Monday, January 21, 2008

Supply (Lie) Side...Again?

A more venal Blanche DuBois mindset recurs in American economics. As I write, and since that Reagan President, far too many in the government and public delude ourselves.

If only we would give the very wealthy more money and related resources, surely they will use their superior wisdom and skills to our benefit. Surely.

The current prez and the far too many plutocrats in Congress want to extend and expand tax breaks for the already obscenely wealthy. It's not enough that they have committed us all to trillions of debt and driven our economy from world leadership. They would like to lead us on yet another fantasy quest.

Like the addled Blanche, too many of us are willing to depend on the kindness of strangers, in this case, those who share the outlook of petty criminals and drug dealers — those who first and foremost understand self-interest.

What, you say, that sounds like the Randists and libertarians. Indeed, the unrepentant supply siders do often disguise themselves amongst such. Let's not confuse bagels and doughnuts here.

Except among those campaigning for the top GOP nomination this year — and those desperate to believe them — finding those who try to rationally defend supply-side economics or its Reaganomics flavor is increasingly difficult. There are second-tier professors who do. The more balanced and the critical assessments far outweigh their arguments and with far more convincing analysis.

To the current race and its related economics debate, a seminal piece appeared in yesterday's NY Times. Chicago economics professor and Obama adviser Austan Goolsbee gets specific in Is the New Supply Side Better Than the Old?

Just Trust Them

The fundamental and well disproved fallacy is that if the very wealthy only have more money, good things will happen. The column is well worth the read and make sure to catch the David G. Klein illustration.

Most important, as Goolsbee notes, supply siders, including politicians "espousing these views have missed three important points that have come out of the continuing academic debate":
  1. "The impact of high-income tax cuts depends on how much additional income a person can keep." President J.F. Kennedy's cuts for the rich tripled their take-home, while George the Lesser's produced a 60.4% to 65% change, "hardly...the stuff of tax revolution."
  2. Contrasted to 30 years ago, we have seen " the dramatic, disproportionate rise in the compensation of high-income people. The new supply-siders have confused this shift with the impact of tax cuts." In fact, regardless of tax rate changes up or down, the rich's compensation has grown at high rates.
  3. "(M)uch of what the new supply-side economics attributed to tax cuts was really just the relabeling of income." The top tier plays with personal and corporate income, understandably moving and timing to minimize taxation. "Shifts like these have nothing to do with supply-side economics."

Goolsbee concludes that " would be great if we could cut taxes and raise revenue at one stroke. Alas, the research suggests that we will have to pay for high-income tax cuts the old-fashioned way — by actually cutting spending or just busting the budget." Get a grip, Blanche!

Trickle on Whom?

Most unfortunately, as so many researchers, economists, journalists and even cartoonists have noted, trickle-down economics would be better described as piss-on economics. The allegedly wise investors have shown short-term and narrow self-interest. They have not increased jobs or expanded the economy. For the larger national economy and population, giving them more money has produced the same effects as not doing so. In the current administration, the tax cuts for the plutocrats have helped produce a slower, poorer economy.

It brings to mind the typical source I knew when I wrote for Inc. magazine years ago. That maggy of course is for and about people who run growing companies, typically entrepreneurial types. They too have their shared fantasies.

First, if you slice and rearrange statistics in the right way, you can say that such small businesses produce far more net job growth than big business or government employment. Second, while we writers chuckled back in the office how these companies, their industries, and the CEOs were nearly as similar as LEGO blocks, each business boss would invariably go on and on about how difficult it would be to write about him and his company. They are unique (of course you are). Third, they share that paternal patina. They only want what's best for their employees. Trust them.

Both the supply-side arguments and the CEOs' claims are akin to the robber baron era lie that unregulated factory owners had an enlightened self-interest in providing reasonable wages and working conditions to their workers. After all, they wanted profit and it only made sense that healthy and content workers would be loyal and productive. QED.

We know how well that worked out, eh?

Government regulation of manufacturing and the existence of labor unions resulted not from any plot to cruelly stifle the initiative of factory owners. Instead, brutal abuses in pursuit of profit at the expense of all fostered such throttles.

Yet, the Blanche-style fantasies are alluring. It is very comforting to us adults to think that parental figures will take care of us. The masters and mistresses of the estate only want what's best for those who live by their grace.

We tried lords and serfs, aristocracy and deferential society, masters and slavery, robber barons and child labor, and bowing our heads while holding out our hands for the largess of big business. The lessons from each are few but obvious.

Creating additional wealth is a worthy ideal. Depending on plutocrats to open their purses to disperse it is another matter entirely.

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