There’s been quite a confluence of posts this week examining those economic theories that have been among the Republican party’s most-revered tenets ever since the advent of St. Ronnie of Reagan lo these many years ago. Yep, we’re talkin supply-side economics, aka trickle-down theory, aka Reaganomics (and needless to say, aka the Bible to Minnesota’s current governor, Republican Tim Pawlenty.)
Conclusions? Well, I must advise any GOoPers in the audience to adjust those blinders and earplugs, because you’re not gonna want to hear this. Short version:
Supply-side, trickle-down theory DOESN’T WORK.
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Supply Side Bait and Switch
Ezra Klein
The American Prospect
Politicians promoting the sham of supply-side economics are foolish, but their economic advisors should know better
“It is a far, far better thing,” wrote John Kenneth Galbraith, “to have a firm anchor in nonsense than to put out on the troubled seas of thought.” And the Republican primary, per usual, is firmly docked in the seas of supply-siderism. Rudy Giuliani, who’s currently leading the polls, told Larry Kudlow, “I regard myself as a supply-sider for sure. I mean, watched Ronald Reagan do it and learned it, saw it work. Taxes get reduced, more revenue comes in.” Mitt Romney offered an even pithier explanation of his supply-side philosophy: “If you lower taxes enough, you create more growth.”
That “enough” is a particularly ingenious addition; if your economic policy based on massive cuts begins to tank the economy, it’s just evidence that it wasn’t tax-cutty enough. “Jeeves! The peasants are rioting! Slash the rates on capital gains!”
In his excellent new book The Big Con, Jonathan Chait methodically tracks the corrupt promises, failed predictions, and repeated shortcomings of the supply-side economics movement — that dominant strain of conservative economic thought that sees tax rates as the near singular driver of economic performance, counsels that rates should always be lower than they are, and assures us that the economic growth sparked by such policies will mean the government gets more revenue even as it cuts taxes. Supply siders are a laughable bunch, repeatedly proven wrong by history — most notably during the Clinton years, when a tax increase they said would “shrink the economy, put people out of work, and lower tax revenues” did quite the opposite on all counts — and derided even by their putative allies. The conservative economist Greg Mankiw, formerly chair of the president’s Council of Economic Advisors, put supply side theories in the “Cranks and Charlatans” chapter of his textbook.
Yet they retain the full fealty of every major candidate in the Republican primary. It’s bizarre, but not inexplicable. In his book, Chait focuses on a small coterie of cranks like George Gilder and Jude Wanniski — non-economists whose mastery of pure supply-side doctrine has made them useful to — and thus influential within — the Republican Party. But if you’ve never heard their names, you are forgiven (say five Hail Reagans and go about your day, my son). They may be the ideology’s most devoted advocates, but they are not its most important enablers. That distinction goes to the economists whose indulgence and careerism sustains these crackpots.
Read it all HERE
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The extortion artists at the NY Times are rumored to be ready to chuck their annoying “Select” program, by which they hold their most popular weekly columnists’ content hostage behind a firewall until you fork over the $50 ransom annual “Select” subscription, but they haven’t chucked it yet, so we rely on our generous Select- subbing friends to share. Here’s this week’s Paul Krugman fix in its entirety, courtesy of the always intrepid Wege:
Where’s My Trickle?
Paul Krugman
NYTimes Select
Four years ago the Bush administration, exploiting the political bounce it got from the illusion of success in Iraq, pushed a cut in capital-gains and dividend taxes through Congress. It was an extremely elitist tax cut even by Bush-era standards: the nonpartisan Tax Policy Center says that more than half of the tax breaks went to Americans with incomes of more than $1 million a year.
Needless to say, administration economists produced various misleading statistics designed to convey the opposite impression, that the tax cut mainly went to ordinary, middle-class Americans. But they also insisted that the benefits of the tax cut would trickle down — that lower tax rates on the rich would do great things for the economy, helping everyone.
