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 austerityâ€”that is, higher taxes and less spendingâ€”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 richâ€”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?