Reading The Wall Street Journal while eating breakfast this morning, I nearly dropped the partially chomped scrambled eggs from my mouth as my jaw dropped open. The head line on page A3 that caused such a stir: 'Democrats Dissent on Bush Tax Cuts' . Unbelievably, the piece referred to "what appears to be a breakdown of the party's consensus on how to handle the expiration of the Bush era tax cuts".
The question is WHY should there be a breakdown of consensus? Are all those Democrats now bolting to approve an extension insane, or congenitally stupid, or do they just love to pander for supposed votes? Wasn't it enough that 12 of these freaking morons originally voted for them back in 2001, knowing damned full well the hole they'd rip in the nation's future budgets (not to mention gutting the then Clinton surplus) so the rich farts could get the equivalent of an extra Lexus each year?
At the time any imbecile could have predicted the effect after those 12 Judas priest "Dems" (who then held a narrow majority) bolted. Anyone could have told them that massive $1-2 trillion holes would be ripped in the nation's budget all to pander to the wealthy (the top 1% garnered 55% of all the cuts, as noted by the authors of the spellbinding read: Neoconomy).
Now, with all those deficits created from TWO consecutive (2001, 2002) tax cuts, and the deficit hawks on Obama's "deficit commission" - like clueless Alan Simpson and Ernest Bowles- screaming for the heads......errr....benefits, of Social Security and Medicaid recipients- these Dem morons want to add another $150 BILLION for a year's extension for all the Bush cuts? Are you f&$#&@* kidding me! According to the article, the most recent two Bush lover Beltway whores to jump on this insidious bandwagon are Ben Nelson- NE (well, what do you expect, as this turkey was also the only D not willing to extend jobless benefits) and Kent Conrad (ND).
According to the WSJ piece, Genius Conrad's take was:
"As a general rule, you don't want to be cutting spending or raising taxes in the midst of a downturn. We know we've got to pivot and focus on the deficit, but its' probably too soon to cut spending or raise taxes."
But Conrad misses the point. While it is true the demand side of the economy remains limp (private businesses are still hoarding more than $250 billion in cash reserves and not using them to hire or expand plant) it is not true that ALL demand factors or dollars carry equal weight. For example, the $34 billion jobless benefits extension just passed will have immense positive effects in injecting M1 money supply into the demand side - contrary to The Wall Street Journal's recent petulant op-ed claiming "you can't pay people not to work".
In fact, with the money in their hands, they'll use it for rent, food and other necessities and spur what the private hotshots can't. Conversely, putting those same dollars in the hands of the wealthy won't achieve duck squat. As we know, in a tax cut environment, the wealthy don't create jobs- they plow more and more money into speculative ventures, such as hedge funds, ETFs and commodities. None of these benefit the mainstream economy.
"Trickle down" therefore doesn't work, and only ends up shifting the tax burden to the backs of the working and middle classes who can least afford it. In addition, as we saw in the last ten years of the Bush tax cuts, it opens monstrous deficit holes which have to be made up someplace. Where? My bet is that when the 'fat lady' (e.g. bond market honchos and raters) call for the U.S. to commence austerity (like Greece) the first thing the political rats will go after is Social Security and Medicare. As they do so, they'll screech, 'Well, we have to, because someone gotta pay for those Bush tax cuts that weren't allowed to expire!'
Yeah, right! But see, I don't want that to come to pass. Instead of having a fire sale on the demand side, I say balance the interests of all concerned - as well as ultra-Keynsians and the rabid deficit hawks. The way to do that is to infuse some minor spending (like the recent jobless benefits extension) but NOT extend any more budget -busting tax cuts.
Indeed, nearly a year and a half ago, no less than three Financial Times editorials, as well as commentaries from a number of their top contributors - including Clive Crook, Gideon Rachman and Gillian Tett, all pointed out that Obama should not have promised to extend ANY of the Bush tax cuts, even the middle class ones. The reason is simple: given the deficits in sight (including created by the stimulus and two occupations, plus a planned health reform bill) it made no sense at all to play politics and pander to the peanut gallery. The additional gap in revenues would come back to bite, as it has.
After the Bush cuts initially passed, 2001 Nobel economics laureate George Akerlof condemned them as an offshoot of "the worst government the US has ever had in its more than 200 years of history. This is not normal government policy. What we have here is a form of looting."
And the wealthy overclass interests were the looters. So now these miscreant D-Senators want to aid and abet them some more?
Few Americans, given their dearth of familiarity with either national history or economics, are remotely aware that the virus of 'supply side' crappola was initially sown in the Reagan era, with the result that a creditor nation turned into the world's foremost deadbeat......largely owing to Reagan's rash "defense" spending - upwards of $2.1 trillion. We haven't gotten out of the hole since, though numbnuts from coast to coast praise this moron (who once asked if submarine -fired missiles could be "recalled") for his astute "management".
"Supply Side Theory" itself was actually invented by one Arthur Laffer, in 1974, when he drew a curve on a paper napkin at a restaurant, and announced he'd "found a new theory" that generates "wealth" via lower income tax. (See, e.g. James Medoff and Andrew Harless, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake'.)
The curve, as Medoff and Harless note, purports to show the relation between tax rates and revenues. A tax rate of zero naturally produces no revenue. As taxes rise from zero, revenues rise in tandem. But as the rates rise, they discourage the activities being taxed. So at some point, discouragement predominates in the curve. (Laffer showed this with a splash of" catsup" over the top of his curve, on the napkin.) The REAL tax- benefit curve - if one used data from past history, actually rose like an exponential graph of the form: y = exp( x) or y = e^x, where y is revenue (independent variable) and x is tax rate (dependent variable). In other words, even at 100% tax rate (x = 1), the tax revenue continues to INCREASE - and EXPONENTIALLY!- not dip back down to zero as Laffer surmised. We actually saw something very close to this in the 1950s when marginal tax rates were 90% and investment ballooned, and people could actually earn a respectable 6% interest rate with bank savings, rather than chase risky returns in stocks.
Indeed when Medoff and Harless removed the catsup portion from the graph, and looked at actual data, they found (p. 87) that "high tax rates are associated with higher productivity growth". There is a consistent and strong relationship.
By contrast, for the years when supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold. (But what idiot Dems are happy to continue - if they extend the Bush tax cuts). In addition, Medoff and Harless noted that investment in labor, materials, etc. was pulled back dramatically. Medoff and Harless note the effects, p. 23:
"For the health of the economy, Reagan's policies turned out to be just about the worst thing that could have happened: investment did not increase, growth continued to stagnate, and the federal deficit ballooned to new dimensions."
All of those negative growth effects more than tripled during the era of the Bush tax cuts, and were one reason why up to 700,000 jobs a month were being lost. In addition, the people that were supposed to create new jobs, chose to speculate instead - mainly in the arenas of hedge funds and credit default swaps (CDS) which helped to crash the mortgage market, the insurers like AIG and damned near the whole banking system - with us along with it- in a new Great Depression.
Any lessons learned? Hardly!
The ignorant Democratic pols considering an extension of the Bush tax cuts need to know this:
Tax cuts and supply side hooey are merely PR for simpletons in economics that believe in the validity of "catsup stains" on napkins. Bozos and pandering political whores who've not yet mastered the lessons in history of previous attempts to impose this rank offal.
But be aware, Senators, we the people and voters are watching. And if you value our votes in the Fall you will damned well relocate that original consensus against the Bush tax cuts!