Reaganomics has impoverished America for 40 years. This is the notion that showering money on the wealthy makes everyone richer.
Conservatives say it “stands to reason” that if people are taxed less, they will spend more. The economy will supposedly grow more, creating higher employment, greater prosperity and higher tax revenues to boot. But after 40 years there is absolutely no evidence the notion works. Here is why.
Taxes do not vanish into a black hole as right-wing propagandists assert. Basically, taxes are spent immediately and stimulate the economy immediately. Secondly, not all tax cuts are the same. Impoverished workers spend any extra money immediately. But wealthy people do not.
For the wealthy, any extra money simply vanishes into the Cayman Islands, trust funds for pampered children, Ivy League endowments, trinkets in glossy magazines, Sotheby’s, Christie’s, etc. This does little to stimulate the economy, increase economic output or create jobs.
The wealthy like Melania Trump do not buy 1,000 Buicks. She may have two or three, but no more. And so on for Cessnas, mansions, dresses, etc. Hence, her likelihood of spending any extra money (her “marginal propensity to consume”) is low.
Now consider tax increases on the wealthy. This extra money is spent immediately, by government, and stimulates the economy immediately. Government’s likelihood of spending is high. The difference between these two spending rates puts idle money into circulation. Up to a point, taxes can create prosperity.
Taxes should be spent to increase the efficiency of the private sector (roads, infrastructure, healthcare, security, etc.). Another wise use is investment in human capital. Hence, further education is free in Germany and Melania’s native Slovenia.
Reaganomics diverted America’s resources not to infrastructure or education but to toys for the wealthy. Encouraging the “supply side” was supposed to create vastly more wealth that would “trickle down” to everyone. The “rising tide” would “lift all boats.” Instead, it merely produced the greatest redistribution of wealth in world history. Wages stagnated. Almost all the extra wealth created by productivity gains over the last 40 years went to the owners of capital.
Former economist and congressman Alan Grayson, D-Florida, summed it up: “We’ve created a system that makes a tiny, tiny number of people unbelievably wealthy at the expense of everyone else – and turns everyone else into debt slaves and cheap labor.”
The Economic Policy Institute calculated the extent to which workers have been cheated. It stated that “had all workers’ wages risen in line with productivity, as they did in the three decades following World War II, an American earning around $50,000 today would instead be making close to $75,000,” i.e., $25,000 per annum more. Billions of dollars in productivity gains that should have flowed to everyone flowed only to America’s aristocracy. Yet it happened in broad daylight and was perfectly legal.
In his book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Rich — And Cheat Everyone Else, tax expert David Cay Johnston describes the result as not a trickle down but a “Niagara upwards.” Rigging the tax code and other laws to suit the wealthy is ridiculously easy. It is done via political contributions and “misdirection.” Magicians employ misdirection. While one hand works the trick, the other hand creates a distraction.
The Republican trick with Reaganomics is to promise everyone lower taxes … take money from wealthy donors … win elections … then give tiny tax cuts to the yokels but massive ones to the wealthy … thus running up national debt … and to rig the system so that employers keep the yokels’ wages down and pocket the productivity gains … finally blaming the economic stagnation on moochers, immigrants, unions, regulations, etc. The yokels understand the tangible lower taxes but not the intangible economic stagnation. Brilliant, I tell you.
If you think the so-called liberal media expose this trick, you are deluded. Our corporate-owned media are concerned only with revenues from corporate-owned advertisers. Economic policy is never discussed because viewers would simply turn off.
Republicans cannot produce the slightest evidence as to the success of Reaganomics. It certainly does not produce higher investment. America and Slovenia both invest at the same rate, 20 percent of gross domestic product (The Economist, Pocket World in Figures 2017). Canada’s rate is 24 percent.
George Bush Senior described Reaganomics as “voodoo economics.” Economist Thomas Piketty’s research (Capital in the Twenty-First Century) proved him right. Piketty studied tax records and concluded: “The reduction of top marginal tax rates and the rise of top incomes do not seem to have stimulated productivity (contrary to the predictions of supply-side theory).” Based on real-world evidence, Reaganomics is a failure.
Conservatives in Kansas doubled down regardless. The result was economic collapse. Voters finally demanded higher taxes. We shall see more about this outbreak of sanity next time.