Albert (1998) described the development of two competing models of capitalism or, borrowing from the title of his book, Capitalisme contre capitalisme, or capitalism against capitalism. This is attributable to the ending of the Cold War (i.e., after 1991), which produces an Anglo-Saxon model of capitalism (i.e., short-term profit, shareholders, etc.) and a Rhine model (i.e., long-term interest, capital-labor linkage, etc.). A confrontation between the models engenders capitalism against capitalism (Meng, 2008). There are many economists, scholars, or theorists (e.g., Ronald Dore, William Lazonick, Mary O’Sullivan, Meng Jie, Richard Deeg, and Gregory Jackson) that have explored and continue to explore varieties of capitalism or the varieties of capitalism theory (M. Ulric Killion, Post-global Financial crisis: The measure of the “Beijing consensus” as a variety of capitalisms, MPRA Paper 26382, University Library of Munich, Germany, 2010). 

As previously mentioned, Romney leaves us wondering what he means when he says he believes in capitalism. The same result ensues when he charges President Obama and his administration with promoting so-called socialist programs.

As Peter Derier, in Dissent, writes,

These findings are particularly remarkable because there’s been no significant socialist movement in this country for decades. After Barack Obama was elected president in 2008, the word “socialism” started making a comeback. But it wasn’t because the socialists were gaining momentum. It was because Obama’s opponents—the Republican Party, the Tea Party, the right-wing blogosphere, the Chamber of Commerce, and conservative media gurus like Glenn Beck, Ann Coulter, Sean Hannity, and Rush Limbaugh—labeled anything Obama proposed, including his modest health care reform proposal, as “socialism,” (Peter Dreier, Is Capitalism on Trial?, Dissent, January 27, 2012).

In other words, Romney’s repeated assertion that he believes in capitalism, like the race code words that GOP forerunners often employ, is just another code word for socialism.

Even assuming, as typical of the GOP forerunners, he is again reverting to nostalgia, by this one means the classical model of capitalism attributable to Adam Smith’s Wealth of Nations, then he neither understands Adam Smith nor understands the real meaning of capitalism.

Moreover, and assuming he even read the Wealth of Nations, he stopped short of also reading Adam Smith’s The Theory of Moral Sentiment.

An excerpt from The Theory of Moral Sentiment, at Chapter 1: Of Sympathy, reads:

That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it (Adam Smith, The Theory of Moral Sentiment, (Munsey’s ed., 2001)).

Romney, however, is of the variety of ruffians that are not worried about the “very poor;” thus, presenting for us, his unique variety of Republican nostalgic-capitalism, or simply, the economics of Mitt Romney. For many Americans, the great ruffian appears immune to the plight and suffering of the poor, or should I say, the “very poor.”

Moreover, this selfishness permeates thoroughly throughout his political discourse, which is obvious in his capital gains tax dilemma. His reluctance to discuss his taxes, especially his declaration that he will not raise the capital gains tax, does not serve him well. This is because Romney’s reluctance actually translates into “he” will not raise “his” personal taxes. The “zisi”-effect permeates his political discourse.

For many Americans, the economics of Mitt Romney, or his Republican nostalgic-capitalism, leaves much to desire. This is because, and by virtue of his political discourse, we have come to know that he, like other GOP forerunners, does not embrace the concerns of America as a whole, all of the American people, the poor, the “very poor,” and people of all faiths, creeds, color, and nationalities.

Romney, in particular, demonstrates to American voters that he will do or say almost anything to gain their votes. In past presidential elections and/or primaries, have you ever known a candidate to flip-flop on so many issues of critical importance to Americans? The “zisi”-effect is prevalent in his political discourse, because he will say what he “thinks” he has to say to get votes.

Additionally, the economics of Romney are in harmony with the political discourse and strategy of the new Republican Party or conservative Republican Party. This is because both Romney’s unique variety of Republican nostalgic-economics and the “zisi”-effect fit well with the party apparatus.

For instance, and reflecting the “zisi”-effect, the Republic Party’s calculus for success actually premises upon the doom of the economy. One of the few consistent themes of the GOP forerunners are the woes of a struggling economy.

The strategy is obvious, because in polling Obama was only polling low on the issue of the economy. A problem as observed by many commentators, however, is what the GOP will do in the event that the economy starts to recover, which it is now doing.

Quoting Chris Barry (ABC news),

“Since the depths of the recession, we've seen manufacturing stabilize and start to come back,” said Robert Dye, chief economist for Comerica Bank. “What we've seen in the auto industry lately has been good news for the state.”

In fact, it’s been very good news: Tax revenues have jumped so dramatically that Michigan now enjoys a $457 million budget surplus.

