The 8 Weirdest Economic Ideas of the Republican Debate
In politics there is never a shortage of bad ideas. But this cycle may offer a surplus of ideas so convoluted and confused that they are not wrong ways of solving problems, but wrong ways of even describing them—ideas so downright weird that they're a little like answering “What’s two plus two?” with “tomato.”
Below are eight of the strangest economic ideas on display at the Milwaukee Republican debate. Spoiler: No candidate gets away scot-free.
The Fed should stop controlling interest rates: “We need to think about whether we want to have a Federal Reserve that’s involved so much in setting interest rates,” was Rand Paul’s latest swing at the Fed. Truthfully, if you're not sure what to think about this idea, bravo, you’ve already approached the issue more seriously than the folks on stage last night who immediately agreed. Here’s the reality: The Federal Reserve—like the European Central Bank and central banks in every other country—can’t get out of the business of setting rates. That is what central banks do in modern economy. Deciding how much they will charge to lend money is the main lever to control inflation and economic growth.
Stock buybacks are corporate cheating: Regulation, Ben Carson said, makes it easier for big corporations to buy back their shares. His suggestions seemed to be that buying back shares is a nefarious way to appear profitable. This would sound a whole lot less sinister if you replace “buy back shares” with “pay back investors some of their money,” which is what it is. These days stock buybacks are often the preferred way of paying investors because they offer tax advantages over dividends. Some of the companies you meet regularly in dark alleys offering to buy back their own stock: Apple, Microsoft, General Electric.
The Trans-Pacific Partnership is a Chinese conspiracy to take over the U.S.: “The TPP is a deal that was designed for China to come in, as they always do, through the back door and take advantage of everyone,” said Donald Trump. Sneaking in with the TPP to destroy the U.S. economy would indeed be a very, very sinister and unexpected way for China to proceed. There are plenty of legitimate complaints about the TPP, like the lack of public input and transparency, but it’s hard to pin such problems on China because China is not party to the partnership, which was shaped largely by the hope of containing China’s economic power.
Banks are bragging about being labeled Too Big to Fail: This one comes from Marco Rubio. The big financial institutions designated by the law as “systemically important” have not bragged about it. Witness those banks that were on the borderline, which fought to avoid the designation because it comes with a series of onerous rules and requirements, including routine “stress tests”—simulations of what would happens to the banks in the event of another financial crisis—and higher "capital requirements" (meaning they have to keep more of their cash in reserve). Big banks had to set aside billions to meet those.
Raising capital requirements would help small businesses: Capital requirements came up several times in the debate. Jeb Bush in particular pushed them as a way to increase small business lending. Two problems: First, Dodd Frank already raised capital requirements for big banks (see Too Big to Fail, above); second, higher capital requirements means less money is available to lend.
The Fed caused the 2008 crash by raising interest rates: This one came from Ted Cruz. The crash of 2008 had a lot of causes—shady mortgages, careless risk taking by banks, and maybe even years of easy Fed lending. But this wasn't one of them. In fact the Fed was already lowering rates in 2008. It's especially odd to blame the 2008 crash on tighter Fed policy because that's what most of the Republican candidates, including Cruz, are advocating now.
We need to protect bank deposits in failing banks: In response to several candidates saying they'd let banks fail in the event of another financial crisis—instead of bailing them out—Ohio governor John Kasich made an impassioned defense of the need to bail out the people who have their "life savings” in failing banks. But we already have a program to do that: federal deposit insurance, which kicks even when we don’t bail out banks. It’s possible that Kasich meant to express concern for bank employees—Kasich himself was a managing director at Lehman Brothers when it went under in 2008—but it really didn’t sound like it.
The federal government needs "zero-based budgeting": This is a bit of consulting-speak that Carly Fiorina kept coming back to. It basically means that you set budgets by asking “How much does this department need?” instead of “How much do we cut or raise the budget from last year?" In theory, that means makes dramatic changes somewhat more likely. In real life, there are a lot of interest groups (many of them in Congress) who want to put in a word about, say, cutting the Homeland Security budget from $38 billion to $19 billion.