Alan BLINDer’s Latest Silliness

June 28, 2012

I have mentioned Alan Blinder a couple of times on AFM. His op-ed pieces in the Wall Street Journal are always good for a discussion. This week’s piece was no exception. I hope AFM readers can access it without a WSJ subscription. Just in case you can’t, I have highlighted some of the main points below along with my thoughts. Enjoy.

He opens with (bold mine)…

A debate now rages in Europe over whether fiscal austerity—that is, higher taxes and less spending—helps or hinders growth. That’s progress of sorts. Not long ago, European policy makers seemed stuck on the notion that austerity promotes growth. Yes, we were supposed to believe that countries grow faster when their governments spend less and tax more.

“Yes, we were supposed to believe that countries grow faster when their governments spend less and tax more.”

That’s not accurate. That’s not accurate at all. Austerity is meant to get a country back on the path to growth, not that it austerity itself accelerates growth. In other words, austerity is painful but the end result is a country that is better off. Compare it to dieting. A person may be over weight and want to lose 100 pounds. The path to losing that 100 pounds is not fun but the end result is a hopefully a healthier happier person.

Now, people may agree or disagree with that statement but the way Blinder states it, it is inaccurate.

He then compares Democrats (favorably) with Republicans (NOT favorably) on several points. This one seemed a tad ridiculous:

Democrats also typically seek a growth strategy that boosts the incomes of the middle class, not just of the top 1%. Many Republicans counter that the most effective way to bolster middle-class incomes is via trickle-down from the rich—who start and grow businesses.

What growth strategy? Where is it? Show it to me. President Bush lowered taxes for all income brackets. Tax law changes in the 80s paved the way for wealthier people to claim corporate income as personal income, which inflated their income numbers. Nothing really changed other than where the income was claimed (individual vs. corporate level).

It’s this portion of the column that I found incredibly ridiculous:

Republicans often focus on lowering the top income tax rate. Just like Gingrich Republicans did in 1993, Romney-Boehner Republicans now want us to believe that the success or failure of the U.S. economy hinges on whether the top bracket rate is 39.6% (which President Obama prefers), 35% (where it is now), or 28% (as in Mitt Romney’s proposal).

But the evidence is against the GOP on this one. We’ve experimented with moving the top rate up or down a few percentage points several times. Under President Clinton in 1993, we raised it to 39.6% from 36% and one of the greatest periods of prosperity in U.S. history followed. Then in 2001, under President George W. Bush, we cut the top rate to 35% from 39.6% and . . . well, you know what followed.

Where do I begin?

His “greatest periods of prosperity” was really just a BUBBLE! A bubble fueled by two things: Y2K preparedness and the explosive growth of the internet. Correlation is NOT causation! High taxes NEVER lead to growth.

So, Blinder thinks stimulus is the answer. What happened with the first stimulus? What happened to all the “shovel ready” infrastructure projects the first stimulus was supposed to bring?


One response to Alan BLINDer’s Latest Silliness

  1. Valkyrie Frost July 3, 2012 at 11:04 am

    Wow… no comments after a week??? I’ll have to take the first bite.

    Blinder’s “conclusions” leave a lot to be desired. Lower taxes (by Bush II) did not spur on the economy just as Clinton’s tax hike did not slow the economy.

    The fallacy here is that tax rates control the economy.

    Another fallacy is that the Fed Govt (through spending) can influence or even control the economy.

    History shows (those who take the time to look for it) that the economy is a vast machine driven by individual perceptions, expectations and capabilities added to a world of uncontrollable variable providing both boon and bane.

    I do believe a healthy economy results from a healthy middle class. This can been seen in history over and over again. The reverse is also found time and again where the divergence of wealth between the few and the masses leads to economic and social decay. Most previous great empires fell because of decaying economic factors. Rome and Great Britain being the two best examples of this phenomenon.

    The basis of these economies is constant growth. If the economy failed to grow, it collapsed.

    Rome grew through the use of constant warfare and the conquering of other lands/nations/people. The system ultimately imploded because it was unsustainable.

    Great Britain built it’s empire on sea power, colonization and industrialization and ultimately manufacturing exports. With global competition from other European nations and resentment of colonial forces, the British system too was unsustainable.

    Then there’s us, the great US of A. We have a large land mass isolated from most other nations, massive natural resources and no real enemies. The aftermath of WWII made the US the world’s only superpower. The post war opportunities allow the US to create massive exports and fuel a general boom cycle that would last 20 years and create the largest middle class the world has ever seen.

    Yet, it was not sustainable. As the Boomers came of age, the economy shifted from a mercantile economy to a consumer economy. Once that happen, the US economy has been slowing down.

    Blinder obviously has a political agenda in his Op-Ed. Perhaps I do to, by my agenda is not left or right, it’s LONG. The powers that be (political, economic, corporate and individual) are too focused on short term gains. The short term thinkers are sacrificing long term goals.

    Case in point: Today’s trillion dollar deficits to bail out the economy today with no plan on how to pay for it tomorrow, or who will pay for it tomorrow.

    Case in point: Reagan spent a trillion dollars in military build up to win an arms race against the Soviet Union. The result was to collapse of the Soviet Union and no plan to pay for the deficits run up during those years. That’s a can the politicians and the Boomers have been kicking down the road ever since.

    Sorry for the long winded rambling, my fingers don’t seem to know when to stop!