“Seven Biggest Economic Lies”- A Rebuttal

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Seven Biggest Economic Lies,” Reich purports to show how misguided we free market types really are by clinging to the outdated virtues of economic freedom.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)