Bernie Sanders Says He Won’t Raise Your Taxes Above Eisenhower’s 90% Rate; Don’t Expect A JFK Either

sclsm6One important fact emerged from the second Democratic presidential debate. CBS, which sponsored it, headlined it as Democratic debate shows differences on foreign policy, Wall Street. This hypes the differences, while this snoozefest actually was more notable for the similarities between the candidates.

Washington Post political Bigfeet Dan Balz and Philip Rucker concluded that the latest Democratic presidential debate “appeared unlikely to change the overall shape of a nomination battle that has moved back in Clinton’s direction in recent weeks.” That’s true.  All three candidates were singing variations from the same hymnal: fairness. No game changers here.

There, understandably, was a last-minute pivot to address, at the fore, national security in the wake of the Paris terrorist attacks, presumably coordinated by those attempting restoration of the Imperial Caliphate (a more precise characterization of the West’s adversaries than “fanatical Islamists”). All of the candidates agreed that something must be done about terrorism, in general, and ISIS, in particular.

None provided a particularly compelling plan. Nor, as yet, have the Republicans.

Of much greater interest was the longer debate segment on the economy. Jobs and the economy remain at the forefront of the voters’ concern. Let the games begin.

There are two core elements to the American Dream. One element has to do with our interests: prosperity. The other has to do with our values: fairness. The American Dream is one of equitable prosperity, a climate in which all can fairly prosper through talent, enterprise, and hard work. (The consensus favors a decent social safety net beneath us, something which even the ur-libertarian Hayek supported.)

Both parties agree that the American Dream, if not dead, is in deep hibernation. The economy has been off track for around 15 years. Each party has a profoundly different emphasis on how to re-awaken it.

This election is shaking out very neatly between the parties according to their core DNA. The Republicans, at root the party of capital, have staked out the theme of restoring prosperity as their turf. The Democrats, at root the party of labor, have staked out restoring fairness. Neither is wrong. Both are incomplete. Each of the candidates is proposing somewhat different flavors of how to achieve the goal.

Each of the candidates has embraced his or her party’s prevailing theme. All of the candidates present more or less radical, and more or less credible (and more radical can, at least potentially, be more credible), proposals as to how to achieve the respective thematic goal: prosperity or fairness. Prosperity and fairness are complementary, not at all contradictory, factors. Both are fundamental to the American Dream.

Hillary Clinton presented as the moderate, Bernie Sanders as the radical, and Martin O’Malley as the technocrat. Sanders stole the show with one of the most memorable lines of the night. When asked “how high would you go” in soaking the rich to pay for his expensive new proposed entitlements and federal spending plans, Sanders answered:

We haven’t come up with an exact number yet. But it will not be as high as the number under Dwight D. Eisenhower which was 90%. … I’m not a socialist compared to Eisenhower.

What Sanders did not mention: “Under Eisenhower’s eight years in office the economy chugged along with an average annual growth rate of 2.4 percent – less than the 4 percent average growth rate during the Truman years.” He did not mention that Kennedy defeated Ike’s vice president, Richard Nixon, by campaigning on the promise to “get America moving again.”

Enter Camelot. JFK proposed a reduction in the top marginal tax rate from 91% to 65%. LBJ delivered 70%. The economy roared, 5.4% under Kennedy, 5% under Johnson. Ike 2.0? Bernie Sanders, call your office!

Kennedy’s was the model that inspired Ronald Reagan to drop the top rate to 50%. Kennedy’s legacy inspired the bipartisan consensus thereafter to drop it to 28%. All three rate reductions worked wonders in restoring prosperity. As Kennedy said, in his 1963 message to Congress on tax reform, “Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort–thereby aborting our recoveries and stifling our national growth rate.”

So Sanders is campaigning not so much against Reagan as against … John F. Kennedy. O’Malley, who hinted at restoration of the 70% rate, cannot possibly get further to the left than Sanders. Nor can he reasonably expect to get closer to the center left than Clinton.

O’Malley is forfeiting a good, and his best, bet to vault himself to the fore. O’Malley has a unique opportunity take ownership of the currently orphaned Kennedy growth wing of his party, with emphasis on “a rising tide lifts all boats.” In short, O’Malley, uniquely, has the opportunity to own both prosperity and fairness. He can do so without undercutting himself with the Democratic base.

The electorate is forward-looking and he easily can reconfigure himself as the “equitable prosperity” candidate rather than merely another flavor of fairness. Maryland is not a swing state and O’Malley thus not an obvious choice for vice president. He has little to lose. One way O’Malley could re-position himself is by taking to heart this observation by the great John Maynard Keynes — a Democratic icon — and taking on the commanding heights of monetary policy. This currently is a hot issue in the GOP race, and generating a strong tailwind for Ted Cruz. It is a sleeper issue that so far has been ignored by the Democrats.

Keynes, in The Economic Consequences of the Peace, wrote:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Keynes, of course, was addressing inflation. Inflation is nowhere in evidence and does not appear even on the far horizon.

And yet, bad monetary policy also can manifest, and is manifesting, in secular stagnation. “Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie….”

O’Malley can break powerful new ground by championing high integrity monetary policy. The great progressive Democrat Grover Cleveland rode this issue right into the White House. By tackling the malpractice of the biggest bank in the world — the Federal Reserve — O’Malley even could trump Sanders’ promise to break up the big Wall Street banks.

America has been mired in economic stagnation for almost a generation. This, understandably, inflames a popular desire for redistribution. Sanders, who continues to lag (but might surge) presents an aggressive across-the-board redistributionist agenda. Clinton provides a more moderate one. O’Malley, so far, merely is providing the front runner and challenger an amen corner.

The American Dream demands that our interests, prosperity, and our values, fairness, both be served. As the respective nomination contests move along the Republican candidates with the most credible formula for equitable prosperity — currently Cruz and Rubio, but the fat lady has not yet sung — can be expected to emerge at the forefront.

Comparably, the Democratic candidate with the most credible formula for equitable prosperity, currently Clinton (with less redistribution than Sanders but a recipe less calculated to stultify prosperity), will solidify her lead. Meanwhile if Martin O’Malley stops flirting with recipes for economic stagnation he dramatically could twirl the kaleidoscope of the Democratic race.

A credible promise of equitable prosperity has been, and again could be, game changing. Equitable prosperity is electoral lightning in a bottle.

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