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Essay by the Chairman Hernando Zabaleta Echeverry
What are the differences in economic issues between the two traditional political parties in
the United States: The Republicans and Democrats?
Introduction
The United States is managed, politically speaking, by two major political parties, Republicans
and Democrats, both with abysmal conceptual and ideological economic differences; set
distinctions between the two becomes vitally important in this era of presidential elections,
that this year are disputing the Republican presidential candidate Mitt Romney, and the current
President Barack Obama who represents the Democrat Party, in an environment in which the
hot topics, are the global economic crisis and the high rate of unemployment.
Many voters are questioning, what are the differences between the two parties? What is best
for us? Therefore in this essay we are going to show you, what are the bases of the economic
ideology of these parties, highlighting what its most representative members believe on issues
of how should be the economic management, and of course fitting the ideology of each party,
inside the economic thesis of some of the greatest economist of the world history.
The Republican thought
Keep government out of business, this is maybe one of the most important words in the
language of a real Republican, combined with the old rule “Laissez fair laissez passer1” they are
against the regulation of markets, always thinking that when government decide to intervene
markets or business, negative consequences and distortions is all that occurs. This kind of
1
REPUBLICAN
PARTY.
Retrieved
September
http://www.britannica.com/EBchecked/topic/498842/Republican-Party.
18,
2012,
from
2
assertions have support in theories of authors, like the famous economist Adam Smith 2 who
says in one of his biggest works entitled, The wealth of Nations, that the competence does that
when people are looking for his own private interest, it encourages public interest as conducted
by an invisible hand:
“The only thing you are looking for is their own gain and in this as in many other
cases, an invisible hand takes you to promote a purpose which was not their
intentions. And this is not necessarily bad for society. To seek their own interests
often promotes that of the society more effectively than if you really meant to
promote it3”.
Continuing with Adam Smith, in the same book he supports, that is not necessary recourse to
the State or use some moral rule to do the good, he keeps that when you are finding your own,
or your private, or particular interest you are serving to public interest, he says that selfishness
is inherent to humans, much more present than the worry to do the good, in consequence is
better to build society starting with the selfishness of the human, because is more easy to know
what is better for me, that what is better for the others.
Complementing the above is appropriate and conducive to highlight what authors like Milton
and Rose Friedman says:
“The key insight of Adam Smith’s Wealth of Nations is misleadingly simple: if an
exchange between two parties is voluntary, it will not take place unless both
believe they will benefit from it. Most economic fallacies derive from the neglect of
this simple insight, from the tendency to assume that there is a fixed pie, that one
party can gain only at the expense of other4”.
Reduce the size of government is another priority in the agenda of the Republican Party; when
you talk about reduce the size of government, you are talking about eliminate help for the poor
people, and any assistance policy, but in special, is important to cut taxes, because taxes create
distortions and affects the dynamic of markets and consequently the economy.
The solution to the problems caused by the intervention of the government, is to privatize the
majority of his functions that are expensive, and example of this, is the privatization of the
2
For an excellent biographical sketch of Adam Smith, see HENDERSON David, The fortune Encyclopedia of
Economics, New York, Ed. Warner Books, 1993.
3
SMITH Adam, The wealth of nations, Ed Modern Library, 1937.
4
FRIEDMAN Milton and FRIEDMAN Rose, Free to Choose, Ed. Harcourt Brace 1990 pp. 13.
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social security, but in the other hand, they support the idea of have large and expensive military
forces, to protect, not only America, but also their interests and investments.
It is convenient to know what are thinking the current presidential candidate of the Republican
Party Mitt Romney, about what should be the economic model:
“We believe in the power and opportunity of America’s free-market economy. We
believe in the importance of sensible business regulations that promote confidence
in our economy among consumers, entrepreneurs and businesses alike. We oppose
interventionist policies that put the federal government in control of industry and
allow it to pick winners and losers in the marketplace5”.
Another important opinion that reinforces the thesis of the Republican Party is the position of
the U.S Representative from the State of Texas Ron Paul, he says:
“We have to stop the spending. We have to bring our budget under control. We
can't raise taxes to cut the deficit. We have to cut spending. Of course, where I
want to cut spending might not be where you would like to cut spending. But I
want to cut spending overseas. I don’t think we can maintain our empire. And we
can get control of our budget mainly for political reason as much as anything else
because you can't go after healthcare here in this country and say you're gonna
balance the budget6”.
Liberty for individuals in all aspects is another fundamental pillar for the Republicans, they are
thinking America must have a “Free enterprise system7” that permits people, using their:
“God-given talents, combined with hard work, self-reliance, ethical conduct, and
the pursuit of opportunity, to achieve great things for themselves and the greater
community. Our vision of an opportunity society stands in stark contrast to the
current Administration’s policies that expand entitlements and guarantees, create
new public programs, and provide expensive government bailouts. That road has
created a culture of dependency, bloated government, and massive debt8”.
5
2012 REPUBLICAN CANDIDATES, ECONOMY 101: THE AMERICAN ECONOMY IN 30 MINUTES. Retrieved 18
September, 2012, from http://2012.republican-candidates.org/Economy.php.
6
Idem.
7
2012 REPUBLICAN PARTY NATIONAL PLATFORM. pp. 1.
Retrieved September 18, 2012, from
http://www.gop.com/our-party/.
8
Idem.
