Democrats for Capital Formation

As I have pointed out in recent posts, The Democrats and Republicans have both raised social spending in the past.  The difference between the two is that Democrats are more likely to cut military spending and the Republicans are more likely to raise taxes.

I have argued that instead of thinking about redistribution of income we should think about taxation and spending separately and examine the impact that each will have on capital formation.  Thus we would think about taxation as paying off debt and hence contributing to capital, since it is likely that money that people would put in bonds would otherwise go to private investment.  The effect is reduced by the amount that the taxpayers would otherwise invest.  They cannot invest the money that the government takes away in the form of taxes.  Military spending is thought of as taking away from investment.  Social spending is as well, but the effect is mitigated by the fact that recipients of government assistance might invest a portion of the money that they receive.

Thus we are faced with higher military spending and lower taxes under the Republicans.  Both of these are harmful to capital formation, so we would expect better economic growth under the Democrats.

There are other differences as well.  Democrats will appoint more liberal judges and are more generally more liberal on social issues.  Republicans have taken a harder line on immigration and possibly the war on drugs.  None of these differences make the Republicans look good to me, which is surprising since Democrats would no doubt dislike my political views if I were to express them in their presence.