Not long ago, former Labor Secretary and professor at the University of California-Berkeley (where else?) Robert Reich released a few talking points quickly picked up by the left wing blogosphere as gospel. Titled “The Seven Biggest Economic Lies,” Reich purports to show how misguided we free market types really are by clinging to the outdated virtues of economic freedom. Alas, the only anachronism is Reich’s redistributionist philosophy which remains an article of faith among the liberal elite. For those of you with, oh, shall we say, a bit more intellectual curiosity, here’s a point-by-point rebuttal:
Robert Reich, on his blog in October, wrote:
“The president’s jobs bill doesn’t have a chance in Congress – and the occupiers on Wall Street and elsewhere can’t become a national movement for a more equitable society – unless more Americans know the truth about the economy.”
1. Tax cuts for the rich trickle down to everyone else. Baloney. Ronald Reagan and George W. Bush both sliced taxes on the rich and what happened? Most Americans’ wages (measured by the real median wage) began flattening under Reagan and has dropped since George W. Bush. Trickle-down economics is a cruel joke.
JL: So tax hikes on the rich trickle down? Tell that to JFK, who cut the rates from that 91% (see below). Wages rise and fall for a number of reasons (etc, etc…), but when you look at GDP stats the evidence is clear; tax cuts encourage production: period. Why is it liberals are all supply siders when it comes to raising cigarette taxes (they discourage tobacco use), but not when it comes to work?
2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)
JL: Those wonderfully punitive taxes applied to about two people because very few ever hit the top rate. Federal taxes were an afterthought for most people; but now rates kick in at much lower incomes and when you add the AMT plus state taxes, almost 40% of the nation’s income is consumed by govt. That didn’t happen under Ike.
Moreover, a very large chunk of business income, not the number of businesses, would be exposed to higher taxes. Figures lie, and liars figure.
3. Shrinking government generates more jobs. Wrong again. It means fewer government workers – everyone from teachers, fire fighters, police officers, and social workers at the state and local levels to safety inspectors and military personnel at the federal. And fewer government contractors, who would employ fewer private-sector workers. According to Moody’s economist Mark Zandi (a campaign advisor to John McCain), the $61 billion in spending cuts proposed by the House GOP will cost the economy 700,000 jobs this year and next.
JL: Nice try Bobby…we’ve had the greatest stimulus package in history spending far more than $61 billion..how’s that working for ‘ya? I know, let’s put everyone on the govt. payroll and presto…economic revival. Er, ah, Professor Panpandreou, Europe already tried that…
4. Cutting the budget deficit now is more important than boosting the economy. Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.
JL: By all means, the best way to get out from a spending and debt crisis is to usher in more spending and debt. Lord, where do we get these leaders? The markets have to clear, the debt has to be paid off, and incentive and certainty have to be restored. The housing bubble that just burst was a direct byproduct of the mother of all stimulus plans: artificially low interest rates, Fannie, Feddie, affordable housing programs, etc.
5. Medicare and Medicaid are the major drivers of budget deficits. Wrong. Medicare and Medicaid spending is rising quickly, to be sure. But that’s because the nation’s health-care costs are rising so fast. One of the best ways of slowing these costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to reduce costs, and to move from a fee-for-service system to a fee-for-healthy outcomes system. And since Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone.
JL: Price controls? Really? Really? For heaven’s sake, just read the Medicare trustees report on these black holes…I’m speechless, except for this: it is beyond bait and switch to suggest that administrative costs are lower when these govt. programs don’t pay for the costs of raising funds (i.e., taxation). Contrast that with insurers who must hire, train, and pay for the cost of ASKING for premium income.
6. Social Security is a Ponzi scheme. Don’t believe it. Social Security is solvent for the next 26 years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. That ceiling is now $106,800.
JL: Why of course, the ‘trust fund’ will keep Social Security solvent…except there’s nothing in the ‘trust fund’ other than Treasury IOUs! We raised the ceiling on Medicare years ago and guess what…still broke and requiring general revenues to sustain itself. It’s called demographics and most Ponzi schemes fail when there are more taking out than putting in. Ask anyone under 40.
7. It’s unfair that lower-income Americans don’t pay income tax. Wrong. There’s nothing unfair about it. Lower-income Americans pay out a larger share of their paychecks in payroll taxes, sales taxes, user fees, and tolls than everyone else.
JL: Of course, even if you include ALL federal taxes, the well-to-do still pay disproportionately more than their share of income, according to IRS data. But that isn’t the point because no one is talking about raising payroll taxes; they’re talking about income taxes where the bottom 48% have no liability. Now it doesn’t take a college professor to understand that if you exempt a group of folks from paying a certain tax they suddenly turn out if favor or raising it. We call them Democrats
(An update to this column was added on November 8, 2011 by C. Davies)
Great response to the false premise of Keynesian economics.