4
They believe that when you low taxes, immediately produces effects on the development of the
economy because make business is easier, if it is easier economy grows, having in account that
is more cheap create enterprise, in consequence it will produce job creation and activation of
the economy, but it is better to know what they think about that:
“American businesses now face the world’s highest corporate tax rate. It reduces
their worldwide competitiveness, encourages corporations to move overseas,
lessens investment, cripples job creation, lowers U.S. wages, and fosters the
avoidance of tax liability— without actually increasing tax revenues. To level the
international playing field, and to spur job creation here at home, we call for a
reduction of the corporate rate to keep U.S. corporations competitive
internationally, with a permanent research and development tax credit, and a
repeal of the corporate alternative minimum tax. We also support the
recommendation of the National Commission on Fiscal Responsibility and Reform,
as well as the current President’s Export Council, to switch to a territorial system of
corporate taxation, so that profits earned and taxed abroad may be repatriated for
job-creating investment here at home without additional penalty9”.
The Democrat thought
Democrats are the opposite of Republicans in all aspects, they sustains government have to
regulate business and protect workers with all kind of social policies, to carry out this social
programs, they tend to increase taxes to corporations and business in general, in order to
finance a big and powerful government that can intervene in all sectors of the economy with
the purpose of taxing all. Synthetizing they want to:
“Continue the fiscal discipline that has been the hallmark of the past 8 years-paying
down the debt & offering the right kind of tax cuts.
Use our prosperity to secure Social Security and Medicare.
Invest in the American people & their ability to innovate.
Continue to reinvent government so that it works better and costs less.
Open new markets to American products.
9
Ibid, pp. 9.
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Reinforce the basic American bargain of rewarding hard work10”.
Increase taxes has pros and contras, one of pros is that social programs are essentials for the
livelihoods of the poor people, but in the other hand we have that it is bad for the investor
confidence, because it makes business be more expensive and by this way more difficult to
create enterprise, for this reason some businessmen would prefer to invest his capital in other
countries, with fewer and lower taxes. When things like that happens entrepreneurs prefers to
install their companies in tax havens, or in industrial countries such as China, in where salaries
are cheapest.
Democrats think is basic for a fair economy to establish minimum wages, in order to ensure the
minimum conditions to survive, and to have real possibilities to achieve goals, and example of
this is the social mobility, that is reflected when a poor breaks the vicious circle and out of
poverty, thanks to the hand of a generous State, concerned about bad life conditions of ample
sectors in the United States. In this point is convenient to note, what the President Barack
Obama says about the republican conception of the economy:
“The Republican Party has a drastically different vision. They still believe the best
way to grow the economy is from the top down – the same approach that
benefited the wealthy few but crashed the economy and crushed the middle class11
”.
One of concepts more used by Democrats is, progressive taxes, it means that people who have
high income and wealth, have to pay more taxes than people who have low income, this notion
seeks to redistribute the wealth a little, seeking provide benefits for the all the disadvantaged
people.
Some authors and organizations in the United States describe the economic philosophy of
Democrats like this “Pro-free market, but with active government involvement12” this active
government involvement is maybe the cornerstone of the rest of characteristics democrat
policies, leaving clear that they have the obligation to control, supervise and regulate economic
10
DEMOCRATIC PARTY ON BUDGET AND ECONOMY. Retrieved, September 18, 2012, from
http://www.ontheissues.org/celeb/Democratic_Party_Budget_+_Economy.html.
11
2012 DEMOCRATIC NATIONAL PLATFORM: MOVING AMERICA FORWARD. pp. 1. Retrieved September 18, 2012,
from http://www.democrats.org/democratic-national-platform.
12
KUBARYCH Roger M. Economics in the Democratic Party platform: pro market, anti-budget deficit, favoring
higher taxes on the Well-off. Retrieved September 18, 2012, from http://www.cfr.org/economics/economicsdemocratic-party-platform-pro-market-anti-budget-deficits-favoring-higher-taxes-well-off/p7216.
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issues to achieve social justice. But not only that, government intervenes for try to redistribute
wealth, opportunities, benefits, healthcare, justice, and education.
According to the above it is possible to say, that the alternative to market organization
proposed by Democrats is the collective decision making whereby:
“The government, through the political process, makes decisions for buyers and
sellers in an attempt to solve the basic economic questions facing the economy.
The government may maintain private ownership, but uses taxes, subsidies and
regulations to resolve the basic economic questions13”.
Having in account the previous point is clear that not all the authors think as Adam Smith,
Nobel laureate Friedrich Hayek in an article to the journal American Economic Review, support
this idea:
“I am convinced that if [the market system] were the result of deliberate human
design, and if the people guided by the price changes understood that their
decisions have significance far beyond their immediate aim, this mechanism would
have been acclaimed as one of the greatest triumphs of the human mind14”.
Conclusions
As we could see in this text, Democrats and Republicans are radically opposite in the economic
aspects, the first wants to have a big, enormous and regulator government that impose taxes
for the wealthiest, in order to redistribute this wealth for the poor people, financing public
expenditure in health, education, subsidies and aids for the middle and low class, including
enhance the minimum wage to help workers.
In the other hand, Republicans want less government, fewer taxes, less regulation and more
free markets, they believe that to have money you have to earn it working, for this reason they
are against subsidies and aid for the needy. Following the thesis proposed by Adam Smith, who
thinks that is better for the world the selfishness of the humans that the noble goals of the
same individuals, taking into account that it is easier to think about your own personal benefit,
than think about the overall benefit of the others.
13
SOBEL Russell S. GWARTNEY James D. STROUP Richard L. MACPHERSON David A. Understanding economics. 12th
edition. Ed South Western Cengage Learning, 2009, pp. 47.
14
HAYECH Friedrich The use of knowledge is society, American Economic Review 35, September 1945.
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Republicans and Democrats are two parties with different proposals and paths, but perhaps
might have something in common, and is that in one way or another, both are seeking the
benefit for the people, only that using different methods, both questionable from the social and
economic point depending on the perspective of which is observed.
For records signed in Bogotá, Colombia, South America at 16th days of the month of October of the
year 2012
Hernando Zabaleta Echeverry
_______________________________
Chairman of WL Global
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