09 July 2010

Conservative Economics : Just Plain Loco

Cartoon by Daryl Cagle / MSNBC.

Still trickling after all these years...
The insanity of conservative economics

By Ted McLaughlin / The Rag Blog / July 9, 2010

Like a bunch of lemmings following each other over a cliff to disaster, conservative politicians, pundits, and economists refuse to give up their allegiance to Reagan's "trickle down" economics in spite of the fact that the last 30 years have shown it simply does not work.

They cling to the belief that if we just keep making the rich people even richer they will share their good fortune with everyone else. They have obviously overlooked the natural greed of humans (especially after they have amassed a lot of money).

What has this ridiculously simplistic view of economic policy done to this country?
  • It has tripled the gaps in after-tax income between the richest 1% and the middle and poorest fifths of the country since 1979.
  • It has increased the wealth of the top 1% of families from 10% of the country's income to about 25%.
  • By de-regulating Wall Street and the financial industry it created the conditions leading to the financial meltdown that kicked off the current recession.
Instead of creating an economic vitality that resulted in increased wealth for everyone, it has just created an ever-growing and enormous gap between the rich and everyone else in this society. Making sure the rich got richer has been a real boon for the rich, but it has been an economic disaster for everyone else.

Now some conservatives would like to take this "make the rich even richer" policy even further. A member of the Wall Street Journal editorial board, Stephen Moore, appeared on CNBC and said the government shouldn't let Bush's tax cuts for the rich expire next January. He went on to say, "In fact, if I could have my 'druthers, I'd raise the 10 percent tax rate to 15 percent and lower the [top] rates."

Incredible! He wants to raise taxes on those taxpayers who make the least money and lower the taxes on those who make the most. How will this help to end the recession? It won't. It will do nothing but vastly increase the huge gap between the haves and the have-nots and mire those have-nots even deeper into the recession. But he is certainly not the only conservative wanting to "make the rich even richer" as an answer to our economic problems.

Arthur Laffer, a member of President Reagan's Economic Policy Board, has an even crazier idea. Laffer said in a Wall Street Journal article that the best way to stimulate the economy is to eliminate all federal taxes. He said:
No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?
Amazing! How does he think the federal government is going to fund the military (and the two unending wars we are fighting), social security, Medicare, education, small business and housing loans, government salaries, food stamps, and myriad other federal programs. Does he want to do away with the federal government altogether? We tried a version of that under the Articles of Confederation and it didn't work at all. Without the federal government we don't have a country -- regardless of what many right-wingers think.

The truth is that we must have a federal government and it must be able to finance itself -- and the only way to logically do that is through a fair system of taxation. Conservatives in Congress are already complaining about this country's deficit. They have refused to extend unemployment benefits or fund a new stimulus program to create new jobs because they claim it would increase the deficit. But Laffer's idea would increase the nation's debt by many trillions of dollars, instead of the few billion a badly-needed stimulus program would cost.

And it would not create any new jobs. Laffer's idea that eliminating all federal taxes would create an unemployment rate of 2% is laughable at best. Lowering taxes (or eliminating them) does not create jobs. If Laffer had ever run a business he would know that there is only one thing that causes an employer to hire one or more new workers -- need.

An employer will only hire a worker if he needs that worker to either increase production of goods or deliverance of services that the business needs to meet customer demand. Hiring fewer workers than needed will hurt production of goods and delivery of services, and cost the company customers (who will go to a company that can't meet its needs). Hiring more workers than are needed will just needlessly cut into company profits (something no business wants).

A business will hire the number of workers it needs to meet demand, regardless of whether taxes are high or low. If taxes get too high the business will raise prices. If taxes get lowered the business will put the extra profit in the bank. But taxes will not cause the business to hire either more or less workers than needed to meet demand.

Laffer is simply an idiot, especially considering the big deal most other conservatives are making over the federal deficit. Most of them seem to believe that cutting the deficit is the way out of the recession. But cutting government spending in the midst of a serious recession will do nothing but deepen and extend the recession. The deficit is not nearly as important as job creation in the midst of this recession (which has cost the country between 12 and 15 million jobs).

The American people seem to understand this even if the conservatives do not. A new Gallup Poll shows that at least 60% of Americans approve of more government spending to stimulate the economy and create new jobs. They know that the only real way to cut the deficit without hurting the country is to create new jobs. When enough new jobs are created with those new workers paying more in taxes, the deficit will be reduced.

Americans also disagree with other aspects of conservative economic policy. Around 55% would like to see the government expand regulation of major financial institutions (to prevent another financial meltdown that hurts Main Street more than Wall Street). And 56% believe the government should regulate energy output from private companies to reduce global warming (a move that the nonpartisan Congressional Budget Office says would save $19 billion).

Conservatives may believe that the way to a healthier economy is to make rich people richer, but the American people aren't buying it any more. They know from painful experience that money doesn't "trickle down" in our capitalist economy -- it flows upward. When workers are doing well everyone does well. That's just the way it is.

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

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