Supply-side economics is on display in the latest budgetary proposals by the Trump Administration. The approach to governance he is showing is highly questionable, both from a wisdom perspective, and from an economic justice point of view. As Erik Wasson writes in his Bloomberg article, “Trump to Pitch Deep Cuts to Anti-Poverty Programs and Medicaid:” “President Donald Trump plans to propose $1.7 trillion in cuts to a category of spending that includes major social and entitlement programs for lower-income Americans, as part of an effort to balance the budget within a decade.” He also notes that ‘This budget continues to reveal President Trump’s true colors: His populist campaign rhetoric was just a Trojan horse to execute long-held, hard-right policies that benefit the ultra-wealthy at the expense of the middle class,’ Senate Minority Leader Chuck Schemer said.” What could the populist-sounding candidate-turned-president have in mind? What is the justification? Is it wise, and is it just?
Few ideas have ever had as much influence with as little factual basis as trickle-down economics. ~ Robert Reich
This is a tactic to increase the prosperity of the rich and the owning class and disenfranchise and disempower the middle and lower economic classes, and it’s been around since 1980 (primarily during Republican presidential administrations and Republican-dominated Congressional sessions). The theory is clear: reduce expenditures and cut taxes at the same time, and this will, paradoxically, spur growth rather than simply add to the deficit (and in our case, debt). As this white paper from New York University concludes: “…the verdict from history and empirical evidence is quite clear. Supply-side economics is “voodoo economics”. Reductions in tax rates (starting from initial moderate tax rate levels) do not significantly increase labor supply and savings, do not increase economic growth, do not raise total tax revenue and do not reduce budget deficits. Their likely effect on the level and growth rate on output is close to zero while they lead to significantly larger budget deficits.”
The purest supply-side economics experiment to date is finally over. And it was an unmitigated failure. A diverse coalition of Republicans and Democrats in the Kansas state legislature voted recently to roll back Governor Sam Brownback’s sweeping 2012 tax cuts, overriding his veto. After five disastrous years, Brownback’s historically ambitious plan to make real every Norquistian’s sweetest fantasy has been beaten back to the regressive hell from whence it came. ~ Eric Armstrong
How does the “party of fiscal conservatism” justify this dubious (reckless?) approach to economics? They claim it will lead to growth and that “job creators” will be incentivized to create jobs. They even have the gall to say that government is “intrusive” into the world of “small business” and that “onerous taxes” need to be reduced promptly to stave off economic despair. It’s a hackneyed attempt to put more money in the pockets of the main contributors to the Republican Party: the wealthy. It distorts the political process, increases the debt (skyrocketing since Reagan took office in 1980), and is thoroughly incompatible with true fiscal conservatism. It is, however, a hallmark of the libertarian/fiscal conservatism that leads the GOP around like a bull with a nose ring. Though lip service is paid to the concept of “shrinking government,” in fact, according to scholar Michael Parenti: “The close relationship between politics and economics is neither neutral nor coincidental. Large governments evolve through history in order to protect large accumulations of property and wealth.” Don’t tell me the armed forces and the military-industrial complex is “small government.” David Leonhardt of the New York Times plainly and persuasively adds:
The label of “fiscal conservative” used to mean something. It referred to people — mostly Republicans — whose top priority was the health of the federal government’s balance sheet. They favored a small deficit, or no deficit at all. They generally preferred holding down the deficit through a small government, but they were also open to tax increases to bring down the deficit. The first President George Bush and President Dwight Eisenhower were both fiscal conservatives. Today, however, the original meaning of the label has been all but destroyed. Few if any current Republican leaders care deeply about the deficit. Their top priority is instead reducing taxes on the affluent.
Sometimes Republican candidates justify supply-side economics by appealing to populist goals. Orwellian? Yes. Think of all the things Trump said on the campaign trail about helping out the little guy and such. These budgetary priorities clearly contradict that rhetoric. Trump is turning out to be as reactionary as Reagan – or worse! Bush Jr. really threw a wrench into our economic machinery with his dual tax cuts and war-making, plunging us ever-deeper into debt. How these anti-conservatives look themselves in the mirror, I know not. They surely are simply trying to feather their own nests at the expense of our economic prosperity. I know one way they justify their self-concern when it comes to economics: they think taxation is tantamount to theft. Not kidding. The gist is that they prize the concept of “self-ownership” above almost all else; in other words, they own their labor, and the fruits of their labor (i.e., money). This “looking out for Number One” has consequences for others with whom we share a country, many values, and the basics of economics. Here is how Michael J. Sandel describes it: “The idea of self-ownership, consistently applied, has implications that only an ardent libertarian can love – an unfettered market without a safety net for those who fall behind; a minimal state that rules out most measures to ease inequality and promote the common good….”
