The Failure of Supply-Side Economics

Slate.com's 'Moneybox' columnist Daniel Gross has a fantastic article in today's New York Times. Last week, as the government was announcing that wages are down and poverty is up, leading Reagan-era champion of supply-side economics Jude Wanniski died.

As we all know, the Bush administration has taken supply-side/trickle-down economics to heights unimagined by Reagan. This week, as Congress gets back into session, even with issues of disaster response facing them, the Senate Republicans have made ending the estate tax their number one priority. This is how important supply-side economics has become to the GOP; pushing their economic agenda now trumps all other matters.

Rising corporate profits and dividend payments clearly haven't trickled down into gains for people who don't own companies or stock, says Dean Baker, co-director at the Center for Economic and Policy Research, in Washington. "The wage gains," Mr. Baker said, "are concentrated in the upper-income level, just as they were in the 1980's."

Nor have the reduced taxes on capital and income stimulated significant job growth. A central tenet of the supply-side creed holds that lowering taxes increases the incentives for people to work. But Mr. Baker notes that the employment-to-population ratio - the percentage of adults who are working - is still lower than it was in 2001. Mr. Baker does not predict that things will improve anytime soon.

In my opinion, if you want proof that supply-side economics have completely failed, look to the poor of New Orleans. Their economic situation is so tenuous that one natural disaster, one hurricane, one flood and their lives are completely torn apart. The supposed benefits of trickle-down never made it to them.

And as Kos has pointed out repeatedly, the supply-siders' agenda has been to shrink the size of government until "we can be drown it in the bathtub". We're seeing the true cost of these policies in New Orleans right now. Spending on priorities like fixing the city's levees was ignored while supply-side tax cuts were pushed to the fore. From large scale economic data to the horrific impact of federal budget cuts on one city, these are the costs of supply-side economics writ large.

Tags: Ideology (all tags)

Comments

19 Comments

Supply side economics
is a failed theory from the '80s. Yet like with everything else, the Republicans ignored its obvious failures and insisted on re-implementing them under Chimpy. He's probably fuming over Sheehan and the hurricane ruining his vacation. Sigh "This is hard work."
by dole4pineapple 2005-09-03 10:10AM | 0 recs
Medicaid Death Tax
They don't like to mention it, but the huge numbers of people who are having their entore estates taken due to their having used Medicaid is increasing rapidly.

The government is presiding over a huge transfer of wealth from future generations to the corporate interests.. again..

They are going after everything.. houses.. family farms.. (ironic, isn't it, given the hype on the estate tax ? - which only effects the very rich..) you name it..

by ultraworld 2005-09-03 11:34AM | 0 recs
Jobs are disappearing for good..
People are being replaced by machines at a rate never seen before.. Why we don't realize it, I don't know.. I suspect that there is a sort of insiders agreement to pretend it isn't happening..

Don't get me wrong.. I think that this is a good thing.. People weren't made to do drudge work.. But unless we start a national discussion on this IMPORTANT change we will be a mess ten years from now.. wondering why 50% of the country isn't working and isn't able to find a job.. any job at any price..

Its not a structural thing, and its not like the cycle we had before.. Its big..

Networked computers are the reason..
Soon, the last few barriers will be gone and machines will talk directly to machines everywhere..

Who will buy the products of industry? Thats a good question..

Many people WONT HAVE AN INCOME... AND IT WON'T BE THEIR FAULT..

This will happen all over the world.. and its really unavoidable.. It is not a political thing, its technology..

by ultraworld 2005-09-03 11:46AM | 0 recs
shrink government
Shrink government is a catch phrase meant to dupe the Libertarians. Under the Republican/corporatists what they mean is shrink social services and expand programs in militarism and policing.

The size of government increases generally no matter who is in office. Both political parties are funded by the same corporate interests and demand the same sorts of paybacks for their support.

Screwing the poor is nothing new (remember the French Revolution), but what is different in the past 30 years is the neglect of the infrastructure.

New Orleans is a particularly dramatic example of penny wise pound foolish, but we have examples all over the country:
Decaying schools, bridges, power grid.
This mindset extends to the private sector as well. The massive shift of manufacturing to the third world is not just driven by cheaper labor, but by the reluctance of industries to do any capital investment in this country.
Instead of concentrating on the hollowing out of our economy the populace is distracted with meaningless discussions of abortion, gay marriage and creationism.
The rest of the world keeps these things in their place and spends their efforts on out competing us.
See my short essay here:
Coming Crash

by rdf 2005-09-03 10:43AM | 0 recs
Easy money..
Government contracts are the easiest money there is..

