Hoodwinked Supply-Side Gospel Designed to Mislead
Most of us remember the merger of Charlotte-based NationsBank with San Francisco-based Bank of America. Fewer know that there were actually two attempts to merge the banks.
The first attempt unraveled when the lawyers and accountants for the two giant banks got bogged down and called for a meeting of the two CEOs to break the impasse.
What became apparent in the course of that meeting was that, in spite of the benefits of merging the two behemoths, there wasn’t any real desire from either bank to make the necessary sacrifices to complete the merger. Both banks were doing just fine independently.
Former NationsBank and Bank of America CEO Hugh McColl quickly surmised that the people with the most to gain from the merger were not the principals, but the investment bankers — who had misrepresented each bank’s relative strength and level of interest to the other in anticipation of windfall fees and commissions. McColl said the two CEOs had been “hoodwinked.”
That’s us. That’s why people who call themselves 99-percenters (for the 99 percent of Americans whose adjusted incomes have been relatively flat or worse over the past 40 years) occupy Wall Street and why that movement has spread to cities across the country and around the world.
Over the past 40 years, a lot of time and resources have been committed to convincing middle-class Americans that their interests were aligned with corporate interests. The idea is that if we just get government out of the way, an unregulated and untaxed free market will create enough wealth to provide for everybody.
That’s supply-side economics. According to Rutgers University historian James Livingston: “Economists (supply-side economists) will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.”
You see that borne out in every flat tax/corporate tax break economic plan from every candidate seeking the Republican nomination for president — and from our own Democratic Sen. Kay Hagan, who has co-sponsored a bill that would add a trillion dollars to the economy with a “tax holiday” to “repatriate” corporate funds kept offshore to avoid corporate taxes.
Livingston contends that “using business profits to increase productivity and output doesn't actually drive economic growth.” He points out that real GDP per capita increased 600 percent over the 20th century, even as net business investment declined by 70 percent as a share of GDP. Livingston credits “increased consumer spending coupled with and amplified by government outlays” for the previous century’s spectacular growth.
There’s the rub.
The right, supported by big business, is trying to force supply-side solutions on a demand-side recession.
Berkley University economist and former Labor Secretary Robert Reich neatly sums it up this way: “Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing jobs and wages and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.” In the interim, small businesses are in jeopardy and big businesses are stockpiling capital and capacity waiting for demand.
Using tax policy to spur economic expansion is a dead end, according to Harvard Advanced Leadership Fellow Steven Strauss, who reminds us, “During the ultra-high-tax 1950s (top marginal income tax rate of 90 percent), the United States had some of its best real economic growth (over 4 percent a year). And, for the decade where we had our lowest marginal income tax rates, we had our worst real economic growth (about 1.5 percent a year).”
Likewise, the McCain/Hagan bill to repatriate funds held offshore has limited potential as economic stimulus. As reported in The Christian Science Monitor, a similar measure tried in 2004 created few jobs. Instead, the money was used mostly for dividends and stock buybacks to reward shareholders.
That is what free markets do. It is not their responsibility to “trickle down.” They exist not for the greater good of society, but to reward shareholders — to maximize profits by controlling costs.
We, American labor and the government that might serve and protect us, are the costs.
“Trickle down” is a lie. That’s the reality that has spawned a movement. The benefits of supply-side economics were never for us. We’ve been hoodwinked.
Kevin Smith lives in Aberdeen. Contact him at email@example.com.
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