There is a limit to how much debt a country can take; we might not be near it because of our GDP or whathaveyou, but that is like saying “I can drink all I want now because I will be able to vomit and it won’t damage my liver.” We are looking at severe liver damage on a national scale if we have a crippling amount of debt. A look at the debt clock really drives the idea home. Imagine running up credit card debt such that it requires 10-20% of your income just to service the debt – that means, paying interest. It doesn’t mean paying the debt down. It could be a permanent drag on our economic prosperity. It seems unsustainable. It’s like we have a parent who has a drug problem and enough room on credit cards to feed it; can it be morally justified? Is it in any way fiscally conservative? I know it becomes absurd when crony capitalism is examined carefully; for example, deregulation played a major role in the 2008 financial meltdown, and subsequently, the oligarchs did the plutocrats’ bidding by using tax dollars (i.e., more debt) to keep the banks that were deemed “too big to fail” solvent. Outrageous!
The ideals of the Judaeo-Christian tradition cannot possibly become realities in a materialistic civilization whose structure is centered around production, consumption, and success in the market.
Conservatives point to the fact that there are other elements of our budget that are “budget-busters:” health care and Social Security. I would point out the military is in ways a waste of money as well. They do have a point: health care costs are fairly described as out of control. Why that is, is another matter, though. To understand that, we need to look to politicians and the way money dominates politics. It’s a gross system where insurance companies, lobbying groups, the pharmaceutical industry, etc. drastically influence our health care funding decisions. Ironically, even with the ACA, millions are still uninsured. Visit many Republican-dominated states and you see an appalling lack of health care coverage due to their recalcitrant refusal to accept federal dollars for Medicaid. As this article shows, the powers that be aren’t really interested in reform – in other words, to get us in line with the amount that other industrialized countries spend and have as good or better outcomes. The author notes that “However, American drug companies, health providers and patients themselves are still largely unwilling to give up control over myriad medical choices — a relinquishment that has been crucial for governments in other countries to hold down costs more effectively. Health-care specialists cite several key reasons why Americans are shelling out more money for what’s often less quality:…” Read the reasons Sisson cites here: http://www.sandiegouniontribune.com/news/health/sd-me-healthcare-costs-20170318-story.html
The point is that cutting the budget for Medicaid (aid to poor people for health insurance) is not only not putting a band-aid on a gaping wound, it’s infecting it with staph! This isn’t a blog about our checkered healthcare system, so I will end there. I will just note that we spend more than anyone, and yet Cuba has a better infant mortality rate than we do. I would refer the interested person to this youtube video with 7 million hits. I say we go public! This youtube video elucidates the simple case for simplifying health care.
Ronald Reagan has achieved near-mythical status in conservative America. We have heard for years that Reagan lowered taxes and deficits simultaneously, and that this is a tribute to the theory of supply-side economics. In fact, Reagan raised taxes and increased the deficits.
It seems pretty clear that to become more and more austere with social welfare, engage in more globalization and automation, and fail to keep public education adequately funded, America will be essentially a two-class society: the rich and the poor; the haves and the have-nots; the golfers and the caddies. The wealth inequality is more egregious now than it was in the 1920s! (and we know what happened in 1928). Do we really want a society where it’s every man for himself; where there is no social safety net; where sick people either die or go bankrupt; where kids need to get a school-provided meal lest they not eat breakfast? That would be worse than Charles Dickens’ London. It is morally ignominious to purposefully behave in that manner, and puts the lie to Trump’s (and many Republicans’) rhetoric about improving society. It seems like the main goal is to enrich their cronies.
“Americans tend to think of poor people as being responsible for their own economic woes. But Hurricane Katrina was a case where the poor were clearly not at fault. It was a reminder that we have a moral obligation to provide every American with a decent life”
…it undermines the smug assumption, familiar in meritocratic societies, that success is the crown of virtue; that the rich are rich because they are more deserving than the poor. As [John] Rawls reminds us, ‘no one deserves his greater natural capacity nor merits a more favorable starting place in society’
A community that prefers to cut tax rates on the very rich rather than to help the poor and homeless has ceased to be a community in any real sense of the term.
It’s not wise to try to return to trickle-down economics. It wasn’t useful in the past, and it probably will not be. The rich either store their money in banks or put it in investments – few start new businesses. I think the wealthy are going to make this or that investment regardless of whether or not their tax rate is 17% (what Warren Buffett famously pays), a top rate of 39% (what it was under Clinton, until Bush and Congress changed it), or a top, nominal rate of 90% (which it was coming out of World War Two – and I should add, was strongly positively correlated with an era of great prosperity). The main effect of reducing taxes on the wealthy is that they are then a little wealthier.