Apart from Washington's many largesses to corporate bandits of one kind or another, (at our expense), easy money is hard to come by these days.. and the 'insider' folks are desperate..

The GOP is their savior.

They seem to me like pigs at the trough.. At our expense..

Why else wouyld they act the way they do? Reading the news, its not infrequently that I wonder if it isn't all just a giant plan to steal our future out from under us..

Our GOP-led economy is like a BIG pyramid scheme..

They are paying off the 'early investors'...
At our expense..

by ultraworld 2005-09-03 11:40AM | 0 recs
Re: shrink government
We could institute direct democracy via secure open-source Internet applications...

Ultimately, people could be their own politicians.. Seriously..

Its worth discussing, anyway.. No more smoky back rooms.. No more sweetheart deals for the Halliburtons of the world..

Everything out in the open and debatable..

It could reenergize America.. People are disgusted because they dont think that either 'party' speaks for them..

Real direct, participatory democracy could change all that..

Trust-based online communities are showing us the way..

by ultraworld 2005-09-03 11:50AM | 0 recs
Re: shrink government
The problem with direct democracy is not technological (although a fair number of people don't have access or know how to do it - remember hanging chads).

The problem is that the vast majority of the country either isn't paying attention or that the issues are too complex to judge without specialized  knowledge.

For example, should we increase funding for bird flu or west Nile virus? How should I know, I'm not a public health expert. That's why we delegate things and have a representative system. We hope that our public officials will act in the public behalf. The problem is that the cost of running for office has corrupted the system. Only those willing to get in bed with business can afford to run.

Get the money out of running for office and lots of public spirited people will come forward.

by rdf 2005-09-03 12:04PM | 0 recs
Wanniski
...leading Reagan-era champion of supply-side economics Jude Wanniski died

My condolensces to his family.  And here's wishing the world had never heard of him.  His legacy is not a good one.

by jonweasel 2005-09-03 10:47AM | 0 recs
Supply Side Economics debunked
In a recent article cleverly titled Debunking Supply Side Economics Mark Gelbert has the history facts and statistics:

Statistics prove that supply side economics failed in every category.

Logically, the concept of supply side economics can be rejected out of hand by looking at the history of the economy. The periods of fastest economic growth in this country occurred during both World Wars and the late 1930's, both times of the highest tax increases. But this wasn't enough to stop supply siders from originally formulating their theory. Let's look at the history of the theory.

Supply side economics was conceived by one crank economist, Arthur Laffer, and an editorial writer for The Wall Street Journal, and a few staffers who worked for congressman, Jack Kemp. A crank economist (or theorist in any field) is one who can not get published in a peer-reviewed economics journal.

Now, let's look at how supply side economics failed.

The vast majority of economists agree inflation fell during the 1980's because of Paul Volcker's policies at the federal reserve and not because of tax cuts.

Tax revenue declined drastically when tax cuts went into effect. Tax collections in billions (1987 dollars)
1981 $766.6
1982 $ 738.2
1983 $684.3
1984 $730.4
(Source: U.S. Office of Management and Budget historical tables)

Tax cuts failed to accelerate economic growth in the GDP
1970's 18%
1980's 18%
(Source: U.S. commerce department)

Tax cuts failed to increase potential economic growth. Potential economic growth is economic growth factored in with a constant unemployment rate in order to eliminate fluctuations in the natural business cycle that would skew the results.
1970's 2.5% per year
1980's 2.5% per year
(Source: Paul Krugman, Peddling Prosperity)

Tax cuts failed to increase disposable savings.
1980 7.9% of GDP
1990 4.2% of GDP
(Source: U.S. Bureau of Economic Analysis)

Tax cuts failed to increase private investment.
1970's 18.6% of GDP
1980's 17.4% of GDP
(Source: Paul Krugman, Peddling Prosperity)

Tax cuts failed to lower the poverty rate.
1980 18.3% of children under 18 10.1% of people ages 18-64
1990 20.6% of children under 18 10.7% of people ages 18-64
(Source: U.S. census)

Tax cuts did increase income inequality.
Income of the poorest 20% fell by 10%
Income of the richest 1% rose by 105%
(Source: Paul Krugman: Peddling Prosperity)

Even some of the people who implemented supply side economics have admitted it's failure. David Stockman, Ronald Reagan's budget director, said this in his book, Triumph of Politics: Why the Reagan Revolution Failed. Supply side economics is the "Trojan horse for upper bracket tax cuts without economic justification."

The 1992 Economic Report to the President is a final indictment of supply side economics. Here is a quote from the document. "the era of disappointing economic growth continued through years of conservative rule."

