Wednesday, July 06, 2005

Trickle Up Economics

Total private employment was actually lower in January 2005 than in January 2001, the first time since the Great Depression that employment has fallen during a president's term of office.
–Robert Frank, New York Times: "Do Tax Cuts for the Wealthy Stimulate Employment?"

As a business founder and owner dating back to Bush the First, I've had ample opportunity to demonstrate the soundness of economic policy that favors giving tax cuts to the well-off. All I had to do was create jobs with my windfall. And if any capitalist was going to trickle down his added income, it was likely to be a bleeding heart liberal like yours truly.

But of course the trickle down theory used to justify tax cuts for the richest Americans was total hooey, as a recent story by Robert Frank neatly summarizes. It lays out the economic theory that every business owner knows in his or her bones: You don't create jobs because you have money; you create jobs because you can make money.

What about argument that the Bush tax cuts induce the wealthy to spend more, thereby creating more jobs?

Most people in the top 5 or 10 percent of earners are not exacting holding back on consumption now. Will the rich eat out more often? You can only eat so many meals, even if you're a pig. Will they buy more domestic automobiles? If you've already filled the garage with Lexuses, Mercedes and Porches, you ain't going back to Buick, and an extra Ferrari or Corniche won't do much for the Domestic National Product. Even more likely, they'll put the money in stocks, real estate, or speculative investments in ventures that are about harvesting equity, not creating jobs.

Frank points out that additional tax money could put more cops on the streets, more teachers in the schools, and more inspectors looking for contraband in shipping containers. And tax cuts to the middle class would be more likely to result in purchases that would stimulate the economy.

It really should embarrass the Party of Business to be supporting such a fiction, except that its barons are already rich beyond embarrassment, and they have minions to do their tax hating for them.


Blogger bob said...

The complexity of economic theory doesn't stand much of a chance against the simplified idea that taxes are the devil. I always like to ask, "Do you drive on the roads?"

I sometimes wonder if our leaders were awake in Econ 101. Or maybe it's the result of one to many bicycle accidents.

7:35 AM  

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