The auto industry is driving the nascent recovery in Michigan, where manufacturing accounts for more than 20 percent of the state’s economy. Indeed, U.S. car sales are revving up at the fastest rate in nearly four years, rising 11 percent in January over a year ago. The state's unemployment rate, while still higher than the national average, has dropped from 12.6 percent, in March 2009, to 9.3 percent in December.

The improving economy, while far from robust, has breathed real life into many small and medium sized companies that supply the auto industry (Chris Barry, Bail-Out Politics: Even Michigan's Economy Is Improving, ABC news, February 15, 2012).

A problem with their calculus for success is a recovering economy. As recently witnessed in the state of Michigan, the car industry is recovering with new jobs, with overtime for workers, car sales are up, and the success of the auto industry is reviving Michigan’s economy.

In response to the earlier bail out of the auto industry in Michigan, and again reflecting the “zisi”-effect, there are the economics of Romney, and his New York Times article, which is entitled, “Let Detroit Go Bankrupt.”

As Barry (2012) observed,

The Republican candidates all opposed the bailout, including Romney. The son of former American Motors president and Michigan governor George Romney wrote an article in the New York Times, entitled “Let Detroit Go Bankrupt.” His words may come back to haunt him.

“If (automakers) get the bailout … you can kiss the American automotive industry goodbye,” he wrote, arguing in favor of a “managed bankruptcy” in which the government would guarantee loans, but not provide financing. He reiterated his position in an Op-Ed published in the Detroit News Tuesday. And he paired it with a new TV ad that shows him driving around Detroit neighborhoods.

While the economy is showing signs of recovery, especially in Michigan, and many Americans are still out of work, there is Romney in a recent ad now telling the world that, “President Obama did all the things that liberals have wanted to do for years and still, people in Detroit are distressed,” (Barry, 2012).

The “zisi”-effect is blatantly obvious, because, the use of word “liberals” as a code word for “socialist” or “socialism” notwithstanding, he is even in denial of the on-going economic recovery in Michigan. Rather, he is sticking with the GOP-message of a doomed economy.

As earlier mentioned, he even paired his message of doom with “a new TV ad that shows him driving around Detroit neighborhoods.” The “zisi”-effect continues to rear its ugly head.

3. Romney’s Economic Doom Message

One also wonders if Romney was in President Obama’s shoes three years ago, what he would have done differently. Despite the Republican economic doom message, the Obama administration inherited the worst financial crisis in U.S. history from the Bush administration and it now appears there is upward movement in the economy.

It is beyond conjecture that the great ruffian, by his own admission, would have done absolutely nothing for the so-called “very poor.” It is also reasonable to suspect other poor persons would have found themselves in even worse circumstances. This is because, as Joe Klein (2012) rightly observed, the great ruffian is unable to understand the plight of the poor who earn just enough not to qualify for Medicaid or food stamps, but not enough to buy their own health insurance.

As the great ruffian, in the name of capitalism, attempts to imply that the Obama administration could have done much more, he is wrong and being dishonest, as equally true of his doomsday economic message to America.

Following the earlier on-set of the sub-prime mortgage crisis (or financial crisis), Americans have been facing one of the worst financial crisis in U.S. history, which is not attributable to the Obama administration, though they are constantly working on issues concerning the economy.

The problem is the severity of the damage ensuing from the earlier sub-prime mortgage crisis, which allows Republicans, in the spirit of “zisi”, those moments for their public economic doom messages. Irrespective of whether a Republican or Democrat occupies the White House, the inevitable truth about the financial crisis is that its unique variety has a lingering after effect, which will persist for years to come.

In other words, it is unreasonable of anyone to expect full recovery in a short span of time, rather than incremental and gradual upward movements in the economy such as what is occurring in Michigan and the auto industry.

As Davide Furceri and Aleksandra Zdzienicka recently concluded, “Debt crises produce significant and long-lasting output losses, reducing output by about 10 percent after eight years. The results also suggest that debt crises tend to be more detrimental than banking and currency crises” (Davide Furceri and Aleksandra Zdzienicka, “How Costly Are Debt Crises?”, IMF Working Paper, No. 11/280, December 1, 2011).

More importantly, this demonstrates that Romney’s economic doom message is only a clever execution of spin and code words; all rolled into one neat little package of fear.

4. Conclusion

All of this is representative of the economics of Mitt Romney and the problems that associate with both his Republican nostalgic-economics and the “zisi”-effect (i.e., selfishness).

Indeed, in the end, if the GOP campaign has taught us anything, it has taught us that Mitt Romney cares about Mitt Romney. A problem for the American people is trying to ascertain whether he cares about anyone else in the closed world of Republican nostalgic-economics, or simply, the economics of Mitt Romney, because the “zisi”-effect is everywhere.

Copyright © Protected – All Rights Reserved M. Ulric Killion, 2012.

No comments:

Post a Comment