Supply side economics is an ideological belief, not sound ecnomics:

The Education of David Stockman is great journalism because it reminds even conservatives that when it comes to the complex functioning of the economy, they don't know any more than Democrats do.  Supply side economics is sound because it is morally right--the people should control the wealth they generate--not because it will produce any specific result.  In fact, it really doesn't matter what result tax cuts produce in terms of economic growth and tax revenues.   What matters is that these results will be the byproduct of millions and millions of little decisions that people make in their own lives, instead of a function of a few potentially disastrous decisions made by a few pointy headed wonks in Washington

Bill Kristol has admitted that supply side economics is a better political theory than economic theory, but Kristol demonstrates that for conservatives political theory trumps economics:

(Weekly Standard)  
Luckily, that's all coming to an end. And it's not too soon for the president to start recapturing the Reaganite high ground of tax cuts and economic growth and opportunity. He can do that in two easy and obvious ways.

First, he can make clear that his tax cuts worked. The 2003 cuts in personal income rates, and in the tax rates on dividends and capital gains, have helped produce economic growth of better than 4 percent a year -- as non-tax-cutting European economies have stagnated. Unemployment here is down to 5.1 percent, while it remains 10 percent or more in Germany and France. The Dow is up by about 24 percent since May 2003, and capital spending by business is up some 22 percent.

And tax revenues are up. As Stephen Moore has pointed out in the Wall Street Journal, the supply-side Laffer curve has worked. Federal tax receipts are up by over 15 percent so far this fiscal year -- and state tax receipts are up 7.5 percent. Individual and corporate receipts are up some 30 percent in the two years since the tax cut. The budget deficit looks as if it will be down by some $60 billion this year.

Kristol has picked the bottom the DOW hit of 7,500 and pretends all the credit for the increase goes to Bush's tax cuts.

That's a standard fallacy supply siders rely on. They pretend that all credit for economic growth goes to tax cuts and all credit for federal revenue growth goes to tax cuts. Put another way, they are liars and they know it. There is no economics case to be made for supply side economics.

by Gary Boatwright 2005-09-03 11:55AM | 0 recs
All This Is True, But...
it's based on the faulty assumption that economics is a science, rather than a religion.  

As any Bushite can tell you--everything must be faith-based. Otherwise, you just hate America.

Now, how about Condi's shoes!

by Paul Rosenberg 2005-09-03 12:16PM | 0 recs
Re: All This Is True, But...
I heard she got ruby red shoes:

As Glinda the Good Witch told Dorothy, the magic of ruby shoes must be very powerful, or the Wicked Witch of the West wouldn't have wanted them so badly.

by Gary Boatwright 2005-09-03 01:32PM | 0 recs
I Used To Be Disgusted + Now I Try To Be Amused...
(the Angels Wanna Wear My) Red Shoes
Elvis Costello

Oh I used to be disgusted
And now I try to be amused.
But since their wings have got rusted,
You know, the angels wanna wear my red shoes.
But when they told me 'bout their side of the bargain,
That's when I knew that I could not refuse.
And I won't get any older, now the angels wanna wear my red shoes.

Oh-oh.

I was watching while you're dancing away.
Our love got fractured in the echo and sway.
How come everybody wants to be your friend?
You know that it still hurts me just to say it.

Oh, I know that she's disgusted. (Oh why's that)
'Cause she's feeling so abused.  (Oh that's too bad)
She gets tired of the lust,      (Oh I'm so sad)
But it's so hard to refuse.
Can you say that I'm too old,
When the angels have stolen my red shoes?

Oh, I said "I'm so happy, I could die."
She said "Drop dead", then left with another guy.
That's what you get if you go chasing after vengeance.
Ever since you got me punctured this has been my sentence.

Oh I used to be disgusted
And now I try to be amused.
But since their wings have got rusted,
You know, the angels wanna wear my red shoes.
But when they told me 'bout their side of the bargain,
That's when I knew that I could not refuse.
And I won't get any older, now the angels wanna wear my red shoes.
Oh I won't get any older, now the angels wanna wear my red shoes.

Red shoes, the angels wanna wear my red shoes.
Red shoes, the angels wanna wear my red shoes.
Red shoes, the angels wanna wear my red shoes.
Red shoes, the angels wanna wear my red shoes.
Red shoes, the angels wanna wear my red shoes. (repeat and fade)


by Paul Rosenberg 2005-09-03 06:13PM | 0 recs
Bush is a big government conservative
He wants to expand government in terms of pork for highway/energy bills and interfering in personal decisions (Schiavo/abortion). He then wants to eliminate or privatize all government programs that help people. And he had the nerve to say Kerry wanted to spend to much money and turn around and ask for us to take a 2 trillion dollar loan to privatize Social Security even though they know it doesn't help it.
by dole4pineapple 2005-09-03 11:58AM | 0 recs
Re: Bush is a big government conservative
During his firwst term Bush expanded government spending by 33$.  During his eight years Clinton increased government spending by 32% (half the rate that Bush did). Source:OMB tables, FY 2005 Federal Budget.

