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Wednesday, September 29, 2010

HOW REAGAN AND SUPPLY SIDE ECONOMICS WRECKED AMERICA'

As we listen to the loud-mouthed pundits on the Right blame Mr. Obama and the Democrats for America's sluggish economy, the deficit, and the debt, we need to arm ourselves with facts.  And the facts point to Reagan's presidency as the beginning of the great increase in our national debt, with a dip in the nation debt as a % of the GDP coming from the Democratic president, Bill Clinton.

We cannot lump the Obama administration in with other past administrations, since he came into office facing a dire economic situation and had to act immediately to staunch the bleeding of jobs as well as stimulate the economy.  We've all seen the chart that shows the improvement in job recovery, but it is more difficult to understand how Mr. Obama's policies averted a national economic catastrophe, since  we can't create a chart on what might have happened, only on what has happened.

Unfortunately, it takes time and attention to read and digest this information, and most voters won't invest in either.  They'd rather listen to charlatans and ignoramuses like Beck and Limbaugh, who contribute nothing to our national discourse, than educate themselves on these important issues:



 
"So how did Reagan, the great debt-slasher, go so far wrong? Partly it was his belief in supply-side 'economics.' This 'theory' claims that when the government cuts taxes, especially taxes on corporations and the rich, it makes them so happy to keep more of their money that they work much harder, get richer, and pay even more taxes than before the tax cut. So the lower the tax rate, the more money the government collects to pay down the debt! Believe that happy talk, and you can run up quite debt.


Of course the rich loved this 'theory' and fed the press many stories about the wonders of the new supply-side 'economics' (cooked up by Laffer, as a graduate student). Money talks, and a lot of people listened. It's time to rethink what radical conservatives have done and are doing to our country. The Reagan-Bushes National Debt now totals $9.2 trillion. That's the lions share of our present debt.

 


The green line in the graph shows what would have happened if Reagan had proposed budgets that let the debt increase in step with inflation and the economy—if he had kept it at a constant fraction of GDP. That's not much to ask of a president who said he'd do far better than those before him, since every previous post-war president had actually reduced the debt as a fraction of GDP.


By the end of the Reagan-Bush 12-year 'revolution,' the extra debt they had piled on the country was costing the country an extra 2.6% of GDP in interest—$300 million a day. Without that interest working against him, Clinton would have paid down the debt a bit faster. That helps the green-line goes down in the Clinton years. That's what would have happened without the Reagan-Bush interest burden.

Now if W. Bush had held the line as all non-supply side presidents had done, the national debt would have been only 21% of GDP, and the country would have been ready to pull itself out of the Great Recession with ease. In fact when W. Bush's last budget year ended we would have had $9 Trillion less in debt.

So how did Reagan, the great debt-slasher, go so far wrong? Partly it was his belief in supply-side 'economics.' This 'theory' claims that when the government cuts taxes, especially taxes on corporations and the rich, it makes them so happy to keep more of their money that they work much harder, get richer, and pay even more taxes than before the tax cut. So the lower the tax rate, the more money the government collects to pay down the debt! Believe that happy talk, and you can run up quite debt.

Of course the rich loved this 'theory' and fed the press many stories about the wonders of the new supply-side 'economics' (cooked up by Laffer, as a graduate student). Money talks, and a lot of people listened. It's time to rethink what radical conservatives have done and are doing to our country. The Reagan-Bushes National Debt now totals $9.2 trillion. That's the lions share of our present debt."

MORE HERE.

Just Say No to Supply‐Side Revolutionaries


The supply siders:

  • Lied their way to power in 1981: said debt was “out of control.”
  • Spiked the debt 20 out of 20 years.
  • Ran up $9.2 Trillion of debt that we’re paying interest on.
  • Take care of the rich but not the country.

Now they want to:

  • Cut taxes for the rich―that means more debt.
  • Block all spending that would benefit future generations.
  • Stick future generations with a bigger bill and nothing to show for it.

10 comments:

Dave Miller said...

Shaw, all of this stuff is just dizzying.

Let me ask any of our more conservative readers here a question.

If you are so convinced that tax cuts and tax breaks for individuals and business will benefit America, how come we have heard nary a word about extending the $250 billion of these that were in the stimulus and are set to expire soon?

Wait, you do not have to answer, it is because they were proposed and signed into law by President Barack Obama, a Democrat, and to admit that he too was tax cuts would defeat your election narrative that all Dems want to do is raise your taxes.

Shaw, here's a link to a great story that has been really under read in my opinion.

It is from former Reagan Budget Director, David Stockman.

