Home > Uncategorized > The simple progressive economic agenda for Hillary Clinton (or anyone else

The simple progressive economic agenda for Hillary Clinton (or anyone else

from Dean Baker

In the week since Secretary Clinton announced she is entering the presidential race, there have been numerous stories asking about the agenda she will adopt in her campaign. In her announcement video, she indicated she wanted to be a champion for the average worker against the wealthy.

While many policies will be needed to improve the situation of the poor and middle class, there are three simple ones that could make a big difference: a more competitive dollar, a Federal Reserve Board committed to full employment, and a financial transactions tax to rein in Wall Street. If Clinton or any other presidential candidate wants to level the playing field, these policies would be a great place to start. 

The competitive dollar is an issue that is actually quite simple, but obscured by bad reporting in the media. The value of the dollar relative to other currencies is by far the main determinant of the country’s deficit. We currently have a trade deficit of more than $500 billion a year (@ 3 percent of GDP).

This trade deficit is money that is creating demand elsewhere rather than in the United States. This $500 billion trade deficit has the same impact on the economy as if households or businesses took $500 billion from their income each year and stuffed it under their mattress rather than spend it. This is a main reason that the economy remains well below full employment seven years after the collapse of the housing bubble.

A progressive presidential candidate should make reducing the value of the dollar against the currencies of our trading partners a top priority. This would make our goods and services more competitive internationally and get us closer to balanced trade. The job creation potential here is enormous. If we went from our current trade deficit to balanced trade, it would generate over 4 million jobs directly. This would get us back to full employment and hugely improve the bargaining power of ordinary workers, thereby driving up wages.

The second item is having a Federal Reserve Board that is committed to full employment. One of the main reasons that workers have had less bargaining power in the last three decades is that the Federal Reserve Board has quite deliberately acted to keep the unemployment rate up. On several occasions it has explicitly raised interest rates to slow the economy and reduce the pace of job creation out of a concern that a tighter labor market would lead to higher inflation. As a result, the Fed has prevented most workers from getting the bargaining power needed to share in the gains of economic growth.

The Fed is prepared to attack workers’ bargaining power yet again with its plan to raise interest rates at some point this year. Higher interest rates will reduce growth by reducing borrowing for home buying, car purchases, and other purposes.

A progressive presidential candidate should commit themselves to appointing people to the Federal Reserve Board who place a top priority on its legal mandate to promote high employment. If the Fed is not prepared to allow the labor market to tighten, any employment gains from reducing the trade deficit could be reversed by higher interest rates choking off growth.

The third policy, a financial transactions tax, is a great way to raise revenue, reduce inequality, and increase the efficiency of the financial sector. It should also be an easy political stand for a Democratic presidential candidate, since a broad-based financial transactions tax was recently proposed by Representative Chris Van Hollen and endorsed by other members of the Democratic leadership in the House.

A tax structured along the lines proposed by Van Hollen (e.g. 0.1 percent on stock trades and 0.01 percent on derivatives) could easily raise more than $1 trillion over a 10-year budget horizon. Virtually all of this money would come out of the pockets of the financial industry.

The industry would pay most of the money since the biggest traders are hedge funds engaged in high-frequency trading and other short-term transactions. The vast majority of ordinary investors would pay almost nothing, since their trading volume would decline roughly in proportion to the increase in trading costs, leaving what they spend on trading little changed.

In addition, the tax would reduce amount of economic resources wasted in useless financial transactions. As recent research from the Bank of International Settlements has shown, a bloated financial sector can be a major drag on economic growth.

So there you have it, three simple policies waiting to be embraced by a progressive candidate. We’ll have to see if anyone rises to the occasion.

View article at original source.

  1. paul davidson
    April 21, 2015 at 10:50 pm

    unfortunately Dean, your so called “progressive” policy suggestions are not very progressive in my view. Your weak dollar argument where the candidate pushes to lower the value of the dollar to improve the trade balance by making American goods more “competitive” in world markets was destroyed by the argument on page 338 of Keynes’s General Theory.

    Keynes wrote that “The fact that the advantage which our own country gains from a favorable balance [of trade] is liable to involve an equal disadvantage to some other country .
    eans not only greater moderation is necessary …but also an immoderate policy may lead to a senseless competition for a favorable balance of trade which injures all alike”.

    In other words playing with the exchange rate to get a more favorable balance of trade — can result in an exchange rate war between nations that injures all. Lets not try to export our unemployment by reducing the exchange rate. Lets reduce unemployment by increasing domestic demand for the products of American industries — for example by more investment in infrastructure! Fixing of water systems and sewage systems, high speed trains, better light rail for commuters, etc..

    Let the federal reserve pay attention to what central banks should be their primary objective — namely assuring that public financial markets are maintained in an ORDERLY manner — which requires market makers to maintain orderliness– and the Central Bank to be the market maker of last resort!

    Instead of a financial market tax why not just increase the progressivity of the income tax and eliminate all the gimmicks that help high income earners reduce their tax costs.???

    A week or so ago, there was an article in the Times that indicated that President. Obama and his wife earned over $400,000 and paid only 25% in federal taxes. If these figures are correct this is disgraceful for such high income earners to pay such a low effective percentage in federal income tax .
    After all wage earners earning a lot less m ay pay almost the same percentage if you include social security taxes, etc.

    Come on progressives let get a better progressive policy formulated!

    Paul Davidson

  2. Garrett Connelly
    April 22, 2015 at 2:52 am

    No progressive will support someone proud of destroying the young healing democracy of Honduras and installing an extractive privatizing dictatorship. Think of “Secretary Clinton” referring to Hosni Mubarak as family as the US crushed the bloom of Egyptian democracy into deprived austerity and still birth.

  3. Garrett Connelly
    April 22, 2015 at 3:01 am

    Yes, a progressive income tax and social security contributions even if one is wealthy.

  4. Marko
    April 22, 2015 at 3:28 am

    It’s ironic that Baker’s post immediately follows this one :


    If ever there was a chart that demonstrated how effective truly progressive policies can be , that’s it.

    A high minimum wage that grows with the economy sets a hard floor on low-wage workers’ living standards. High top marginal rates sets a soft ceiling on incomes at the top. By “soft” , I mean that it was still possible to earn a billion$ in a year , after taxes , but you had to earn maybe two or three billion before tax to do so. Today , you only need to earn ~ 1.2 billion , even less if you’re crafty.

    With a hard ( and rising ) floor and a soft ceiling , it’s pretty clear that those in between are going to get a better deal , compared to the situation today.

    The same principles apply to wealth. Tax wealth accumulation aggressively at the top , not at all at the bottom. Floor and ceiling.

    • Paul Schächterle
      April 22, 2015 at 3:49 pm


  5. Macrocompassion
    April 22, 2015 at 11:09 am

    The most effective progressive agenda for anyone else or even for Hilary too, would be to scrap the present taxation system and replace it with Henry George’s “Single Tax” which is not really a tax, but collects the revenue that is the ground-rent being generated from our lands and their usefulness according to local population density, ground fertility, rainfall, infrastructure, degree of good environment, etc.

    The earth is a gift of nature and we all have equal opportunity rights to use it. But today these rights are monopolized by land owners and their buddies the banks, who stake out their claims and deprive others of these rights; whilst the value of the land grows and by speculation, these parasites grow rich.

    With this system of taxation, there would be great benefit for all but the selfish land owners. Most people would find themselves paying less to the government, its cost of collection would be greatly eased, loopholes in the tax laws would be stopped and public land-value maps would enable a just and fair distribution and knowledge of the system to become available for all to see (and to individually challenge in court, etc).


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