Wednesday, January 7, 2015

Can We Finally Put Trickle-Down Economics To Rest?

When it comes to growing the economy,  Republicans always argue the virtues of supply-side economics. It's not just a school of macroeconomics, it's practically a religion. Republicans insist that by lowering taxes and reducing regulations, the economy (any economy) will flourish like never before. The more taxes and red tape you cut, the more growth that will surely follow.

Conversely, if one raises taxes or increases regulations, the reverse will occur. Jobs will be lost, the economy will contract and fire will reign from the sky. These are the immutable laws that govern the conservative universe.

But how do conservative economic policies hold up in the world of reality so far? Unfortunately, not very well.

Let's begin with job growth. As we already covered, tax hikes and new regulations kill jobs. While there have been various tax hikes throughout Obama's presidency, the ones that grind conservatives' gears the most have to be his hike in income taxes and a medicare surtax on high income earners that occurred at the beginning of 2013. As far as regulations, the big one is of course, Obamacare, which had many provisions that took effect by the beginning of 2013. How did the economy fare since then? Here's a graph, and a table of the overall job growth by month since the beginning of Obama's term to the present (click to enlarge):

 Now let's break this down by annual job totals:

2009: - 5,087,000
2010:   1,058,000
2011:   2.083,000
2012:   2,236,000
2013:   2,331,000
2014:   2,650,000

2009 was a pretty awful year for job growth considering that whole economic meltdown thing, so that shouldn't be surprising to anyone. But notice how job numbers steadily grew year after year. In fact, the last two years we had our best growth so far, and that's WITH the worst of Obama's policies being enacted. If trickle-down theory was even remotely accurate, we would see weaker numbers for 2013 and 2014 than than we did for 2012, but the exact opposite happened.

Here's some more fun data. This time, only counting job growth from the private sector:

And once again, a breakdown by year:

2009: - 5,013,000
2010:   1,277,000
2011:   2,400,000
2012:   2,294,000
2013:   2,365,000
2014:   2,571,000

Here we seem to have a similar situation. Job growth, just in the private sector, grew as time went on. In the past two years since some of the most pernicious of Obama's tax hikes and regulations have been implemented, we've actually had the most robust growth since the booming 90s, gaining nearly 5 million private sector jobs.

Now here's a chart of the overall unemployment rate throughout Obama's presidency:

Observe how the UE rate has been steadily going down as time went on. That's supposed to be a good thing. And once again, since 2013, it's had some of the steepest drops. If people like Grover Norquist were correct, UE should have skyrocketed once again after 2013 and line should have been going up until it reached the stratosphere. Oddly enough that didn't happen.

Of course, none of this should be surprising. We've had plenty of examples in the past where committing anti-freedom blasphemies haven't led to catastrophe. When Bill Clinton raised the top tax rate in 1993, conservatives made the same dire claims as they do now, but the economy wound up creating over 22 million jobs. But probably my favorite example is Franklin Roosevelt's presidency:

When the Great Depression started, the top tax rate was about 25%. As time went on, the rates gradually increased until they reached a staggering, 94% by the time the Depression finally ended. Yet when we observe the graph, the UE rate went down even when taxes went up, even to astronomical levels, far higher than anything we have today. If people like Rush Limbaugh knew what they were talking about, then the economic havoc caused by such high taxes would make people beg for the days of 25% unemployment.

Speaking of which, what makes the FDR era even better as a counterpoint to trickle-down economics is that not only was this a period of super high taxation, but it was also a period of dramatic hikes in government spending, something supported by the school of Keynesian economics, which conservatives generally despise. I don't think one could come up with a worse combination of right-wing terrors than what we had in the 30s/40s, yet we had the greatest economic expansion in our history. How do conservatives explain such a thing? Easy. By pointing out that Keynes was gay, therefore none of this counts.

Finally, let me finish this article off by addressing one of the other very well known, and also very wrong, conservative claims, concocted by supply-side founding father, Art Laffer: tax hikes lead to less revenue. Here are the annual revenues compiled by the Tax Policy center since 2009:

2009: $2,105 trillion
2010: $2,162 trillion
2011: $2,303 trillion
2012: $2,450 trillion
2013: $2,775 trillion
2014: $3,021 trillion*

 *Reported by the Wall Street Journal. The TPC hasn't updated their total for 2014 for some reason.

My math is a bit rusty, but those revenue numbers appear to have been getting bigger every year. Indeed, nearly a $600 billion increase since Obama's most detrimental taxes have been in effect. Not to belabor the point, but it must be asked yet again, how can this be? Why haven't the job creators closed up shop and fled to Somalia at the first sign of these job killing initiatives?

Alternatively, how has the recently formed conservative utopia, formerly known as the great state of Kansas fared under anti-Obama, pro-growth policies championed by supply-siders? You could probably guess by now:

Kansas will collect $1 billion less in revenue in 2015 and 2016 than its projected expenses following massive income tax cuts signed into law by Republican Gov. Sam Brownback.

The new revenue estimates released Monday revealed that Kansas would burn through about $380 million in reserves and still need to cut $280 million to balance its current budget for fiscal year 2015, which ends next June 30.

Laffer once said that when you tax something you get less of of it. Apparently, when you ask less of something, you also get less of it. Who knew?

All snark aside, let me be clear here. I'm not saying that Obama's tax hikes and new regulations caused higher economic growth (though I do think the tax hikes did increase revenues), but rather, at the very least, his policies didn't appear to impede growth to any noticeable degree.

Since 2013, businesses have created nearly 5 million private sector jobs, with 2014 having the fastest period of job growth since 1995. Much better than any period during the entire 8 years of the Bush administration, despite its lower tax rates and much more lax regulatory regime. Democratic policies haven't hurt the economy during FDR's presidency, or Clinton's and now even Obama's.  How much clearer can the verdict be?

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