Bashing “Supply Side Economics” 2: Maybe We Don’t Want Growth?

Bashing “Supply Side Economics” 2: Maybe We Don’t Want Growth?

June 15, 2009


Last week, we looked at some typical “supply side economics” bashing. Many arguments against “supply side economics” are silly and irrational — which is an indicator that they are really political arguments, not economic ones.

I suggested that one reason for the resistance to tax system reform is that we still have unresolved issues from the 19th century, namely the tendency of capitalist systems to bifurcate into rich and poor. The “progressive” income tax was one part of the solution to those problems. Is it a good or necessary solution? Or does it actually make the problem worse? I think these things have not really been determined yet. I am not entirely against the progressive income tax, even with rather high top rates, because there are examples where such systems seem to have worked. The 1950s and 1960s were probably the best example thus far of a broad middle class, in the U.S., throughout Europe and Japan. Could you have an even broader middle class with a system of lower taxes? I think so — but it remains to be established. Maybe the East Europeans will start to answer that question.

But there are other “political” reasons for bashing “supply side economics.” The other biggie, it seems to me, is the government itself. The government, in all its forms — Congresspeople, government employees, business that get government contracts — senses that its power and influence is increased when taxes are high, and diminished when taxes are low. This “power and influence” is not necessarily about money itself. We’ve seen that the “tax burden,” the percentage of GDP paid in taxes, does not necessarily increase with higher tax rates, or fall with lower ones. And, it is usually true that lower tax rates bring more revenue to the government, as they promote a healthier economy. This would mean more money to spend. But, the government would sense that, even though it might have higher revenues, its relative influence would wane. People would just be doing whatever they like, without government direction. The type of personality attracted to the government, not surprisingly, likes to tell people what to do. Thus, you get the typical Democrat “economic program” of having high taxes on capital and investment, but “targeted” tax breaks for whatever the politicians think would be a good investment. A tax break for investment in information technology, or real estate. This is a soft version of the sort of central industrial planning that was popular everywhere after WWII. The libertarian says: if a tax break on investment in information technology is good, isn’t a tax break on everything better? From an even more practical standpoint, the advantage of “targeted” tax breaks is that they can be used to channel money to politicians. You can promise an infotech tax break, and get campaign support from the infotech industry. Then you can promise a tax break on low-income housing, and get campaign support from the manufactured housing industry. If you just have low taxes across the board, there are fewer strings to pull.

This government constituency is supported by a great mass of people who see the government as the avenue by which “we” should be doing this, that or the other. This “we” inevitably means the government, so they tend to support the government in many ways, including political support for high tax rates.

Although government types — and the “we should do this” or “we should do that” people — often say they are doing things for the “good of the people,” actually the people are well aware that they are mostly just fattening and protecting their own sinecures. When “the people” are actually asked to give an opinion on whether taxes should be higher or lower, they almost always vote for lower. This happened most recently in California, where tax-hike proposals were defeated across the board.

You can get the idea of how all that works without too many more examples. There is a second reason for bashing “supply side economics” and classical/libertarian economics in general.

“Supply side economists” usually like to talk about “growth.” You’ve probably noticed that I don’t use the term “growth” too much, and prefer “economic health.” What does “growth” mean? It tends to mean … more of what we already have.

There have been times when people looked upon their handiwork with enthusiasm and celebration. In the 19th century, as the cities grew or the railroads were extended, this was thought to be a great collective accomplishment. Even in the 1960s, people genuinely looked upon their latest efforts, the personal automobile, the interstate highway system, commercial aviation — walking on the moon! — as another step in the increasing Glory of Man. It was Progress.

Have you noticed there is no Progress anymore? I look upon what we have today — the environmental destruction, the ever-increasing horrors of the food production system, the insane medical system, the horrible and worsening state of cities and living environments, our descent into self-destructive car-addiction, the deteriorating education system, the general decline of society and the family unit — as one hideous wall-to-wall catastrophe. (Except for the Internet.)

And I’m sure you know exactly what I’m talking about. I’m not the only one.

Does “growth” mean more of this? There is nothing inherent to the Magic Formula — Low Taxes, Stable Money — that says you have to cut down the rainforest and sterilize the oceans and build strip malls far out in the Arizona desert to sell crap that nobody needs. Or murder people in other countries who aren’t going along agreeably with our global empire. But, that’s what seems to happen, at least for now. More of the same.

I have come to appreciate that many people don’t really want further enable activity of this sort. I think that the people of France and Japan, for example, have become aware that this path of Westernization, modernization, globalization, whatever, doesn’t produce desirable outcomes. I choose France and Japan because both have very rich cultures, built up over centuries, which are eroding and being replaced by the Wal-Mart consumerist suburban model of the U.S. Even people in the U.S., who don’t have any of the cultural inheritance of France or Japan, and who are indeed infamous worldwide for their crassness and ignorance — ignorance even of what a cultural inheritance is, and the fact that they don’t have one — are rather intensely aware that what they have doesn’t quite add up to very much.

So, there is, I think, a resistance to “growth.” What’s it good for? Isn’t there something we can get enthusiastic about? About the only thing people get enthusiastic about is “profit,” this intangible abstraction. This “profit” is so desirable, that the means of obtaining the profit have become largely irrelevant. Building houses is no longer about houses, it’s about “profit.” Growing food is not about food, it’s about “profit.” However, the economy is, actually, things like food and houses. Greater “profit” entitles one to a bigger share of the pie, so if you have a shitty culture, then with more “profit” you just get a bigger share of a shitty culture.

None of these are new issues. They have been around for decades and centuries. Rather too many “supply side economics” types like to stick their fingers in their ears and pretend they don’t exist. Sorry — they exist.

* * *

Two perspectives on the California budget mess.

The Los Angeles Times has an “interactive budget calculator” where you can try to balance California’s budget yourself. The joke is: even if you select ALL the budget cuts — not counting the “one time fixes” which basically amount to borrowing money — you still can’t close the deficit! This is a sort of propoganda in support of higher taxes, which California voters have just turned down in no uncertain terms.

LA Times budget calculator

This is exactly the sort of behavior I talked about earlier. When under pressure, the entrenched bureaucracy will tend to sacrifice first the most essential, most beneficial, most visible, highest cost-reward projects. I used the example of a school that eliminates its $750 pencil budget, causing everything to come to a halt. Oh, we’re soooooo impoverished! We’ve done everything we can do! We’re down to the pencil budget! It’s usually a load of crap.

This time around, the “pencil budget” is the state park system.

Here’s an entirely different look at the California state budget. The punchline: even after adjusting for inflation and population growth, per capita spending is up 46% from ten years ago!

My solution: reduce state employees by 50%. No “furloughs.” Just pitch them out. Keep the state parks open.

Mike Shedlock: California’s budget crisis