The World According to Opa

“Without the triggers, that tax cut is irresponsible fiscal policy. Eventually, I think that will be the consensus view.” ~ Alan Greenspan

Note: At 12:01 EST today, July 6th 2018, Donald Trump launched the first salvo in a trade war with China, our largest trading partner. He imposed import tariffs on $34 billion worth of Chinese products. He announced the intent to do this once before this year, in March. But he backed away from it when China promised to reciprocate. His action today is something that he had been talking about doing for some time, saying that, “Trade wars are good for the economy and easy to win.” But policies based on this kind of thinking, to my knowledge, are policies with which no economist in this day and age agrees. Why? Because economists read. They read history and history proves that trade wars are disastrous.

Normally, I would not believe a word out of Trump’s mouth, or from one of his tweets. But he said this himself: “The economy does better under Democrats.” And he was correct. He said this back in 2004, long before he was humiliated by Barack Obama during the White House correspondence dinner in 2011. long before he decided to take revenge and throw his hat in the ring for the 2016 Republican presidential nomination. If you doubt this, there is a video of him making this statement on YouTube. Check it out for yourself. He said it during an interview on CNN with Wolf Blitzer.

There are many different ways to evaluate which economic policies actually work and which don’t. The best way is to look back at which policies were historically employed by the party empowered to implement them, and then gauge the result.

Policies are based on various economic theories, and there are at least a couple dozen, including: Supply and Demand (Invisible Hand), Classical Economics, Keynesian, Neoclassical Synthesis (Keynesian for near-term macro and Classical for micro and long-term macro, Neo-Malthusian (Resource Scarcity), Marxism, Laissez-Faire Capitalism, Market Socialism, and Monetarism. Republican politicians, at least since the Reagan/Greenspan days, favor Supply-side policy which is based on Supply and Demand and Laissez-Faire Capitalism (more libertarian) theories. Democrats favor policies based on NeoClassical Synthesis theory.

Information for the following, including links to sources previously cited, has been borrowed with permission from http://politicsthatwork.com/blog/which-party-is-better-for-the-economy.php. For students of economics, this is an excellent source.

Much of the public believes that economists tend to be libertarian and to favor-laissez faire economic policy. This works well for Republican politicians who tend to believe  (because they want to believe) in libertarian-style economics and supply-side ideas like trickle-down. They chose to believe these things because they make it possible in the near-term to reward big campaign donors. They, in my opinion, worry less about long-term policy consequences. But what they and much of the John Q public believes really isn’t true. Imagine that… The idea that economic wisdom favors leaving all things to the free market is actually dead wrong. Instead, most economists support policies that are at least as liberal as those that the Democratic Party supports. Some examples include:

• 71% of economists favor using government to redistribute wealth and only 8% strongly oppose it. In fact, the concept of the diminishing marginal utility of wealth is a very well established and non-controversial economic principle. Even Adam Smith expressed the view that the government should redistribute wealth.
• Only 12% of economists take the view that the costs of the stimulus outweighed the benefits– a view passionately held by nearly all Republicans.
• 75% of economists favor government tuning the economy with monetary policy– an idea often vehemently rejected by the Republican Party- while only 4% of economists strongly oppose it.
• Zero percent- not a single economist in the entire sample- of economists agree with the central tenant of Republican fiscal policy that cutting tax rates would boost the economy enough to cause revenues to increase.
• 94% of economists support taking action to address climate change.

In terms of specific policies, economists consistently, and all but overwhelmingly, either support the Democrats’ policies or support policy proposals to the left of what Democrats choose when empowered to do so. This stance on policy issues unsurprisingly translates into which party economists support: Democratic economists outnumber Republican economists by 2.5 to 1.

In 2012, economists felt that President Obama had a better grasp of economics than Mitt Romney by a margin of almost 2-to-1 and that President Obama would grow the economy faster than Mitt Romney could have by a a margin of 20 points. They were right. Obama, with the consent of Congress, using Keynesian style economic stimulus spending, turned around the worst economic recession since the Great Depression.

The following was published by Kathryn Watson for CBS News June 26, 2018:  “Despite President Trump’s declaration that he would eliminate the national debt over eight years, the debt-to-Gross Domestic Product ratio has reached its highest level since after World War II, this according to a new report from the Congressional Budget Office (CBO). If current law and spending levels remain unchanged, the national debt will be nearly the size of the economy by 2028.” This is happening thanks to the recent Republican tax cut which was signed into law at Christmas time last year. The Treasury Department has announced that, just in this year, the government will have to borrow $10 billion to cover the deficit that will result from lost tax revenues. What the wealthy and corporations, those who received the lion’s share of the tax relief, have done with their savings was entirely predictable. Rather than sharing it with employees or investing it to modernize and expand operations, they’ve used it to buy back already-issued shares of their own corporate stocks. This inflates the stocks’ apparent values attracting new investors to buy at inflated prices. Brilliant — just one more way to glean from the middle class. Wealth ever upward!

So, Mr. Greenspan, you were right then, and you would be right again if you were to say about the Trump tax cut what you did about the Bush tax cut. They are indeed irresponsible fiscal polices, especially since the economy both then and this last time was not in need of stimulation. Both times, tax cuts were irresponsible too because the tax relief they gave overwhelmingly favored the wealthy rather than the middle class. Had they favored the middle class, people then would have spent their extra disposable incomes to increase demand for goods and services. Maybe the Great Recession, beginning during Bush’s second term, would never have happened. People today would be doing the same, spending their extra money, but the middle class got peanuts to spend from the tax cuts both then and now. This is the consensus view among economists today. Unfortunately, Republican politicians disagree and most John and Jane Doe citizens aren’t sure. But a second Great Recession is coming, and coming soon. Maybe people will be the wiser for it this time.

Supply responds to demand if it’s going to be worth producing. We should have learned that by now. After all, excess supply was one of the major factors that pushed us over the Great Depression economic cliff  in the nineteen twenties. Another major cause of the Great Depression was an import tariff with Europe, our biggest trading partners then. But politicians, especially Republican politicians, care less about what works for the common good and more about what will get them reelected.

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