House of Eratosthenes

As almost everyone now knows, there are two competing theories about how to revive the American economy. One theory is to promote the supply-side of the economy by cutting tax rates or at least to maintain the Bush-era tax rates and reduce spending and government regulation; the other theory is to follow the Keynesians’ advice by allowing some or all of the Bush-era tax rates to increase while also increasing government spending and government regulations.

An item of interest here: I am a member of the first group, and have been for a very long time. I did not get that way by poring over textbooks about economic sciences and such, or even by being rich, or pulling in lots of money (those last two things are quite different, by the way, but that’s another story).

No, I got that way by putting myself into the other fellow’s shoes. Maybe it comes from growing up and entering the world of work in a small business community, but before I had my first job, I got to watch real job-makers make real decisions about how to grow their real businesses and whether it was time to hire real people to do the real work. It’s not a simple decision. It cannot be measured.

It really comes down to just two things, though: Magnitude of opportunity, and potential for achieving it. Now, if either one of those two are eroded by too much, the likelihood emerges that the decision will go the other way — let’s just forget the whole deal. Not open that office. Not hire those people. Don’t do it, and say we did.

Now, the people in the second group…if they started reading this to start with, and that’s doubtful…they’re thinking “that Freeberg character is off in the weeds again. It’s all about making the rich pay their fair share! No need to feel sorry for them, they’re too rich! And selfish, yeah!”

They’re the ones who presume to possess a monopoly on good communication. Sympathizing. Reading people. Empathy. Yeah, you just try explaining that to the space alien living in your laundry room. “Well, we’ve got these people called ‘liberals’ who pride themselves on being compassionate…and they spend every waking moment trying to figure out how to sock it to straights, males, whites, rich people, Boy Scouts, housewives, and anybody else who doesn’t live life the way they want them to.”

But we’re veering off from the main point of the article. Let’s get back to it:

The first theory was tried during the Reagan administration, and the second theory is now being tried during the Obama administration. Both administrations inherited an economy in trouble. President Reagan inherited an economy with stagnant growth, rising unemployment and double-digit inflation. President Obama inherited an economy with falling growth and rising unemployment, but little inflation. President Obama likes to say that he inherited the “worst” economy since the Great Depression, but the fact is that the economic “Misery Index” – which the Democrats used as a weapon against Republicans – was twice as high when President Reagan took office.
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Reaganomics vs. Obamanomics

Reagan’s policy was to sharply cut individual and corporate tax rates, and to restrain the growth in government spending and regulation. The Democrats, who were in control of the House of Representatives, resisted and delayed the Reagan tax cuts, so they were not fully implemented until 1983. Mr. Obama had the luxury of having his party in control of both houses of Congress, so he was able to get his proposed, massive government spending increases enacted almost immediately.

This is all to give some background behind the starting dates for the chart you see to the right.

Bottom lining it: The liberals are right. A little bit of empathy and compassion goes a long, long way. If only they practiced it!

When Reagan left office in January 1989, he had presided over “seven fat years,” as Bob Bartley, the now-deceased editor of the Wall Street Journal, called the Reagan era. Unemployment was half of its recession high, economic growth averaged more than 4 percent after the recession bottom in 1982, the deficit was falling and was under a very manageable 3 percent of gross domestic product, the GDP-debt ratio was falling, inflation had dropped by about two-thirds, and every American individual and company had seen very sharp reductions in their marginal tax rates – the maximum rate fell from 70 percent to only 28 percent by the time Reagan left office.
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Given the above facts – which have the benefit of being true (unlike many “facts” delivered by our elected officials) – would you follow the Reagan/Clinton II economic policies or the Obama ones?…Obama economic advisers Paul Volcker, Larry Summers and Christina Romer have, at times, all advocated polices totally contrary to the ones that Mr. Obama is now practicing. Are they, like many of those in the Democratic Party, all suffering from cognitive dissonance by continuing to push a failed model? [emphasis mine]

Mr. Rahn finishes strong. I’ll not send you there, I’ll replicate right here. Do RTWT anyway…but here is the punchline.

The economy performed better under Reagan’s supply-side policies than President Carter’s economic team had forecast it would if their man had been re-elected and continued his high-tax, Keynesian policies. The economy is now performing worse than Mr. Obama’s economic team forecast with its Keynesian policies. Looking at the evidence, it strains credulity to believe that the economy will actually perform better next year when all the tax increases are slated to go into effect. When will Congress wake up?

Let’s bottom-line it. In something (almost) suitable for a bumper sticker:

The economy is about economic opportunity, not just economic stability. It is about making money — for its own sake. It is about the rest of the nation getting out of the way, when those among us who have achieved sufficient solvency to part with a dollar, seek to so part with it and gain back two.

An economy is about making money.

The economy we have, is has no need of life support, or a breathing machine, or a heart massage, or a defibrillator. It doesn’t need get-well cards from the grandchildren or flowers or teddy bears in its hospital room.

What it needs is for our government to pull the fucking pillow out of its face so it can breathe. Businesses — people — will turn profits, just as soon as it stops being a crime.

Cross-posted at Right Wing News and at Washington Rebel.

I did not get that way by poring over textbooks about economic sciences and such…

Maybe not, but an unbiased look at the history of the US economy would lead you in the same direction as your real-world experience has. That’s why it’s not hypocritical to suggest that other countries would do well to emulate the traditional US economic model, instead of going their own way and trying to reinvent the wheel (reinvent socialism, that is).

A cursory glance at the 20th century’s booms and busts – that alone provides ample evidence without even looking at the 19th and 18th. Every time, a tax cut resulted in increased activity, which in turn meant lower unemployment and increased tax revenue, at the same time. Calvin Coolidge had it right back in the 20’s. It happened under JFK and again under Reagan.

On the other hand, when the Depression hit, the Republicans then in Congress believed that the mess which followed in the aftermath of the 1929 crash would sort itself out, if the government would just leave the situation the hell alone. Maybe a tax cut and that’s all. FDR, however, being the grandaddy of American socialism, tried to spend his way out of it, and wound up prolonging and worsening the situation. The so-called “Depression” probably would have been over in a year or two if the Republicans had been listened-to, and it probably would have dragged into the 50s if the war hadn’t followed. Even then, the war years were pretty lean times and the economy didn’t truly recover until the late 40s at the earliest.

A national economy is a complex engine with literally millions of individual moving parts, but the evidence should be clear enough by now as to what set of overriding principles produce the ostensibly desirable results. Unless, of course, it’s as I’ve feared – that the objective of those in power is not to revive the economy at all, but simply to engineer a government takeover of it in order to empower themselves.
- cylarz | 08/06/2010 @ 23:50
Actually it’s much worse than that. “Those in power” actually live in a different world with its own “economy.” That economy is synonymous with power; it is anemic when the power is on the wane and it is healthy when the power is approaching a peak. It doesn’t matter how things are going out here, except every other year on the way to November.

And we have absolutely no right to be surprised about any of this. We were warned. We aren’t supposed to have any implicit trust toward anyone occupying these high offices, because it is the nature of the office, not the person occupying it, that encourages this corruption to take place over time. That is why Keynesian economics hang around without producing beneficial results; they are convenient to the rule makers.
- mkfreeberg | 08/07/2010 @ 05:55

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Thursday, August 5th, 2010