Tuesday, May 01, 2012

Where the GOP Went Wrong and Why It Still Is

by Len Hart, The Existentialist Cowboy

The GOP seems always to grow more militant after its failures. The failures have been many. As a result the GOP has turned both wrong and radical, more kooky than cult-like, both radical and rabid! This trend is traced to the Reagan years –an era that the GOP longs to resurrect but failing that might be happy if their recollections of that era were not undermined by the truth about it. Republicans would love to recall a time in which the lovable old Ronald 'there you go again' Reagan would earn a place in the American pantheon among the likes of Washington, Jefferson, Lincoln and FDR! Reality has not been on the GOP side for quite some time now. 

Look at the Reagan years. What went wrong? Did nothing go right? Reagan is most often associated with 'supply-side' economics –the GOP's favorite psuedo-ideology cited to justify whopping tax cuts for what was euphemistically called the 'investor class'. We live with the legacy of that kind of thinking: it is the emergence of a ruling elite of just 1 percent of the total population, the tiny, near microscopic minority which, in fact, owns more than the rest of us combined.

Arguably –this elite rules us because they own us. In effect, 'we' –the 90 plus percent –have assumed the burden that might have fallen to those more wealthy than us, those more able to sustain the financial burden. The result is slavery: we work and thus create the wealth of which we, as a class, are denied! I refer you to the works of any major economist since Adam Smith. All of them --from Ricardo to Marx, from Friedman to Keynes –have espoused the 'labor theory' of value.

The right wing predictably maintains that growth under Reagan proves supply-side theory. The opposite is true. Reagan's failures disprove 'supply-side' or 'trickle-down' theory for all time. Supply-side theorists believe that if top marginal tax rates are reduced then the potential loss of tax revenue will be offset by growth in the economy. That has never happened. The 'theory' is but a theoretical curve drawn on a napkin. Reagan, meanwhile, is remembered for having doubled the national debt and tripling the national deficit.

The test is whether the tax cuts produce more growth than occurs during normal business cycle recoveries. 'Supply-side economics' fails the test. Between 1979 and 1989, the growth rate was 3% --nothing to write home about, certainly not confirmation of 'supply-side' economics.

'Trickle-down theory' is not even the product of academic research. It's origins are found in political magazines, not scholarly journals. In fact, many right-leaning professional economists prefer a smaller government but have not advocated extreme tax cuts. None believe that with extreme tax cuts the economy will grow and most certainly not to the extent that revenues will actually increase –as supply-siders had said they would.

N. Gregory Mankiw, the Harvard economist, the senior Bush's own economic advisor, called Reagan's supply-side advisers “incompetent and unscrupulous”. In 1995, Irving Kristol, confessed that he supported supply-side theory but only because of its "political possibilities".

Now we come to the very reasons Bill Clinton is reviled by those who have lots of money –more money that normal people are allowed to even dream about. In 1989 the top 1% were taxed at a rate of 28.9%. By 1995, that rate had risen to 36.1%. Like Chicken Little, the 'supply-side' crowd warned that the sky was falling. It didn't! The result was unprecedented growth (not seen in decades), lower unemployment, and a whopping budget surplus. For having done such a great job, Bill Clinton was very nearly impeached and removed from office.

In general, tax cuts may stimulate demand but that is most surely the case only if those whose spending supports the economy get the tax break. That segment is, obviously, the middle class! The ruling elites do not spend in ways that drive the economy. Rather, they squirrel away their riches in offshore banks and other tax dodges. It's good money down a bottomless pit, wealth that is forever lost to the nation.

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