Economic Suicide?

Do we as a nation really want to commit economic suicide by continuing failed trickle down policies?

Noble Prize-winning economist Joseph E. Stiglitz stated unequivocally in a recent radio interview that “…trickle down economics does not work…” The June 29th interview on WHYY was about his new book, “The Price of Inequality, How Today’s Divided Society Endangers Our Future.”

He went on to say that there is no proof that trickle down works. In fact there is an enormous amount of evidence proving that it doesn’t. And that we are harming ourselves drastically by deluding ourselves that it does.

America is close to becoming a failed state because of our current outrageous level of inequality.

Are we people with rational minds? Or are we lemmings intent on suicide?

 

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10 Comments

  1. I think we are a people bad at math, lack education, and have trouble with abstract concepts. Its tough to tell middle class Americans in Kansas to put down their bibles long enough for me to explain how tax rates that might seem fair on a personal, one on one basis, are really bad for a national economy. There are just too many people out there that have a disdain for deep thinking and just want to go with their gut instinct. You tell them something like higher taxes hurt job creation, or that there is a “job creator” class of people that won’t hire new people if their business is booming as some sort of protest about their personal income tax rates, and they believe it.

    Basically there are a whole lot of people that don’t do a whole lot of thinking about what they believe. These are the people that the GOP wishes to cater to with their near constant stream of inaccurate and misleading information. So no, I don’t think we want to go down this path, I just think people don’t know any better and their leaders are just encouraging them.

  2. I do wish you weren’t right.

  3. The problem is that macroeconomics, the economics that applies to the whole economy of a nation is different and has different rules than the economics that applies to individuals. And many of those rules are counter intuitive. Saving money in bad times is good for the individual but it is bad for the overall economy. Reducing consumption is good for the individual but is bad for the economy. A country that has its own currency can never go bankrupt, an individual of course can. It is impossible for a society to pass its debts to future generations, and the only wealth that society can pass along is a healthy, functioning economy with a healthy, well educated population and an up to date, well maintained infrastructure. To pass along debts or wealth in the form of money denominated things is meaningless. Not so for the individual of course. Nations that sell us goods for our currency, for dollars, aren’t loaning us money in any sense. Their only two choices are to accept dollars for their goods or to stop selling to us. As long as we can print money we have no worries about them dumping dollars or them forcing a higher interest rate. And so it goes, the rules that apply to individuals don’t apply to nations.

    The second major disconnect between the economics of the nation and that of the individual is that the nation’s requires different policies depending on the state of the economy. If consumers are saving the national government should be spending. If consumers are spending, the government should save.

    This is one of the reasons that we knew neoliberal or supply side economics wasn’t a serious set of economics policies because it proscribed one and only one policy option to be applied no matter what the condition of the economy, continuous deficit spending to provide stimulus to the economy through tax cuts for the wealthy and sifting of more of the nation’s income to the wealthy by suppressing the wages of the non-wealthy. In other words intentional redistribution of the nation’s income to the already wealthy.

  4. Let’s see, whats changed? Medical costs weren’t 17.9% of GDP, military was also a much smaller percentage. We weren’t running such a huge deficit, the middle class still had the lions share of the wealth in this nation, middle class income hadn’t stagnated for 15 years, and oh yea, the tax rates at the time were 90% for top bracket instead of 36%, and he was fighting to get it down to 70%.

  5. Oh yea, the banks also had regulations and size limits that prevented the reiteration of their systemic failure to manage risk and tank the economy. Not that this last party has anything to do with taxes or the federal budget, but does fall within the scope of changes to the economy I think.

  6. RP, if you’re referring to statements like this:

    “It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”

    I would say the Law of Diminishing Returns applies.

    Normally, when people speak of the LoDR, they are talking production factors, like hiring more people. Adding some workers can make a facility more productive, but eventually you hit a point where the productivity added per person drops until it’s no longer worthwhile to add more workers.

    Or it’s talked about in pricing. You can cut prices 10% and increase revenue, but if you keep doing it you’ll get less and less revenue return until you’re losing money. So you have to know how much to charge to maximize return.

    In taxes it still applies, you just have to reverse the logic. If you’re at 70% tax rates on the top end, like existed during JFKs term, those are obviously bad for economic growth and therefore revenues. Cutting those to the 30′s (like Reagan did) worked wonders for both. However, when the rates are in the 30′s and you cut them further, you reduce revenues and don’t impact the economy at all.

    When you tack on the lessons on austerity from the Depression, you have a serious problem. After FDRs initial programs to stimulate the economy, growth started back up. But then he moved towards austerity, and that pushed the country back to recession and extended the depression another 5-6 years. So cutting taxes and inducing austerity on a damaged economy is even more damaging.

    Put another way, any good thing is only good for so long. Carried too far, it becomes a bad thing.

    I say the benchmark for success is the Clinton era. Taxes were fine, economic growth was fine, financially everything was going swimmingly. Bush did his unnecessary tax cut and everything started going to hell (not the sole cause, to be sure, just talking taxes here).

  7. Trickle up trickle down – at this point it really doesn’t matter. We had a highly leveraged economy that was driven by cheap oil and it was not sustainable. The oil is no longer cheap and the debts will not be re payed. The only question is what kind of Phoenix will arise from the ashes.

  8. LOL A link to WND. Where’s the investigative reporting from the National Enquirer…

  9. I consider the accurate, yet polite, phrase to be tinkle on economics. It gives a more accurate feeling of what happens to those on the lower rungs.

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