Maybe Politics Matters After All

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Looking strictly at the numbers it’s hard to work up much interest in whether Republicans or Democrats are in charge after 2020. Either way, trillion-dollar deficits and extremely easy money are guaranteed, which means the US – along with most of the rest of the world – will fall off a financial cliff shortly. After that, the only non-financial issue that will matter is war – and both parties seem about equally bloodthirsty these days.

However, after the November congressional elections — in which Democrats with, ahem, assertive ideas and attitudes did extremely well — proposing big, potentially transformative change now looks like the best way to cut through the media clutter and gain a following.

So the Democrat base has lost its fear of the “S” word and is now embracing a list of policies that are designed to lock in their dominance for a generation, but which carry myriad unintended consequences. If the Dems were in charge today, there’s a good chance that they would:

Make Washington D.C. a state
This is a no-brainer for Democrats. Since DC voters skew liberal (no surprise for people who by and large work for the government), making it a state adds two guaranteed votes in the Senate and several solid votes in the House. That alone might be enough to tip the balance on many votes.

Lower the voting age to 16
This is another no-brainer for Democrats. Younger people tend to be more idealistic and less experienced, which means they, like D.C. residents, tend to skew liberal. Adding a bunch of young voters to the rolls means adding a disproportionate share of those votes to Democrat candidates.

Pack the Supreme Court
Republican presidents have been able to add more judges to the Court in the past couple of decades than have Democrats. The result is a solid conservative majority that might become even more so if President Trump gets to add another Justice in the next two years. Let Trump win a second term and the Court will be untouchably conservative for a generation.

This is intolerable for Democrats, a growing number of whom are proposing to simply increase the size of the Court and add a bunch of liberal justices for balance.

FDR tried this in the 1930s and failed, but his successors are looking at various ways to get away with it.

Eliminate the Electoral College
According to Wikipedia, “The United States Electoral College is a body of electors established by the United States Constitution, constituted every four years for the sole purpose of electing the president and vice president of the United States. The Electoral College consists of 538 electors, and an absolute majority of 270 electoral votes is required to win an election. Each state’s number of electors is equal to the combined total of the state’s membership in the Senate and House of Representatives; currently there are 100 senators and 435 representatives.”

The math of elector apportionment gives more per-capita clout to small states as a way of protecting them from the whims of the large. Without this advantage, according to fans of the Electoral College, candidates would ignore Wyoming and Rhode Island and spend all their time in population centers like Los Angeles and Dallas. Subsequent governments would favor big states over small; good luck to Nevada if it has a water dispute with California.

In short, without the Electoral College, flyover country is toast. But with the Electoral College it’s possible to win the most votes and still lose the election, as has happened a couple of times recently to the Dems. As the following chart shows, a majority of Democrats would abolish the College while Republicans would keep it.

electoral college maybe politics matters

Several 2020 Democratic presidential hopefuls have recently gotten behind proposals to eliminate the Electoral College, including Elizabeth Warren and Beto O’Rourke.

Impose a wealth tax 
Keynesian economics, which dominates the thinking of today’s political class, really doesn’t get savings. For Keynesians, the only good wealth is circulating wealth that buys stuff, preferably with leverage. So 1000 shares of Amazon stock do no one any good while they’re just sitting on some rich guy’s balance sheet. Only when he cashes out and buys something is he contributing to society. Same thing with buildings, paintings, farmland, etc.

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Hence the concept of a wealth tax, which takes part of the value of such assets each year and puts it back in circulation. Historically this has been viewed by those with common sense as both dangerous – because it makes investing in productive assets less attractive – and even more dangerous because it sends capital fleeing to more hospitable climes.

But as the public sector descends into bankruptcy it’s becoming desperate for some of that “idle” capital. And given control of both the executive and legislative branches, the Democrats might try to take it. From today’s Wall Street Journal:

Plan from Sen. Ron Wyden would treat increased value of long-term investments like income

The top Democrat on the Senate’s tax-writing committee wants to tax long-term investments like other types of income, raising rates and requiring the wealthiest people to pay taxes on their unrealized gains each year.

The plan from Sen. Ron Wyden of Oregon is the latest proposal from Democrats in Congress and on the presidential-campaign trail to boost taxes on the wealthy in a bid to address what they view as the problems of economic inequality and provide a funding stream to pay for new programs. While the specific proposal has little chance to become law anytime soon, such ideas could carry over into policy if the party makes gains in 2020 elections.

Unlike plans from Sens. Elizabeth Warren and Bernie Sanders, Mr. Wyden’s tax would go after investment income rather than total accumulated wealth or estates that are passed on from wealthy individuals to their heirs.

Mr. Wyden’s plan would tax the gains on long-term investments annually, rather than when someone decides to sell the asset, as is the case currently. It would also raise the current taxes on capital gains to match the rates on other types of income, such as salaries.

Okay maybe it does matter who ends up running the government in 2020. They’ll preside over an epic crash in any event, but avoiding the above might make the eventual recovery marginally easier.

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