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Hillary Clinton's Three-Legged Growth Stool

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Hillary Clinton's Three-Legged Growth Stool

July 13, 2015

Hillary Clinton selected a progressive venue on Monday to deliver a progressive economic message to appeal to a progressive audience.  

"The defining economic challenge of our time is clear," Clinton said. "We must raise incomes for hard-working Americans, so they can afford a middle-class life." 

Monday's address at The New School for Social Research in New York City was billed as Clinton's first economic policy speech of her campaign. Political, not policy, would be a better way to describe the speech.  

Yes, the former Secretary of State talked about tax reform and simplification, closing tax loopholes, empowering entrepreneurs, and reducing the red tape that is inhibiting new business formation. But these are buzzwords, not policies, and easier said than done. Otherwise, the U.S. would have something to show for the almost-universal support for these initiatives instead of a blank slate. 

The surprising appeal of Vermont Senator Bernie Sanders and his socialist agenda has forced Clinton to veer left, a challenge for a Democrat who does not want to alienate Wall Street donors. As it is, Wall Street has shifted its allegiance to Republicans in recent years as President Barack Obama heaped blame for the financial crisis on big banks and Congress imposed tougher regulations, according to the Center for Responsive Politics. In an attempt to appeal to both the Democratic base and business, Clinton finessed her stance by calling for a "growth and fairness" economy.

Clinton's economic plan features a three-legged approach for raising middle-class incomes: strong growth, fair growth and long-term growth. (Someone else might have been tempted to consolidate them all under "growth.") The sources of strong growth include things like business tax reform, immigration reform, public investments in clean energy, and an infrastructure bank to finance them. Why these qualify for "strong" and not "long-term" is unclear. 

The bulk of her speech was devoted to "fair growth," which is a euphemism for government intervention to ensure fairer outcomes, not to provide fair opportunities. Fair growth entails raising the minimum wage, implementing new rules mandating overtime pay, and supporting labor unions, according to Clinton. Like most progressives, Clinton's advocacy of a higher minimum wage is supposed to demonstrate compassion for those less fortunate than she. The effect, however, is just the opposite: Raising the price of labor, just like the price of any good or service, has an adverse effect on labor demand.  

Fair growth is a companion piece to fair trade. After staying mum during negotiations over the Asian free trade agreement - an initiative so important it motivated President Barack Obama to go up to Capitol Hill to court votes - Clinton broke her silence on Monday without really saying anything.

"Trade is a major driver of the economy," she said. "It has also led to the hollowing out of our manufacturing base."

To pass muster with a President Clinton, a trade agreement would have to "create jobs, raise wages and advance our national security." She didn't specify whether those were short-run or long-run requirements. 

The list goes on. Fair growth means supporting labor unions, lowering out-of-pocket health care costs, improving education, making college affordable, helping to refinance student loans, encouraging profit-sharing (Isn't that what bonuses are all about?) and enhancing Social Security. There was little mention of how Clinton would pay for all this fairness. She would eliminate corporate loopholes that allow carried interest to be taxed at the lower capital gains rate and profits to be sheltered overseas. She largely avoided the subject of raising taxes on the wealthy except for invoking the familiar refrain that Warren Buffett should not pay a lower tax rate than his secretary.

Clinton finally got around to the formula for long-term growth, which sounds a lot the prescription for strong growth: "research and development, physical capital and talent." She segued to business' focus on short-term profits at the expense of investing for the future. 

She's right about Wall Street's game of lowering earnings expectations in order to beat them. But if corporations are choosing not to invest, it is less a result of short-termism than about perceived returns. Whether it's the increased regulatory burden, high U.S. corporate tax rates, or the outlook for slow global growth, private capital investment has been historically weak throughout the expansion, depressing productivity growth in the process.

Clinton's solution? "Long-term growth is only possible if the public sector steps up as well." 

Perhaps she's confusing her growth categories. It's fair growth, as she defines it, that requires the public sector to step in.


Caroline Baum is a contributor to e21. You can follow her on Twitter here.

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