Well, Friday’s dismal jobs report showed that the Bush boom, such as it was, has run its course. And working Americans have a right to ask, “Where’s my trickle?â€
It’s true, as the Bushies never tire of reminding us, that the U.S. economy has added eight million jobs since that 2003 tax cut. That sounds impressive, unless you happen to know that a good part of that gain was simply a recovery from large job losses earlier in the administration’s tenure — and that the United States added no fewer than 21 million jobs after Bill Clinton raised taxes on the rich, a move that had conservative pundits predicting economic disaster.
What’s really remarkable, however, is that four years of economic growth have produced essentially no gains for ordinary American workers.
Wages, adjusted for inflation, have stagnated: the real hourly earnings of nonsupervisory workers, the most widely used measure of how typical workers are faring, were no higher in July 2007 than they were in July 2003.
Meanwhile, benefits have deteriorated: the percentage of Americans receiving health insurance through employers, which plunged along with employment during the early years of the Bush administration, continued to decline even as the economy finally began creating some jobs.
And one of the few seeming bright spots of the Bush-era economy, rising homeownership, is now revealed as the result of a bubble inflated in part by financial flim-flam, which deceived both borrowers and investors.
Now you know why 66 percent of Americans rate economic conditions in this country as only fair or poor, and why Americans disapprove of President Bush’s handling of the economy almost as strongly as they disapprove of the job he is doing in general.
Yet the overall economy has grown at a reasonable pace over the past four years. Where did the economic growth go? The answer is that it went to the same economic elite that received the lion’s share of those tax cuts. Corporate profits rose 72 percent from the second quarter of 2003 to the second quarter of 2007. The real income of the richest 0.1 percent of Americans surged by 51 percent between 2003 and 2005, and although we don’t yet have the data for 2006, everything we know suggests that the income of the rich took another upward leap.
The absence of any gains for workers in the years since the 2003 tax cut is a pretty convincing refutation of trickle-down theory. So is the fact that the economy had a much more convincing boom after Bill Clinton raised taxes on top brackets. It turns out that when you cut taxes on the rich, the rich pay less taxes; when you raise taxes on the rich, they pay more taxes — end of story.
But it’s not just trickle-down that has been refuted: the whole idea that a rising tide raises all boats, that growth in the economy necessarily translates into gains for the great majority of Americans, is belied by the Bush-era experience.
As far as I can tell, America has never before experienced a disconnect between overall economic performance and the fortunes of workers as complete as that of the last four years.
America was a highly unequal society during the Gilded Age, but workers’ living standards nonetheless improved as the economy grew. Inequality rose rapidly during the Reagan years, but “Morning in America†was nonetheless bright enough to make most people cheerful, at least temporarily. Inequality continued to increase during the Clinton years, but wages rose, as did the availability of health insurance — and the great majority of Americans felt prosperous.
What we’ve had since 2003, however, is an economic expansion that looks good if not great by the usual measures, but which has passed most Americans by.
Guaranteed health insurance, which all of the leading Democratic contenders (but none of the Republicans) are promising, would eliminate one of the reasons for this disconnect. But it should be only the start of a broader range of policies — a new New Deal — designed to turn economic growth into something more than a spectator sport.
[Paul Krugman, NYTimes Select]
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And finally, via AlterNet, complete with many illustrative charts and statistics for your continued Friday and weekend reading pleasure:
The Supply-Side Fraud: Republican Economics Don’t Work
By Hale Stewart, HuffingtonPost.com. Posted September 10, 2007.
Republicans are enamored by “supply-side” economics. Frankly, I have to admit it’s a very easy sell. Think about it. “Cutting tax rates stimulates the economy to such a high level that tax revenues increase.” However, there are several problems with this theory. The first is Republicans have not implemented the other side of “supply-side economics” — a corresponding cut in government spending. This has ballooned the federal debt to dangerous levels under their economic stewardship. In addition, the projected increase in government revenues really haven’t materialized as projected. In other words, supply-side economics is a great marketing concept, but in reality is a poor national policy.
Read it all HERE
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Posted: September 14th, 2007 under Reaganomics, Republicans, Supply Side Economics, Tim Pawlenty, Wingnut Mythology.
Comments: 1
 
