06 | August | 2011 | Existential Ennui

Tags

budget, Democrats, economy, GOP, Kenysian economics, supply-side economics, taxes

Okay, before we start, hold this thought firmly in your mind. I have no degree in economics. I tend to rely on the likes of Paul Krugman and Robert Reich, both well-respected as experts.

As I understand things, most economists believe in a Keynesian approach to managing a national economy. There are lots of variations of course, but essentially Keynesian economics recognize that at some points unchecked business practices lead to stagnation and that government must intervene at some points and with some actions that stabilize and move growth forward. Of course where and with what are always the question.

This is the approach generally favored I believe by both Krugman and Reich, and certainly by the President, and most Democrats.

Republicans, on the other hand, favor a “supply side” economics, which generally can be referred to as “trickle down” or “laissiz-faire” or “free market”. Of course details vary, but in the main it means that government needs to stay out of the way, taxes on the wealthy and corporations should be low, and regulations eliminated for the most part.

The idea is that the wealthy, given more money, will invest it in infrastructure and expanding business, employing more, thus lowering prices, allowing the lower echelons to buy more, as they receive greater income.

This practice, according to John Kenneth Galbraith has been tried before, namely in the 1890’s. It failed and led to the panic of 1896 and this famous statement from none other that William Jennings Bryant:

“There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests up on them.”

So nothing new here.

Why then do Republican politicians continue to push this failed agenda? Frankly, I can come up with no other answer than that is what their overlords demand of them. Business interests have always filled the coffers of Republican politicians. (Democrats of course get their money elsewhere, and there is plenty of room for condemnation there as well. But that is another story.)

The question then becomes why do corporations push these failing policies? The average small business is mostly doing horribly in this economic downturn. So are most medium-sized. It is only the mega conglomerates, with their deep diversity in markets throughout the world that can be said to be doing well. And frankly it seems that most of the ones who do well are doing so because they provide essential products.

But clearly, a stable, growing economy seems best for them too. So why do they argue for policies that ultimately tank the average national economy and lead to severe recessions if not down-right depression?

I think in part it is fairly simple.

We tend to think of corporations as entities, as “persons” because we have been taught to. Courts have declared over the passing decades that corporations can be guilty of torts and even criminal acts. They can sue and be sued. The can be harmed and can harm. They are people in the sense that they have a right a political voice. They have a right to pursue through advertising and lobbying their particularized interests.

So we tend to think of them as “people.’

Yet, in the end, they are not. They are run by INDIVIDUALS. And when you remember that, it all makes a good deal more sense. The individual who is CEO or CFO of Acme Inc., is not looking down the road to what the world will look like twenty years from now given a particular economic ideology. They are looking to the next quarter.

Most if not all CEO’s and others in high management, know that their “bottom line” is dependent on the corporation’s bottom line. You are paid to make money and keep stockholders happy and buying stock. You are not paid to make choices that hurt in the short term but will mean a healthier and stable business in ten years.

One would expect that most CEOs of major businesses have taken basic economics. Yet they ignore what works and argue for what doesn’t work long-term. If you tell business that “they are the job creators” and wait for them to tell you what they “need” they will. Don’t be surprised if it’s lower taxes and less or no regulation. Nothing drives up the short-term bottom line than those two things.

This is the only explanation that makes any sense to me. Trickle down economics was restarted with the Bush tax cuts in 2001. All the Bush years brought us was the loss of millions of jobs, a spiraling debt, a recession, and a growing divide between the rich and the rest of us. Yet today, Congressional Republicans and those running for the nomination cannot get off this tired and failed merry-go-round.

That’s what I’ve come up with. I’d be happy to hear what you think.