Posts tagged ‘The Kansas experiment’

Econ 101 for Republicans

Republican economic theory (theology?) relies on two beliefs or tenants. The first is that if you cut taxes there will be new investment by businesses and corporations, and with that, jobs and wage growth. The second is that this increased economic activity will actually grow the treasury’s coffers, paying for themselves. This effect when applied to the impacts of a tax cut is called dynamic scoring. See, the tax cut will cost x, but the result will be y additional income to the treasury or so the theory goes. The first one could be true in certain circumstances and the second one is demonstrably false. But that is what their whole approach to the economy is made up of. Oh sure fewer regulations, but that is really a subset of the first tenant and when you add the secondary costs, like damage to environment, death and dismemberment, and loss of rights for workers, the cost are usually more than the benefits.

Let’s go after the first tenant, cutting taxes creates jobs and stimulates the economy. Well there are times when that actually helps, not as much as actual increases in government spending (a tax cut has the same effect on balance sheet of the Treasury as increased government spending), but it helps and it can be faster than government spending. Economic theory and practice have shown us that after a recession or even during one, with high unemployment, making money available to corporations and businesses in the form of a tax cut does stimulate growth. It is a tool Republicans favor because they don’t believe in direct government spending in things we need like infrastructure and R&D, and want to give it to corporations and businesses (and people) to decide for themselves.

Two things you need to ask yourself here. First are we coming out of a recession, and how high is unemployment? The answer which conservative economist Bruce Bartlett gave us the other day was neither apply as corporations are already awash in record profits, and the unemployment numbers tell us we are almost at full employment. Second, one thing we know for sure is money given to the middle and lower classes is generally spent, while money given to wealthy is much less effective. Where was the emphasis in the current tax bill? Oh, the wealthy. There are great debates about whether direct spending by government is far more effective in these times to create real demand through jobs and wages. But we have some empirical data from Governor Brownback and the Kansas experience where they slashed taxes, little change in jobs or wages, and the state went into massive debt, defunding education to help balance the books.

The bottom line on the first tenant, is that if used judiciously at the appropriate time in the economy (not now) it might help. But considering the infrastructures needs across the country, the money would have a much higher multiplication factor (return on investment; every $1 spent creates say $1.5 of increased activity in the economy), and we would create jobs, higher wages, and invest in our future. The money they are going to spend paying off their wealthy donors, in other words, is going into a big hole.

Okay, tenant number two, that cutting taxes pays for itself (dynamic scoring) is fairly straight forward, it has never worked. Oh sure there might me some increased revenue if the tax cuts were properly targeted to the middle class, but nowhere near the income to make up for the spending. “Assessing the House version of the plan and accounting for the economic growth its tax cuts would induce, the analysts found that growth would offset only about 12 percent of the plan’s cost over the first decade. After an initial economic boost, bigger deficits and rising interest rates would drag on the economy.” Here is another well research source that can find no pay for itself effect in Vanity Fair. But hey, get it from the non-partisan Joint Committee on Taxation and note they still used very optimistic growth rates.

So there you have it. Or as conservative economist Bruce Bartlett said, “…virtually everything Republicans say about taxes today is hogwash.” So we are going to take a big hit. Get ready. And what is next? This from Paul Ryan in the NYT this morning:

Speaker Paul D. Ryan and other Republicans are beginning to express their big dreams publicly, vowing that next year they will move on to changes in Medicare and Social Security. President Trump told a Missouri rally last week, “We’re going to go into welfare reform.”

That’s right. When the numbers don’t add up and the Treasury starts going in the red, they will all of a sudden care about the deficit again and go after the programs that we need most. Maybe that was their game all along. We are in for hard times ahead, but as I told my son who works in the school district in San Diego and is afraid the new tax bill that eliminated his tax deduction for interest on loans and cut the deduction for state and local taxes that school districts depend on could bankrupt him, Conservatism is like cancer. The treatment to cure it if it can be cured almost kills us. That is where we are at. The great Kansas Experiment has moved to the national stage, and we will see the same results. Think you might get out and vote in 2018?

Empathy and Voting

There was another article about how the Kansas experiment where Governor Brownback actually did all the stuff Republicans wish they could do, and the state is floundering, appeared giving his Democratic rival a real chance in a very red state. Here is a description of one voter:

In his 40 years living in Kansas, Konrad Hastings cannot remember voting for a Democrat. He is the type who agonizes over big purchases, trying to save as much money as possible. He is against stricter gun laws, opposes abortion in most cases and prefers less government involvement in his life.

I find this fascinating. He is frugal (conservative economic ideas), against government action on guns, but for government action to prevent a woman’s choice, and prefers less government? It is all about what he has personal experience with. Women and choice are abstractions, as well as the damage done by free access to guns, but the impact to the economy by supply side economics is hurting him, so he is willing to rethink his ideas here.

It’s the empathy thing. Conservatives don’t have any, so unless their own lives are affected directly, they have no sense of the damage their policies do to others. In that vein, he will never get that his push for frugal government is exactly what is also degrading his economy. He is stuck in the microeconomic model (home budget) and ignoring that governments work within the macroeconomic model, and he never will get it because it is not his personal experience.

These are the people who elect our government in mid-term elections. Democrats and independents stay home and we have the mess we have because they stayed home. Think about Ferguson where the government is totally out of touch with their citizens (we have no racial problem) and the fault lies with the citizens. Only 10% of the population turned out for their last election. If you don’t vote, you gave away your power to that 10%.

This upcoming mid-term election is one of the most important in our history, where Republicans using their mid-term successes have tried to restrict voting rights. It is time to get rid of these people and elect those who aren’t trying to maintain the status quo, but moving forward to build a better country. I just hope people figure this out.