Saturday, July 30, 2011

The Best Graph Debunking Movement Conservative Economics

Paul Krugman posted this today to show the Reagan Non-Miracle.

As Krugman says, the highest rates of growth and the most sustained growth occurred under the high taxes and relatively highly unionized post-war era, and since Reagan growth has occurred in brief fits and starts.  (BTW, you see the same pattern in GDP, Productivity, or just about any economic index you choose to look at, except those heavily massaged and cherry picked ones from certain think tanks funded by coal billionaires.)  Since 1980, the highest and most sustained growth occurred just after Bill Clinton raised the top tax rate, and the since the GW Bush tax cuts the result was at first stagnation, and then catastrophe.

Reagan and other Movement Conservatives just know this isn't true, they don't need to check the actual data.  Reagan cut tax rates, therefore it must have made the economy do better, because taxing something (income) makes people do less of what leads to it.  I have never bought into the perverse logic of this with regards to taxing income. If I wish to have the same after-tax income to similarly impress my friends, or simply pay the food and rent bills, why wouldn't higher tax rates make me work harder?  Oh well.  And why wouldn't a CEO get up to work to make 40 times the after-tax income of an average worker, if that's the best he can do, just as much as he would get up to work 400 times the after-tax income of an average worker?  If he makes the larger amount, he might well be able to work much less, or retire at 30.

Here is a particularly good analysis posted today of why lower tax rates on the wealthy lead to worse economic outcomes overall.  I've seen many others.

Honest and well informed movement conservatives (if there are any) actually changed the argument from economics to moral justice.  George W said something like "It's their money, therefore they should get to keep it."  That's wrong on many levels.

1) By definition, "their money" is net income, what's left after taxes.

2) Income and wealth are made possible by a productive society, such a society depends on government for eductation, infrastructure, and many other services that make production efficient and even possible.

3) Income and wealth are protected by government.

4) Free markets are made possible by government regulation.

5) Production is actually done by workers.

6) (wonkish) Capitalist managers only provide some direction over the production (not the production itself), and not necessarily socially desireable direction.  Capital owners and rentiers only provide the capital, which is nothing more than direction at the top level (which enterprises to fund and how much to fund them).  If capital markets were perfectly efficient (as technically defined by economists), all this direction has zero net social benefit, that is, all the net benefits would accrue to the owners.  Therefore, to the degree that capital markets are completely efficient, capitalism deserves no social support, but gets it anyway (see 2).

7) Income is derived from socially created and valued production.  One personal alone on a planet does not create income.  A social process of production creates and then distributes the proceeds of the production.  Greater income simply results from greater power over this social process.  Why do we need to respect such thuggery?


  1. I have been waiting to read someone make this extraordinarily rational argument forever.
    Than you.

  2. Audio -

    Excellent post. I followed your link from AB. I've been beating this same drum for about three years on my blog, as I gathered data and my thoughts. In fact, I discovered AB while doing some of the same analysis Mike Kimel did a few years back. I was really quite surprised to discover that the myth of Rethug fiscal responsibility was nothing more than a canard. Hence my radicalization, I suppose.

    The unavoidable conclusion is that movement conservatism is a sham, and conservative economics of any stripe (Chicago, Libertarian, Hayekian, etc.) doubly so.

    Cross-country comparisons and cross-time comparisons in the U.S. bear this out every time.

    Here is yet another good, practical reason for high taxes on the rich.