Monday, April 24, 2017

Supply-Side - Trickle Down - Voodoo - Zombie Economics Article by Paul Krugman


One of my favorite conversations is when one of my conservative friends says, "what we need to do is cut taxes."  To which I respond, "how will you pay for them?"  The answer is always "through growth."

As George H.W. Bush so correctly called out Ronald Reagan for "voodoo economics".

Paul Krugman destroys Supply-Side economics in this great article titled Zombies of Voodoo Economics in the New York Times

Some of my favorite points Dr. Krugman brings out are:

"Back in 1980 George H. W. Bush famously described supply-side economics — the claim that cutting taxes on rich people will conjure up an economic miracle, so much so that revenues will actually rise — as “voodoo economic policy.” Yet it soon became the official doctrine of the Republican Party, and still is. That shows an impressive level of commitment. But what makes this commitment even more impressive is that it’s a doctrine that has been tested again and again — and has failed every time."

Below are key points in Krugman's article:

"So history offers not a shred of support for faith in the pro-growth effects of tax cuts.

Oh, and let’s not forget recent experiences at the state level. Sam Brownback, governor of Kansas, slashed taxes in what he called a “real live experiment” in conservative fiscal policy. But the growth he promised never came, while a fiscal crisis did. At the same time, Jerry Brown’s California raised taxes, leading to proclamations from the right that the state was committing “economic suicide”; in fact, the state has experienced impressive employment and economic growth.

According to wikipedia, even the Pope attacked trickle-down economics - "In 2013, Pope Francis referred to trickle-down theories (plural) in his Apostolic Exhortation Evangelii Gaudium with the statement (No.54) "Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and na├»ve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system."

In other words, supply-side economics is a classic example of a zombie doctrine: a view that should have been killed by the evidence long ago, but just keeps shambling along, eating politicians’ brains. Why, then, does it persist? Because it offers a rationale for lower taxes on the wealthy — and as Upton Sinclair noted long ago, it’s difficult to get a man to understand something when his salary depends on his not understanding it."