We Need Rich People

Vice-President elect Joe Biden had a strange press conference today where he spoke about the Obama stimulus plan. Larry Summers also spoke. Nothing new was said, but it was all very gloom and doom on the economy. I don’t know what the purpose of it was. Maybe Team Obama is attempting to lower expectations? Anyhow, it sure didn’t lift the holiday spirit of several hundred million Americans who would love to see a little light at the end of the tunnel or even some optimism right now.

Almost thirty years ago, Ronald Reagan came into office during a very deep recession with double-digit inflation and interest rates. But somehow Reagan, as only he could, gave a sense of optimism that things could be fixed and he was the man to do it. That America was a great country despite its troubles and that we would recover. And then of course he laid out his tax-cutting program.

I don’t disagree with Biden that the economy is in recession. But every time he speaks about it, he seems to leave a lasting impression of doom and gloom. I just don’t see how that’s helpful. I suppose Obama supporters think they’re getting even with Dick Cheney who said in early 2001 that the U.S. was on the front end of a recession. Turns out that he was correct. But neither he nor President Bush blathered on endlessly about how bad everything was.

And then in today’s meeting Biden talked about the stimulus package with all that new spending. It’s going to be an avalanche of government spending.

In today’s Wall Street Journal, Nobel Prize winning economist Robert Lucas said all this spending isn’t necessary. Let the Fed take care of the economy, he argued. He wrote, “It entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls on the operation of individual businesses, and no government role in the allocation of capital across different activities. These seem to me important virtues.”

Lucas is right. We do not need bailout nation. Nor do we need the government picking winners and losers in some massive new New Deal industrial policy. In fact, the absorption of scarce private resources by the government may very well make economic matters worse, not better.

And then of course Biden went on about how Obama is going to help the middle class, and how it’s the middle class that’s going to get us out of this jam. While I listened carefully, I never heard him say anything about rich people, or successful earners and investors. No mention of businesses. Irving Kristol taught us three decades ago that the top earners are the “economic activists”. They are the ones with the highest propensity to consume and invest. They’re the ones who purchase the yachts, which are subsequently constructed by blue-collar workers. And they’re the ones who run the small businesses and provide the capital for new entrepreneurial startups that are the lifeblood of this economy.

If we had an economy without rich people, we wouldn’t have much of an economy. That is why lower tax rates to reward the economic activists—that is, the most prominent capitalists—would be ever so helpful. Or slashing business tax rates that would create investment inflows to promote high wage earning new jobs. And, it would give consumers a break since they’re the ones that bear the brunt of high corporate taxes.

As it happens, there was a story in Sunday’s Washington Post that indicated Team Obama is considering some kind of business tax breaks. Now that would be a very good thing indeed. But mostly, I want to put a good word in for rich people. Can’t do without them.