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Krugman Exposes Kansas Hypocrisy

2014-07-01

In his most recent column, the New York Time’s resident economist, Paul Krugman, tells us about the wrongheaded decision of the Kansas legislature to raise taxes on the poor and cut taxes on the rich.  Specifically, Kansas cut income taxes for the rich about two years ago, while simultaneously increasing sales taxes (the burden of sales taxes falls mainly on the poor.)  The result: a nearly one half billion dollar current accounts deficit for the state of Kansas, accompanied by reduced social services for the needy.

Other states are trying this same absurd strategy, egged on by the American Legislative Exchange Council (ALEC), and a strange man from the past, Arthur Laffer.   It was this same Arthur Laffer who convinced Ronald Reagan, when he was a candidate for President, that slashing taxes on the rich would yield increased government revenues.  Nothing of the sort happened, and the resulting deficit forced Mr. Reagan to raise taxes again (slightly.)  His successor, George HW Bush, was forced to raise taxes again (slightly.)

It was not until Bill Clinton raised taxes again, more substantially, that we were put on the road to a balanced budget.  None too soon, for an impressive economic boom followed.  This boom was completely unanticipated by Mr. Laffer and was contrary to his dogma that taxes should always be lowered to help the economy.  Despite the evidence showing him to be dead wrong, Mr. Laffer has continued to spread his dogma to any conservative who would listen.

The claim that taxes on the rich are a drag on the economy has been thoroughly discredited by all the evidence, yet this claim persists everywhere conservatives hold sway.  There is no more obvious example of the universal truth that one’s ideology can distort one’s view of the facts.  This distortion has increasingly affected politics because organizations like ALEC, paid for by rich conservatives, make contributions to politicians who become beholden to them.

The fact is that the government, as the feared engine of redistribution of wealth, can be a tremendous boost to the economy by supporting consumers.  The economy, which we think of as consisting of producers, is completely depend on consumers for its health.  The government can create or support consumers by giving money to poor people, who then go from being inert lumps to buyers of goods and services.  Without this stimulus, the producers are dependent on consumers who already have enough money and have already bought most of the goods they need: a less attractive market to the producers.

The result of this lack of stimulus can be seen in the economy today: corporations are sitting on over two trillion dollars in cash because there is no market of consumers to support expansion and hiring.  The economy is in the doldrums despite its apparent recovery from the Great Recession because no new markets of consumers are developing. No new market is appearing because the unemployment rate (particularly those who have withdrawn from the jobs market altogether) has remained high and median income has not increased.  Even those who are employed cannot spend because the minimum wage has not gone up significantly in many years.

Productivity has greatly increased since 1979 but compensation has not.  Thus, more goods and services are being produced per unit of work, but there is no more money being paid out to allow workers to purchase those goods and services.  The result is economic stagnation or even depression.

The money that is being made from that increase in productivity is not flowing to workers, but instead to the most highly paid people, the top 0.1%; these people have more money than they need, and thus don’t spend the money they get.  Their money flows into savings and investment; without an enlarging market made by workers spending money, there is nothing to enlarge the economy as a whole.

These facts are in conflict with the conservative ideology that people should compete “on a level playing field” to gain their compensation, and that those who are not productive don’t deserve to have compensation.  This ideology extends to the basic needs of living, and if you are not productive, you don’t deserve to live.  Apart from their complete lack of compassion for others, following this ideology leads to economic stagnation rather than revitalization.  The fact is that there is no “level playing field”: some people start out with overwhelming advantages due to their positions of power, and without help, other people, even very productive ones, are never able to catch up. Following the ideology of Ayn Rand and ignoring the needs of others, however unproductive, is a self-defeating strategy.  This has been shown by many examples over the last hundred years.

The truth is that compassion and other-oriented strategies rebound upon the practitioner with increased benefits for the self as well as society.  There is no need to impoverish oneself in order to help others; a reasonable level of compassion, if practiced by everyone, will raise all boats.

Krugman’s column can be found at: http://www.nytimes.com/2014/06/30/opinion/paul-krugman-charlatans-cranks-and-kansas.html

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