http://www.motherjones.com/politics/2011/10/rich-people-dont-create-jobs
Rich People Create Jobs!
And five other myths that must die for our economy to live.
---By Kevin Drum <http://www.motherjones.com/authors/kevin-drum>
| November/December 2011 Issue <http://motherjones.com/toc/2011/11>
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Illustration by Zina Saunders
<http://motherjones.com/authors/zina-saunders>. See the full animation,
"What the One Percent Thinks About OWS," here
<http://motherjones.com/media/2011/10/zina-saunders-one-percent-occupy-wall-street>.
In the movie /Groundhog Day/ <http://www.imdb.com/title/tt0107048/>,
Bill Murray's character is forced to relive a single day over and over
and over---waking up to the same song every morning, meeting the same
people, having the same conversations---until, after thousands of
repetitions, he finally realizes what a shmo he's been his entire life.
With that epiphany, the calendar starts to flip forward again. His life
reboots, and he once again gets to hear new songs, meet new people, and
have entirely new conversations.
When it comes to the economy, we're stuck in our own version of
Groundhog Day---and this one doesn't seem to be coming to an end.
America is in a deep and persistent slump, and unemployment is mired at
more than 9 percent
<https://research.stlouisfed.org/fred2/graph/?graph_id=53322&category_id=0>.
Yet when you turn on the TV, all you hear are the same manufactured
sound bites delivered in the same apocalyptic tones from the same pack
of talking heads---over and over and over. Groundhog Day has turned into
the eighth circle of hell.
/*Like the charts in this story? Get more info
<http://motherjones.com/politics/2011/10/charts-economic-myths-jobs-deficit-taxes>
on them or check out these 12 charts
<http://motherjones.com/politics/2011/06/speedup-americans-working-harder-charts>
exposing the dirty secrets of the jobless recovery. Plus: Why are
Republicans determined to snuff the recovery?
<http://motherjones.com/politics/2011/10/republicans-job-creation-kill>*/
Unfortunately, these zombie talking points aren't just wrong; they're
dangerous. If we're ever going to revive the economy, we've got to
tackle them head on. Here are six of the worst.
Myth #1: The stimulus failed.
For the first four years of his presidency, Franklin Roosevelt tackled
the Great Depression
<http://libertystreeteconomics.newyorkfed.org/2011/06/commodity-prices-and-the-mistake-of-1937-would-modern-economists-make-the-same-mistake.html>
with inflation, easy monetary policy, and government spending. But in
1937, FDR's advisers persuaded him to reverse gears. After all, interest
rates had been close to zero for years, commodity prices were climbing,
and fear of inflation was on the rise.
Bust or Boost?
What happened next is now called the "Mistake of 1937
<http://www.ny.frb.org/research/economists/eggertsson/Eggertsson_1108.pdf>"
(PDF). Federal spending was cut and monetary policy was tightened up,
with disastrous results: GDP immediately began to plummet, and
industrial production fell by a third. Within a year everyone had had
enough. In 1938 the austerity program was abandoned, and the economy
started to grow again.
The truth is that stimulus worked in 1933 and it worked in 2009. So why
is our economy still in such bad shape? For one, partly due to political
considerations and partly because it was rushed through Congress
<http://www.politifact.com/truth-o-meter/statements/2010/oct/31/john-boehner/john-boehner-says-stimulus-bill-was-rushed-passage/>,
the 2009 stimulus wasn't as well designed as it could have been. It was
also sold badly. If the bill passed, administration economists
predicted, unemployment would peak at 8 percent and then start declining
(PDF <http://otrans.3cdn.net/ee40602f9a7d8172b8_ozm6bt5oi.pdf>). But the
recession was far worse than the White House originally thought.
Unemployment peaked in the double digits, and that's made the stimulus a
fat target for Republican critics ever since.
/Advertise on MotherJones.com
<http://www.motherjones.com/about/advertising/contact-form>/
But as awkward as it is to argue that things would have been worse
without the stimulus---"Not as bad as it could have been!" isn't a
winning slogan---well, the truth is that things would have been a lot
worse without the stimulus. Everyone from the nonpartisan Congressional
Budget Office <http://www.cbo.gov/ftpdocs/123xx/doc12385/08-24-ARRA.pdf>
(PDF) to private-sector forecasting firms
<http://www.nytimes.com/2010/02/17/business/economy/17leonhardt.html>
have concluded that it increased economic growth, reduced unemployment,
and put millions of people back to work. It just wasn't big enough, or
long-lasting enough. Unfortunately, this has given conservatives
<http://www.forbes.com/2010/01/07/deficit-great-depression-recovery-opinions-columnists-bruce-bartlett.html>
an opening to demand tighter money and lower spending---exactly the same
mistake we made in 1937.
Myth #2: The deficit is our biggest problem right now.
If your credit card company offered you $30,000 interest-free to buy a
car, would you take the deal? Sure you would. It's a three-way win: You
replace your clunker, the auto industry keeps its assembly lines
humming, and the credit card company is happy to have made a safe loan,
even at no interest. Apparently, they think you're a pretty good credit
risk.