Considering the massive movement of wealth up the social class ladder in the last 30 years, this is not something that wisdom indicates is positive. The average American worker is overworked, underpaid, and thought of as expendable. They probably have to work for 30-40 days to equal what the CEO of some major corporations make in an hour. The median wage would be $26 now if we had merely kept up with inflation in the past few decades. It is not. It is also wise to distribute income more evenly in a society so that we can benefit from the spending that the two lower social classes will obviously do. Don’t forget about tax breaks: some individuals and corporations have an effective rate of 0%, which is not progressive at all. Millions can be transferred between generations tax-free. Also note that we pay less tax in America than pretty much every big country in Europe and Australia. Their citizens have more social services they get “for free” and are thus, happier, healthier, save more, etc.
So in sum, it is really unwise economics to make the rich richer and squeeze everyone else more (or add to the debt). If the wealthy just keep the money Uncle Sam gave them in the form of reduced taxation, then by definition a tax break is a giveaway to the GOP’s main constituent group: the owning class. Capital gains taxes have been in place for quite a while now to cushion the burden the top social class pays, so let’s not forget that. I believe it is 15-20%. Try the little interactive infographic on this page; it’s eye-opening and disheartening.
Here is a brief summary by Thom Hartmann, in this AlterNet piece on the subject:
“Not only was supply-side a rational concept, Arthur Laffer suggested, but as taxes went down, revenue to the government would go up! Neither concept made any sense—and time has proven both to be colossal idiocies—but together they offered the Republican Party a way out of the wilderness. Ronald Reagan was the first national Republican politician to suggest that he could cut taxes on rich people and businesses, that those tax cuts would cause them to take their surplus money and build factories to make more stuff, and that the more stuff there was supplying the economy the faster it would grow. In the 1980 GOP primary, George Herbert Walker Bush – like most Republicans of the time – was horrified. Ronald Reagan was suggesting ‘Voodoo Economics,’ said Bush in the primary campaign….”
It’s not nice, either. It reflects values that are objectionable to wise persons (my opinion). Here is how David Korten phrases it: “The idea of a value-free economics is a contradiction in terms. Values- whether ethical or unethical, spiritual or materialistic- are central to every aspect of economic life.” This consideration doesn’t come up often in discussions such as this, but I am of the opinion that to make those who have a much harder life (economics-wise) pay a greater proportional share than they currently do so that the wealthy can have a cut in their rates is not a defensible value. I do get that the wealthy make up the largest percentage of taxes paid (i.e., they fill our basically-empty coffers more than the other classes). The poor obviously can’t pay the lion’s share. And does anyone really feel that the middle class isn’t being squeezed to oblivion? I mean, onerous debt on student loans, very little retirement savings, and very little investment capital means a hell of a lot of families live paycheck to paycheck. My wife works in bankruptcy law and it seems clear that though quite a few of her clients are not the swiftest, they nevertheless are often at the mercy of forces beyond their control (medical emergencies, unexpected deaths, job loss, etc.). The rich are the best people to carry our burden. Clearly we spend more than we can afford to at present rates, so less revenue is foolish if we need to keep social services where they are or greater.
It’s my contention that we need to be more like European social democracies (and Australia and New Zealand), not less. Capitalism is heartless, and many, many are left out in the cold. We can and should be doing better. If European countries can do it, why can’t we? Bernie Sanders was really energizing the populace with his democratic socialism, and unfortunately, he was beaten (cheated?), or he would now be leading us down a more economically progressive path. Here is an article from which I pulled this quote on poverty and economics:
An astonishing number of people work at low-wage jobs. Plus, many more households are headed now by a single parent, making it difficult for them to earn a living income from the jobs that are typically available. The near disappearance of cash assistance for low-income mothers and children — i.e., welfare — in much of the country plays a contributing role, too. And persistent issues of race and gender mean higher poverty among minorities and families headed by single mothers.
