I love baseball. If God came down and asked me what I really wanted to do I would respond “play second base for the Washington Nationals. Make me a 290 hitter with a good on base average so I could be a lead off man. Give me some speed to swipe some bases.” One of the basic rules of baseball – and one that has become part of popular US lexicon – is “three strikes and you’re out.” This adage aptly applies to “voodoo economics” – also known as supply-side economics. Voodoo economists have made three unsuccessful arguments about economic policies – twice in implementation and once in rebuttal. Reality has given them their three strikes:
They’re out.
The first problem with this theory is it was never properly implemented. True supply-side economics requires that for every dollar lost in revenue there must be a proportionate cut in spending. While politicians love to say they are cutting taxes, they never say they are cutting spending. This problem caused supply-siders to come up with a different rationale. They knew that cutting taxes for the rich would lead to revenue shortfalls. The government would pay for these shortfalls by issuing debt. Because debt is the kiss of death to conservative politicians, they came up with another rationale. By cutting taxes they would stimulate the economy to such a degree that tax revenues would sufficiently increase to pay off the debt incurred to pay for the tax cuts. The problem with this is it has never happened.
Reagan was the first president to implement the new theory of voodoo economics and it failed. “By 1986 the budget deficit was as high as 5% of GDP and government revenues had fallen by over 2% of GDP since the introduction of the 1981 tax cuts. So much for the Laffer idea of self-financing tax cuts!” Although Reagan’s attempts to implement the new voodoo economics failed, that didn’t stop the second Bush from implementing a similar policy. And it too has failed: “In 2000 the budget surplus was $236 b (2.4% of GDP) while by 2004 we had a budget deficit of $412b or 3.6% of GDP. This was a worsening of the fiscal balance of 6% of GDP in four years. What accounts for this worsening? Government revenues fell in those four years by 4.6% of GDP (from 20.9% in 2000 to 16.3% in 2004).” So, the two times they have implemented voodoo economics, Republicans have lead the country into the realm of financial ruin. This accounts for their first two strikes.
Strike three occurred when voodoo economists proclaimed the Clinton’s tax increased would lead to economic stagnation. “The tax increases and spending controls of Clinton led to eight years of exceptional economic growth, exceptional labor supply and employment growth (20 million new jobs) and a boom in investment. Productivity soared, the stock market boomed for years, inflation remained low and we went from a budget deficit of $290 b (4.7% of GDP) in 1992 to a budget surplus of $236 b (2.4% of GDP) in 2000, the last year of the Clinton administration”
Historical facts counter any arguments supply side economists can make. They have had their way for 25 years with public discourse and have been wrong three times. That is their three strikes; they are out. Next batter.
http://www.roubiniglobal.com/archives/2005/06/index.html#000333
I am economically challenged. Thanks for the diary.
Glad it helped.
The Laffer Curve is the fundamental basis of Supply-Side economics. Drawn on a restaurant napkin (presumably before the bar closed) it supposedly shows there are two tax rates that yield the same revenue – one due to an increase in economic activity.
I’m looking at a copy of the Curve now (sorry, can’t find one on the web.) And it’s a nice little chart all gussied up with labeled points, read shaded areas, Revenues along the x-axis and Tax Rate (Percentage) on the y-axis. It looks really keen and makes me want to say, “Gee-Whiz!”
And it is a Gee-whiz graph because the graph is uncontaminated by any numbers. And a graph without numbers is just a picture. It’s meaningless.
Further, the curve is intended to predict the future tax revenue generated by future tax rate percentages and – sorry – you can’t DO that. The math gets a trifle hairy but the bottom line is the total number of iterative variables and their association into formulae are a classic NP-complete problem: they are not recursive (i.e. you can’t figger ’em out.)
I also want to mention these equations are known to be n-dimensional bifurcative meaning there is at least 2 and potentially “infinite” number of solutions if you could figger ’em out … which you can’t.
The whole Supply-Side thing* is absurd so it’s not surprising when it was tried it fall down go boom.
* I refuse to use the word ‘Theory’ to describe vacuous inanities.
There is no way to empirically derive the laffer curve from any set of available economic data.
The Republicans actions assume then current tax rates are on the right side of the curve, implying that cuttinig rates will increase revenue. Because they cannot present a curve from data, this assumption may be flawed.
I didn’t think so but it’s not my field and I haven’t kept up with the latest poopadoodle issuing from the Supply Siders.
So Supply-Side stuff violates both deductive and inductive reasoning. Why the devil does anyone take these fools seriously? (Rhetorical question)
Come on, bonddad. You’re expecting Republicans to follow the generally accepted rules of baseball? You know how Republicans play baseball:
The fundamental flaw in your excellent, informative diary: the assumption that Republican politics is bounded by truth, history, fact or honor.
Seriously, though, thanks for another wonderful, informative, succinct and devastating lesson in political economy.
I love it when you talk dirty with the economics, bondad! Excellent diary. But playing for the Nationals? I’m still getting over the fact that the Nationals are only 9 months removed from being the Expos! I myself have fancied playing shortstop for my Cubbies as we come soooooo close once more. We can’t even get to the Series in my fantasy life.
Your diary also made me giggle a little, too. I just read a social history of medical hucksterism. Supply-siders seem to be modern day snake-oil salesmen (except without the vaudevillean charm) – selling you something they say will cure what ails you when it’s actually going to make you feel worse down the road, and then hightailing off with your money.