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Last week, we
looked at some typical "supply side economics" bashing. Many
arguments against "supply side economics" are silly and irrational
-- which is an indicator that they are really political arguments, not
economic ones.
I suggested that
one reason for the resistance to tax system reform is that we still have
unresolved issues from the 19th century, namely the tendency of capitalist
systems to bifurcate into rich and poor. The "progressive" income
tax was one part of the solution to those problems. Is it a good or necessary
solution? Or does it actually make the problem worse? I think these things
have not really been determined yet. I am not entirely against the
progressive income tax, even with rather high top rates, because there are
examples where such systems seem to have worked. The 1950s and 1960s were
probably the best example thus far of a broad middle class, in the U.S.,
throughout Europe and Japan. Could you have an even broader middle class with
a system of lower taxes? I think so -- but it remains to be established.
Maybe the East Europeans will start to answer that question.
But there are
other "political" reasons for bashing "supply side
economics." The other biggie, it seems to me, is the government itself.
The government, in all its forms -- Congresspeople, government employees,
business that get government contracts -- senses that its power and influence
is increased when taxes are high, and diminished when taxes are low. This
"power and influence" is not necessarily about money itself. We've
seen that the "tax burden," the percentage of GDP paid in taxes,
does not necessarily increase with higher tax rates, or fall with lower ones.
And, it is usually true that lower tax rates bring more revenue to the
government, as they promote a healthier economy. This would mean more money
to spend. But, the government would sense that, even though it might have
higher revenues, its relative influence would wane. People would just be
doing whatever they like, without government direction. The type of
personality attracted to the government, not surprisingly, likes to tell
people what to do. Thus, you get the typical Democrat "economic
program" of having high taxes on capital and investment, but
"targeted" tax breaks for whatever the politicians think would be a
good investment. A tax break for investment in information technology, or
real estate. This is a soft version of the sort of central industrial
planning that was popular everywhere after WWII. The libertarian says: if a
tax break on investment in information technology is good, isn't a tax break
on everything better? From an even more practical standpoint, the
advantage of "targeted" tax breaks is that they can be used to
channel money to politicians. You can promise an infotech tax break, and get
campaign support from the infotech industry. Then you can promise a tax break
on low-income housing, and get campaign support from the manufactured housing
industry. If you just have low taxes across the board, there are fewer
strings to pull.
This government
constituency is supported by a great mass of people who see the government as
the avenue by which "we" should be doing this, that or the other.
This "we" inevitably means the government, so they tend to support
the government in many ways, including political support for high tax rates.
Although
government types -- and the "we should do this" or "we should
do that" people -- often say they are doing things for the "good of
the people," actually the people are well aware that they are mostly
just fattening and protecting their own sinecures. When "the
people" are actually asked to give an opinion on whether taxes should be
higher or lower, they almost always vote for lower. This happened most
recently in California, where tax-hike proposals were defeated across the
board.
You can get the
idea of how all that works without too many more examples. There is a second
reason for bashing "supply side economics" and
classical/libertarian economics in general.
"Supply side
economists" usually like to talk about "growth." You've
probably noticed that I don't use the term "growth" too much, and
prefer "economic health." What does "growth" mean? It
tends to mean ... more of what we already have.
There have been
times when people looked upon their handiwork with enthusiasm and
celebration. In the 19th century, as the cities grew or the railroads were
extended, this was thought to be a great collective accomplishment. Even in
the 1960s, people genuinely looked upon their latest efforts, the personal
automobile, the interstate highway system, commercial aviation -- walking on
the moon! -- as another step in the increasing Glory of Man. It was Progress.
Have you noticed
there is no Progress anymore? I look upon what we have today -- the
environmental destruction, the ever-increasing horrors of the food production
system, the insane medical system, the horrible and worsening state of cities
and living environments, our descent into self-destructive car-addiction, the
deteriorating education system, the general decline of society and the family
unit -- as one hideous wall-to-wall catastrophe. (Except for the Internet.)
And I'm sure you
know exactly what I'm talking about. I'm not the only one.
Does
"growth" mean more of this? There is nothing inherent to the Magic
Formula -- Low Taxes, Stable Money -- that says you have to cut down the
rainforest and sterilize the oceans and build strip malls far out in the
Arizona desert to sell crap that nobody needs. Or murder people in other
countries who aren't going along agreeably with our global empire. But,
that's what seems to happen, at least for now. More of the same.
I have come to
appreciate that many people don't really want further enable activity of this
sort. I think that the people of France and Japan, for example, have become
aware that this path of Westernization, modernization, globalization,
whatever, doesn't produce desirable outcomes. I choose France and Japan
because both have very rich cultures, built up over centuries, which are
eroding and being replaced by the Wal-Mart consumerist suburban model of the
U.S. Even people in the U.S., who don't have any of the cultural inheritance
of France or Japan, and who are indeed infamous worldwide for their crassness
and ignorance -- ignorance even of what a cultural inheritance is, and the
fact that they don't have one -- are rather intensely aware that what they
have doesn't quite add up to very much.
So, there is, I
think, a resistance to "growth." What's it good for? Isn't there
something we can get enthusiastic about? About the only thing people get
enthusiastic about is "profit," this intangible abstraction. This
"profit" is so desirable, that the means of obtaining the profit
have become largely irrelevant. Building houses is no longer about houses,
it's about "profit." Growing food is not about food, it's about
"profit." However, the economy is, actually, things like food and
houses. Greater "profit" entitles one to a bigger share of the pie,
so if you have a shitty culture, then with more "profit" you just
get a bigger share of a shitty culture.
None of these are
new issues. They have been around for decades and centuries. Rather too many
"supply side economics" types like to stick their fingers in their
ears and pretend they don't exist. Sorry -- they exist.
Nathan
Lewis
Nathan
Lewis was formerly the chief international economist of a leading economic
forecasting firm. He now works in asset management. Lewis has written for the
Financial Times, the Wall Street Journal Asia, the Japan Times, Pravda, and
other publications. He has appeared on financial television in the United
States, Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada, call
800-567-4797.
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