Thanks Jason!
Excellent breakdown, Jason! I hadn’t read this latest list of liberal lies. Kudos to JL for breaking it down and sharing this rebuttal. Seriously, I see a list like the intellectual vomit that Mr. Reich has spewed all over his blog and it makes me sick! In this modern era where the liberal “thinkers” seem to have such a stronghold on the local news media and their corresponding internet outlets people are not seeing the entire picture. We need more JL’s to tell the other side of the story. More people to put Mr. Reich and his cohorts in their place when they try to sell people their defunct theories. You want a battle of wits, Mr. Reich? You got one, and JL will put you in your place 8 days a week. Love it! Keep ‘em coming!
Awesome Jason!! As usual your thoughts are well put out, simple, and make perfect sesne, unlike those of Mr. Reich. Keep writing, I’ll Keep Reading.
Reich is the perfect example of why you should never confuse educated with intelligent
Sadly it seems I can’t comment on all of the things presented. I’ll just have to respond to #7 as quickly as possible.
This whole notion of 53 vs 47% is absolutely wrong headed. If you’re that concerned about the number of people paying taxes, one could simply be in favor of allowing the tax brackets to revert back to the 90′s (when we were actually doing fairly well as a nation). That would get that 47% down to 35-40%. But hey that’s raising taxes so we can’t do that right? We could always pay people more for their work, but that’s a handout so we can’t do that right?
Sadly it seems that you do not understand that which you make such a poor attempt at criticizing. I believe that the problem with you, and those that are so willing to take from others, is that you do not understand the concept of money. It is an instrument of value that has no value on its own. Money is only a representation of those things which we really do value. Arbitrarily declaring that we could just pay more people for their work may seem like a brilliant concept to you, but there is a good reason why such a statement seems idiotic to the rest of us. The money you want to take from somebody else actually represents something. The money that is in a factory worker’s bank account represents the time and skill it took to turn items that had little value before (steel, rubber, aluminum, plastic, etc.) and afterwards manufacturing something that somebody else was willing to pay for (automobile). The factory worker that created the product, which you think is being ripped off by some evil rich guy, would probably have little value if somebody did not purchase the plant, tools and materials for the worker to use. Now, in your brilliant wisdom, you believe that taking more money from the rich man and giving it to the factory worker is better for us all. How is it that you people, which JL affectionately calls Democrats, cannot grasp the stupidity of that premise? Can you not see that by taking the money (capital) from the “rich man” and giving it to those to whom it does not belong by definition eliminates one kind of important step? THE PRODUCTION!!! The world is better with more production, not less. More production equals more things of value in the stream of commerce. More things of value equals a greater quality of life. However, if everybody had a better quality of life, there would be nothing for Democrats to sell. And besides, how could you argue with somebody named “Mr. Right”? C’mon
You summed it up well. Thank you.
I have a small business with a few employees. We pay for all their materials, health, vehicles exspenses, gas and give bonus to boot.
I’d be all for reverting back to the tax rates of say 1995, if spending at all levels of government were also reverted back to that scale and proportion of the economy.
@Nick:
Congratulations and dodging my point and adding insults. Good work!
Mr. Lewis has stated on his show that the Fortune 500 companies are sitting on more capital than ever before. Production and profit is still up (from your example) however demand is lacking. Could it possibly be that this isn’t a supply side problem and instead (you may want to sit down and brace yourself) a demand side issue?
I’m not advocating that we simply “pay people more and take aaway profit”, that’s a simple minded solution to a complex problem. What we need is balance. Profit can’t be demonized (a characteristic you’ve decided to give to me, bravo on your fantastic reading comprehension!) as it leads to growth which leads to higher employment, higher tax revenue, more consumer spending, more profit, etc… It’s a circular thing. However, we can only send so many jobs overseas before people in the US have their wages squashed to the point where they can’t buy those nice cars and TVs and other things we value as you so declare. When that happens (i.e the last decade or so) growth comes to a standstill and one side has to budge.
http://www.npr.org/2011/11/16/142353732/how-u-s-tax-policies-increased-economic-inequality?ps=cprs
You are not one of those 400 people and they are not interested in anything but your money. That does not mean that we should take it and give it elsewhere, that means that we should all attempt to create an environment where a person making $40k per year can also see their income triple while people making $4m see their income triple.
This is what OWS is about, despite trying to paint the whole thing with a broad brush to show that less than 4% of the protestors are ALL behaving poorly.
Start seeing reality people. The tax policy and economic policy of BOTH parties over the last 40 years has been nothing but a power grab by the extremely wealthy. This is power that is indeed neither divided nor checked!