The Bush Effect
This is pretty much the situation the US government is in now. If our
national debt were really at dire and unsustainable levels, as
conservative economists and Republican leaders have taken to arguing,
nervous investors would be driving up interest rates on federal
borrowing. But just the opposite has happened: As I'm writing this,
10-year real treasury yields are at 0.00 percent
<http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2011>.
The seven-year rate is actually negative. Apparently, the financial
markets think we're a pretty good credit risk.
It's true that the United States needs to address its /long-term/
deficit problem---a problem almost entirely due to Medicare and other
health care expenditures. (Domestic, defense, and Social Security
spending have actually decreased
<http://motherjones.com/kevin-drum/2011/07/few-little-budget-facts> as a
percentage of GDP over the past 40 years, and there's no reason to think
that's about to change.) But that's in the long term. Right now, our
problem is a sluggish economy and too many people out of work. The real
answer to future deficits is to spend money /now/ to get the economy
growing again.
America's infrastructure is crumbling
<http://www.washingtonpost.com/blogs/ezra-klein/post/an-opportunity-we-cant-afford-to-miss/2011/08/25/gIQAHtWPpJ_blog.html?wprss=ezra-klein>,
there are people who could be put to work fixing it, and banks are
practically begging us to take their money. A trillion dollars
<http://motherjones.com/kevin-drum/2011/09/trillion-dollars-infrastructure>
in infrastructure spending would be good for our economy today, good for
economic growth tomorrow, and thanks to those low interest rates (and
the increased revenue that would come from growth), it wouldn't even
increase our debt much. As they say, only an idiot turns down free money.
Only an Idiot Turns Down Free Money
Myth #3: Lower taxes are the best way to grow the economy.
There's no greater orthodoxy in the Republican Party than unconditional
fealty to tax cuts. In a recent GOP debate, when the candidates were
asked whether they'd walk away from a deficit deal that included just $1
in tax increases for every $10 in spending cuts, every single hand shot
up
<http://www.dailykos.com/story/2011/08/12/1006162/-Every-single-GOP-2012er-would-walk-away-from-a-10-to-1-deficit-deal-on-spending-and-taxes>.
Taxes have been the third rail of American politics ever since the
California tax revolt of 1978
<http://www.cato.org/pub_display.php?pub_id=5682>. Even Democrats are
nervous about touching them: President Obama has famously called for
letting some of the Bush tax cuts expire, but he's always careful to
make it clear that he wouldn't change rates
<http://www.nytimes.com/2011/08/07/opinion/sunday/the-truth-about-taxes.html?_r=2>
for anyone earning less than $250,000 per year. In other words, he'd
repeal less than a quarter
<http://www.washingtonpost.com/wp-srv/special/business/comparing-the-tax-plans/>
of the Bush tax cuts.
This fear is easy to understand. No one likes paying higher taxes. But
do lower taxes actually spur economic growth? Bruce Bartlett
<http://www.thefiscaltimes.com/Authors/B/Bruce-Bartlett.aspx>, an
economist in the Reagan administration, has compared tax rates in
various rich countries in 1979 to each country's growth rate since then.
His conclusion? There's virtually no correlation.
Recent US history
<http://www.tnr.com/blog/jonathan-chait/78304/pat-toomeys-epistemic-closure>
backs this up too. Bill Clinton raised tax rates in 1993, and
Republicans insisted it would cripple the economy. Instead, the economy
boomed. In 2001 and 2003, George W. Bush lowered taxes and Republicans
insisted the economy would flourish. Instead, we got the weakest
expansion of the past century. Republicans are simply wrong about taxes:
Within reason, high tax rates don't hinder growth, and low tax rates
don't stimulate it.
But don't high taxes reduce the incentive for people to work? Actually,
no: For ordinary wage earners, participation in the job force and total
hours worked barely respond to taxes at all. (According to tax
specialists
<http://books.google.com/books?id=sCa4whmcqXUC&pg=PA125&dq=rare+example+of+a+question+on+which+there+is+a+broad+consensus+among+economists&hl=en&ei=KCdxTrOMDYqlsALbkp3OCQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCwQ6AEwAA#v=onepage&q=rare%20example%20of%20a%20question%20on%20which%20there%20is%20a%20broad%20consensus%20among%20economists&f=false>
Joel Slemrod and Jon Bakija, this is "a rare example of a question on
which there is a broad consensus among economists.") The same is true
for rich people. As a trio of prominent economists concluded last year
after reviewing the literature, "there is no compelling evidence to date
of /real/ economic responses to tax rates" (PDF
<http://elsa.berkeley.edu/%7Esaez/saez-slemrod-giertzJEL10round2.pdf>).
Even capital gains rates have virtually no impact: During the past few
decades
<http://jaredbernsteinblog.com/taxing-capital-gains-at-ordinary-rates-evidence-says-do-it-so-does-buffet/>,
they've bounced up and down from 40 percent to their post-Depression low
of 15 percent. The effect on business investment is nil.
*Next Page:* Myth #4: Regulatory uncertainty is clogging the economy...
<http://www.motherjones.com/politics/2011/10/rich-people-dont-create-jobs?page=2>
If a Tax Rate Falls...
Will the Economy Notice?
**
<http://www.motherjones.com/politics/2011/10/rich-people-dont-create-jobs?page=2>
[Non-text portions of this message have been removed]
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