Photo credit: PBS and Google Images.
“If you don’t pay the people enough money, they can’t buy the cars.” – Henry Ford
Norton Garfinkle, former economics professor and current chairman of the nonprofit, nonpartisan education and research organization, Future of American Democracy Foundation, has written a highly readible book about the modern American economy.
The American Dream vs. The Gospel of Wealth: The fight for a Productive Middle-Class Economy is written for the citizen reader, has a good reading pace, and uses minimal jargon.
Early in the book, Garfinkle lays out the framework for the economic debate thus:
Every important economic policy has three kinds of consequences: factual, moral, and political. In effect, in evaluating economic policy, we have to ask three questions: (1) Does it work? (2) Is it fair? and (3) Will it sustain the democratic structure of our society? Today, our debate tends to focus on the first question, at the expense of the other two. It was not always so.
Garfinkle traces the history of American economic thought from the Declaration of Independence to the present. Perhaps what the book does best is discredit the so called “supply-side” economic dogma, the “Gospel of Wealth.” One of the most influential gurus of neoconcervative supply-side movement is Irving Kristol, father of Fox News pundit and editor of the Weekly Standard, William Kristol.
Supply-side basically says that cutting taxes for those in a position to produce goods (corporations and their wealthy investors) will stimulate production, increase worker productivity, and make more goods available to consumers without causing inflation. A key to this idea is increased productivity, which comes from a combination of efficiency, technology, and cheaper unit labor costs.
The opposite of supply-side is demand-side economics. Henry Ford’s comment at the top of this post exemplifies the demand-side approach: that the economy is built from the foundation, and that a large, prosperous middle class arises from people having access to good schools and earning enough to better their lives. That’s the American Dream
Dating back to the bad-old stagflation days of the late 1970’s is the supply-side idea that tax cuts grow the economy so that more revenue is generated than if taxes were not cut. The mathematical limits of this absurd logic would have revenues approaching infinity as taxes approached zero. It is not hard to find economists and editors of the Wall Street Journal who preach this economic “gospel” to whomever will listen, like Jehova Witnesses with a trunk load of Watchtowers.
From page 150:
As for the economics of the supply-side doctrine, few economists believed that supply-side tax cuts would pay for themselves. The consensus view among economists was probably expressed by Alan Greenspan, former chairman of President Ford’s Council of Economic Advisers. He thought the tax cut might generate 20 percent new revenue, that is, a $100-billion tax cut would increase tax revenues by $20 billion and cost the government $80-billion.
Garfinkle uses readily available government economic data to refute the association of income tax cuts with economic health.
Unless I missed it, I think Dr. Garfinkle may have underestimated or ignored three powerful factors at work in the late 1980s and 1990s: cheap oil, the technology boom, and demographics. During that time, workers of the Baby Boom generation moved into their peak earning years. These three fortuitous factors coincided with the implementation of supply-side dogma and helped create the illusion that it actually might have worked. Garfinkle has plenty of data to show otherwise.
The supply-siders are front and center of the current economic debate. I highly recommend this book to understand how we as a nation got to this point, and where we are likely headed if we don’t examine, understand, and confront the supply-side snake oil for what it is – a strategy to end the middle class and create a small super-rich, all-powerful, elite political class.
Cross-posted from Sustainable Middle Class Blog