As you can imagine, I've been unable to get any conservatives to comment on it because like the example above, it does not seem to fit their understanding of the world, or their campaign narrative.

http://www.nytimes.com/2010/08/01/opinion/01stockman.html

TAO said...

In a capitalistic economic system it is DEMAND that creates jobs not supply.

Supply side economics is a PERVERSION of capitalism.

Stockman championed supply side economics on the theoretical basis that lower taxes would increase economic activity and this increased economic activity would generate more tax revenue than what would be achieved via a higher tax rate.

NOW we have turned our whole economic policy into an entitlement program for the wealthy.

There is no need to attempt to try to change the point of view of the ignorant...

Without demand no jobs are created because no idiot is going to hire someone to do NOTHING! Its that simple, you can give all the tax breaks you want but no one gets hired until production capacity increases....

Tax breaks to the wealthy do not stimulate production capacity...people buying things do!

Its as plain as the nose on your face....so if conservatives continue to argue for lower taxes on interest income, dividend income, capital gains, and tax breaks for corporations then they are just stupid.

But they will continue to claim that corporations pay 35% tax rate...no, they don't. During the period of 2003 to 2007 the actual tax rate based on taxes paid for companies that made a profit was 13.3% which is considerably lower than the 18.2% that is the average for the developed world.

Another fallacy of the right.....

Which is why republicans continue to make things worse...they are not dealing with reality but rather are following their stupid script...

Shaw Kenawe said...

Thanks for the link, Dave. I look forward to reading it.

And TAO, my question is why can't the Democrats get this message out?

Why have the lies about supply side economics, and tax cuts, and tax rates received so much attention?

The Democrats don't know how to frame issues the way the GOP knows how to frame lies.

That's my guess.

Dave Miller said...

Shaw, you hit part of the nail on the head.

Since before the Iraq war, the Dems have not done well with message.

It is as if once Clinton left, he took the ability to effectively communicate with him.

TAO, as for taxes we might also add this. All Obama is proposing is to have tax rates equal to what they were during the Clinton Admin.

Unless I am misremembering, a real possibility as age creeps into my brain, when we had those tax rates weren't people doing pretty well?

Balanced budget, deficit under control, growing economy, etc.

Why would anyone not want to return to that?

TAO said...

Shaw,

What other message is there? Only 18% of our GDP is from producing goods the rest is from services...

Once you let the genie out of the bottle what else can you do? If you actually look where all the money for political campaigns comes from you really cannot expect the democrats to propose an alternative plan because that would be like biting the hand that feeds you....

Besides we have no alternative...

Unless you want to slap tariffs on goods and subsidize "Made In The USA" for a time...

As a nation we have no national infrastructure program, no industrial policy, we have nothing....

Everyother developed nation in the world has them...not us....

The reality is that economically we are boxed in and can't do anything about it due to wars and propping up Wall Street...

We keep wanting to improve our schools but the reality is nothing will change with them until an education can be proven to be worth something....whats the difference in a high school degree and no degree if you end up working at Walmart?

What good is a college degree if you end up being the manager of a fast food restaurant?

That is where we are headed...

After 30 years of supply side economics we actually believe that if we piss off the rich they will move to another country and take their money with them....

If the majority of Americans want to believe that they only have jobs because some rich person feels sorry for them and hired them then by God....what can you say?

Just hope you get a job in Mansion and not out in the fields....

AYATOLLAH TRUTHMENI 101 said...

We are truly being blackmailed by the super wealthy and powerful. THye can act with impunity because they have the threat of outsourcing or eliminating jobs. Unions have been rendered impotent.


Big money is the weapon of the right. To fight it too many Democrats had to kneel before the corporate phallus, thus becoming whores to the wealthy as the republicans are. High dollar whores, but whores nonetheless.

Arthurstone said...

Connecticut Senatorial candidate Linda McMahon has a solution.

Cut the minimum wage.

McMahon speaketh:

"The minimum wage now in our country, I think we've set that, so there are a lot of people have benefited from it in our country, but I think we ought to review how much it ought to be, and whether or not we ought to have increases in the minimum wage," McMahon said at a press conference."

Note she doesn't actually mention what the wage is. Likely she doesn't know.

Details. Details.

Another example of the Reagan legacy. Wheel out the candidate. The more 'unformed' the better. Hand him/her a script and voila!

A statesman.

Dave Miller said...

Arthur, what do you expect from the wife of a wrestling mogul?

Arthurstone said...

Just about as much as the voice of GE and 20 Mule Team Borax and star of Bedtime for Bonzo.

Zilch.

Nada.

Nichts.

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