The wealthy have a much easier life; not just the crab legs and the vacations – literally, they live longer and can afford to save money to make that vaunted American purchase: a house. Those who can’t purchase a house or invest in the stock market because of lack of surplus income just simply do not have the same future that the well-heeled do. This is a moral issue I believe. There is way too much wealth accumulated at the top, and they do not need that much to live perfectly wonderful and abundant lives. Meanwhile, homelessness, childhood poverty, and old ladies living on $600 a month abound. It’s embarrassing to be American when I think about this. I have a lot of company, actually: millions of progressive Americans and a few of the wealthy. Here is one of America’s heroes (in any century, Bernie Sanders): “I would hope that these people who are worth hundreds of millions of dollars will look around them and say: There is something more important in life than the richest people becoming richer when we have the highest rate of childhood poverty in the industrialized world. Maybe they will understand that they are Americans, part of a great nation which is in trouble today. Maybe they have to go back to the Bible, or whatever they believe in, and understand there is virtue in sharing, in reaching out; that you can’t get it all.” Do you remember this quote: “The state has no more right to force affluent taxpayers to support social programs for the poor than a benevolent thief has the right to steal money from a rich person and give it to the homeless”? That is part and parcel of the attitude held by many wealthy Americans: this is the land of opportunity; I made good (or fairly inherited money); I worked hard; what I have is mine and I don’t want to give it to those damned politicians to redistribute it to the undeserving. Thus, they push for tax reductions despite the consequences for the social welfare system, and, inarguably, the astronomical debt. This is not behavior to be particularly proud of. Of course I want to clean up politics, but in the meantime, I believe that the least among us should not face storm and stress because of system inequalities and a class structure that over-rewards capital investment and financial services.
Bernie Sanders wrote a piece on Trump and this very topic that is worth noting. https://www.commondreams.org/views/2017/05/24/trumps-budget-immoral . Never one to mince words, he states:
Let’s be clear about something: the economic theory President Trump has embraced with this budget, trickle-down economics, is an abysmal failure and a fraud. Since Ronald Reagan and George W. Bush slashed taxes on the wealthy and deregulated Wall Street, trillions of dollars in wealth have been redistributed from the middle class and working families to a handful of millionaires and billionaires. Today, we have more wealth and income inequality than at any time since the 1920s. The top one-tenth of 1% owns almost as much wealth as the bottom 90%. The Trump budget would make a bad situation worse by widening that gap with its trillions of cuts to social programs and gifts to the top 1%.
Here is a link to a radio show I did with the erudite and experienced economist, Gar Alperovitz, Ph.D. It is based on his book America Beyond Capitalism. You can’t beat Alperovitz’s theoretical and practical considerations on what he calls the pluralist commonwealth. Following are some quotes about progressive economics – especially from the perspective of wisdom and of humaneness.
The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.
Ten million men in our country could buy the whole world and ten million can’t buy enough to eat. ~ Will Rogers, 1931
Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and never could have existed if labor had not first existed. ~ Abraham Lincoln
The economic logic of the machine age predicted that only good would come from the relentless pursuit of self-interest. Most of these [business] executives didn’t realize, when they were climbing their way to the control tower, that they were taking charge of a machine responsible for environmental destruction or human exploitation.
According to Robert Nozick, there is nothing wrong with economic inequality as such. Simply knowing that the Forbes 400 have billions while others are penniless doesn’t enable you to conclude anything about the justice or injustice of the arrangement. ~ Michael J. Sandel
Social class is probably the single most important variable in society. From womb to tomb, it correlates with almost all other social characteristics of people that we can measure. ~ James W. Loewen
One of the reasons the U.S. is in such deep trouble is that it has stopped being smart – turning its back on excellence, sophistication, and long-term planning – in it public policies and corporate behavior. We’ve seen it in Iraq, in New Orleans, in the fiscal policies of the Bush administration, in the scandalous neglect of public education, in the financial sector meltdown, the auto industry, and so on. We’ve lionized dimwits, and now we’re paying the price.
Capitalism is unethical at its very heart. I don’t think it has to be; I don’t think it’s been developed enough. I do believe that if we put our great minds together, we could develop, perhaps, a kind of “higher level capitalism” that does not thrive on the abuse of people, and that does not put profit over people.
The president’s approach to Social Security is based much more on ideology than economics.
When the president declares happily that “our economy is sound,” he will not acknowledge that it is not at all sound for 40 or 50 million people who are struggling to survive, although it may be moderately sound for many in the middle class, and extremely sound for the richest 1 percent of the nation who own 40 percent of the nation’s wealth.
In practice, the Reagan administration was able to provide some elements of that old prosperity for a sizable, affluent segment of the populace, but only by saddling the country with unprecedented debt. The cost was very high.
The primary causes of poverty are a function of chance: place of birth, social location, innate capabilities, and economic cycles. Therefore, there exists a moral obligation to meet the basic needs of others.
The largest single difference between our two main political parties lies in how their members think about social class: 55% of Republicans blamed the poor for their poverty, while only 13% blamed the system for it; 68% of Democrats, on the other hand, blamed the system (5% blamed the poor). ~ James W. Lowen
For Americans who have made every effort to succeed, only to be pulled down over and over again by a market economy and a society weighed against them, the American dream can feel like a hoax, a myth without substance.
More quotations can be found here! Always free, always interesting.