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Economic Recovery: Built to Last?

“It’s the economy, stupid!” as James Carville, Bill Clinton’s campaign strategist, famously said in 1992. Ten years later, that phrase rings just as true. The economy will no doubt play a significant role in the 2012 campaign as the public considers which candidates are best equipped to lead the country in the face of uncertain economic times.

Recognizing the importance of the economy this election season, the Miller Center partnered with ABC’s This Week with George Stephanopoulos in the second of six special episodes as part of our 2012 Election National Discussion and Debate Series. The all-star panel featured Google Executive Chairman Eric Schmidt, former HP CEO Carly Fiorina, former Governor Jennifer Granholm of Michigan, New York Times op-ed columnist and Nobel Prize-winning economist Paul Krugman, former Comptroller General David Walker, and Pulitzer Prize-winning commentator George Will. Watch videos of the panel and a web extra of Paul Krugman discussing inflation here.

Given the recent government release of first quarter economic growth numbers, George Will began the debate by questioning whether an economic recovery exists, arguing that we are not nearly back to the pre-recession employment level. Paul Krugman disagreed, saying it was not especially worse than the recovery from the 2001 recession. What is notable about this recovery compared to previous ones, according to Krugman, is the unprecedented reduction in government employment and the vastly better creation of private sector employment. Indeed, the Washington Post reported that one of the biggest stumbling blocks to economic recovery has been job losses in state and local governments. Krugman asserted that the single most important solution to end the depression now is to rehire laid-off government employees. Krugman also took Ben Bernanke, chairman of the Federal Reserve, to task on the program, asserting that he’s been assimilated by “the Borg” because he has not done enough to address the country’s high unemployment.

Carly Fiorina posited that three structural problems are undermining recovery efforts: high corporate tax rates, a lack of support for small businesses, and a weak education system. Eric Schmidt agreed with Fiorina that we have to get small businesses growing, but he argued that the core issue with small businesses is that half of them are still not online. Those that get online, according to Schmidt, are net job creators. Schmidt also agreed the education system is lagging, leaving a skills mismatch for technology companies searching for new employees.

One of David Walker’s most salient points in the discussion was that neither party is presenting real solutions to the country’s long-term challenges. According to Walker:

The Republicans … they believe we can solve our problem without more taxes. They’re not right. They believe we can solve our problem without cutting defense spending. They’re not right about that, either. The Democrats for the most part don’t want to renegotiate the social insurance contract, and they think that the Affordable Care Act will save us money.  Not right… So, the truth is, we have to recognize reality.

Jennifer Granholm pointed out that there is agreement from both sides of the aisle that the tax code needs restructuring. And many on the panel agreed that tax reform was necessary. Panelists differed, however, over the ways in which the tax code might be reformed. Fiorina proposed doing three things with the tax code:

One, lower the rates so that they are competitive.  Two, close every loophole with the possible exception of a tax exemption for charitable giving… And three, simplify it dramatically… We have to restore the entrepreneurial foundation of this nation. It is what creates jobs.

Meanwhile, David Walker argued reform could be achieved if:

We broaden the tax base and recognize that we’re spending $1.1 trillion a year in deductions, exemptions, credits, exclusions and differences in tax rates, we can lower the top marginal tax rates for corporations, individuals, and estate taxes 25 percent.

Paul Krugman said it was irresponsible to call for more tax cuts, and George Will called the tax system a “favor machine,” asserting that it is politically unfeasible to reform the tax code:

There is such a thing as a system, such as our tax system, that is so complex that it is permanently un-reformable…. None of this is going to happen. The three big ways to recoop money by closing loopholes are mortgage interest deductions, taxation of employer provided health insurance, and deductibility of state and local taxes…You’re picking six fights with every American.

David Walker concluded that we are approaching a critical crossroads, “The political system is broken. We have a republic that is not representative of or responsive to the republic.” Jennifer Granholm posited that the solution is to occupy the political majority with those who will reasonably compromise.

Read post-show thoughts from Krugman, Fiorina and Walker here. Download the Miller Center’s White paper on the economic recovery with lessons from history by Derek S. Hoff, Assistant Professor of History at Kansas State University, here.

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