Despite this, Climtom found $450 million to invest in the New orleans levees while Bush was unable to come up with anywhere near the $250 million needed to finish the job.  Talk about penny wise and pouns foolish:  the econony will have to cough up at least $10.5 billion in aid and suffer an estimated $100 billion in other losses.  Real smart, Mr. Bush!

by David Kowalski 2005-09-03 12:54PM | 0 recs
Economics Isn't A Science
The fact that we're still talking about voodoo economics after all these years is proof positive that economics isn't a science.  It's a branch of public relations, aka propaganda.

True, there are a good many economists out there trying to do science.  But--notwithstanding the early, individualist exmples of Copernicus, Kepler, Galileo, etc.--a science is a social enterprise, with institutional foundations, norms and practices that distinguish it.  In a real science, such as physics, there are clear markers to distinguish the real science from the psuedo-science.  

It's a bit tricky sometimes, since real physics inlcudes some really wild stuff, that laymen might well mistake for magic.  But the fact is, this stuff is all solidly grounded in observation, or is clearly marked off as theoretical, with clearly articulated intellectual motivations--such as providing a non-arbitrary, unified account of the fundamental forces and the observed evolution of the universe (the justification for string theory, m-theory and other such work that has very tenuous connections to observation.)  

And, at the same time, there is a familiarity with the vast oceans of ignorance as well, which can be seen in the constant flow of popular science literature aimed at dispelling that ignorance, as well as things such as form letters kept by departments to send out to people who think they've discovered a perpetual motion machine.

But economics is not like this. Some parts of it are. But the field as a whole?  Not a chance. It not only welcomes the economic equivalent of perpertual motion, it actively promotes it, with a side order of "intelligent design."

Just one "little" for instance: Economists have known and written about externalities (aka "neighborhood effects," "spill-over effects," etc.) for over 80 years now.  Yet, to this very day public policy is conducted at all levels as if such things did not exist, and did not even have to be measured or considered.  

Indeed, the magic key to GOP economic policy is the maximization of externalized costs for the benefit of GOP campaign contributors.  The entire "war on terror" is, ultimately, nothing but an externalized cost of the oil and gas cartel.  If we had to pay for all US military involvement in the Middle East out of gas taxes, then we would begin to approach a semblance of economic rationality, at least in this one dimension of public policy.  In turn, realistic gas taxes would radically restructure the phenomena of suburban and exurban sprawl, as well as much else that we take for granted on the domestic scene.

If economics were a real science, economists would virtually demand such policies, and would regard complicity in the existing state of affairs as tantamount to professional misconduct.  

Naturally, such a stance is not something that an individual economist, no matter how prominent, can take on by him or herself.  It has to be a function of the discipline as a whole--which is why I say that the discipline itself lacks the essential qualities of a true science.

If the human race is lucky enough to survive through the coming disasters we have planned for ourselves, the "economics" of this time will be regarded by historians in terms perhaps not that far removed from the ways that anthropologists regard the "cargo cults" of the South Pacific that developed in the wake of Western airplane traffic.  Except, of course--unlike the Polynesians--we have no real excuse for our willful disregard of what are, for us, readily available facts.

by Paul Rosenberg 2005-09-03 12:10PM | 0 recs
Re: Economics Isn't A Science
A little help please. Could someone give my comment here another zero?
by Gary Boatwright 2005-09-03 12:14PM | 0 recs
I'm Not Quite Sure What You're Saying Gary, But..
how about Condi's shoes!
by Paul Rosenberg 2005-09-03 12:20PM | 0 recs
YES!!!!!!
Thank-you for posting on Supply-side economics and its complete and total failure, and tying it into this tradjedy.  

Supply-side econ is one of my own personal political windmills because the numbers do not add up and have never added up.  All you have to do is look at the CBOs budget history on its website to realize the truth.

by Bonddad 2005-09-03 12:25PM | 0 recs
Re: YES!!!!!!
Economics is a semi-science.  Supply side economics is a PR cover story to allow the transfer of funds from th bottom 80% of the population to the top 1% at the expense of economic growth.
by David Kowalski 2005-09-03 12:59PM | 0 recs

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