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The
Same Old Supply-Side Song
April 19, 2003
By Martin Matheny
If George W. Bush had chosen music as a career instead of
politics, his entire body of work would be limited to one
laboriously long treatment of 999,000 Bottles of Beer on the
Wall. You can see it in his economic policy, a string of tax
cuts, followed by tax cuts, followed by - guess what? - more
tax cuts. Paul Begala comments, "You get the sense that if
someone broke their leg, Bush would advise them to take two
tax cuts and call him in the morning."
Call it what you will, re-Reaganomics, Trickle-Down II, or
other words too explicit for a family column, Bush's economic
policy is simply a rehash of the supply-side debacle that
his father once referred to as "voodoo economics."
Supply-side economics was reborn on the cocktail napkin of
economist Arthur Laffer, and foisted on an unsuspecting public
in the 1980's by Ronald Reagan. But economist Jean-Baptiste
Say conceived the whole thing almost two centuries ago. Little
did he know what a maelstrom of economic dissidence he would
one day unleash. Say's Law, simply put, states that supply
creates its own demand. Put into modern application, pumping
money into corporations should create jobs, boost the economy,
create consumer confidence, and generally make everyone fat
and happy.
So, based on Say's law, the Bush-league economists have put
together a pretty simple plan. Faced with a slumping economy,
they unleash a round of tax cuts for the wealthy and breaks
for corporate behemoths. The theory behind this policy assumes
that money siphoned to corporations and the wealthy will seep
down and eventually fertilize the economy at all levels. The
burden of the economic compost will rest squarely on the shoulders
of the poor, where the Republicans like it, and on the shoulders
of the shrinking middle class, where they like it even better.
There are numerous problems with Mr. Say's theory, however.
First, it doesn't seem to be particularly well suited to the
American economy, or for that manner any industrialized economy.
Many economists believe that Say's Law only works in economic
systems still based on the barter system. By extension then,
supply-side economics would be the answer to all of our problems
is we paid for our clothes with wheat, or our intercontinental
ballistic missiles with live chickens, or whatever. So apparently,
President Bush has given us an economic theory that would
be perfect, if we didn't have all that pesky legal tender
sitting around.
One of the most famous economists of the 20th century, John
Maynard Keynes, did a fine job of not only disproving Say's
Law, but in the process, entirely rewriting it. According
to Keynes, the exact opposite of Say's Law is true; demand
creates its own supply. Following Keynes' logic, which seems
to make a bit more sense, then a government that wants to
counter or stave off an economic recession should pump more
money into the demand segment of the economy, meaning the
middle class, who represent the largest number of spenders
in America.
But, let's give the Bush-league economists the benefit of
a doubt on that one, and move on to another slight problem
with supply-side economics. Say's Law has never really been
proven. Think about that for just a moment. The President's
economic team is willing to risk your economic future, and
the prosperity of our nation on a theory that experts accept
as fact, although there isn't exactly a preponderance of empirical
evidence to prove it. Remember, many experts accepted it as
fact that the earth was flat until it was proven otherwise
by empirical evidence.
Proponents of the Bush plan would argue that a plan based
on this theory is a long-term policy investment, and it is
probable that the legacy of a full implementation of supply-side
economic theory would not be known for generations. True enough,
but can our economy wait years before it returns to an acceptable
level of employment? Can we wait a few generations for the
markets to return to Clinton-era levels of production and
investor confidence?
Of course not. Supply-side economics, while an interesting
theory, is just that, a theory. Our economy needs a solution
now, and fortunately there are many options available. Of
course, none of them appeal to the White House, since they
tend to leave wealthy corporate and private donors out in
the cold, while providing assistance to the citizens who really
need it, namely the other 99% of us.
The theory behind Say's Law has not, and probably never will
be, proven. But if the theory remains a mystery, the realities
of supply-side economics have been demonstrated all too well.
One need only look at unemployment rates from the majority
of the Reagan years to see the awful effects of the Laffer
curve on American jobs.
So what have the team of Bush-league economists given us
exactly? A new round of tax cuts for the wealthy and the corporate
behemoths, based on a theory that hasn't been proven, that
probably won't work in our economy, and even if it does, won't
show any effects until well after most of us are broke and
homeless. The time has come for new solutions to our economic
crisis. Americans are tired of the same old song.
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