Paul Ryan’s latest sham-budget follows in the conservative tradition of Reagan and Bush Duh, each of whom gifted generous tax cuts to the rich, while leaving the nation with giant deficits and tepid growth for a decade after. And so it’s useful to revisit why Reaganomics, in its would-be third iteration, is still stupid.

We’ve all become revoltingly familiar with Job Creator – the idol behind the conservative altar. When mighty Job Creator is appeased with tax cuts on His Ginormous Income, He favors His people with jobs. Indeed, Ryan’s latest supplication to Job Creator bestows fully half of its tax cuts on people making more than $620k/yr – AKA the one percent. People with incomes over $1 million would enjoy an average tax cut of over $200k/yr.

While it’s true that if you let the investor class keep ever more of its absurdly large fraction of national income, they have to park it someplace – the problem is WHERE. Since capital is free to roam in search of its best return, tax cuts on the wealthy are as likely to create jobs in Asia and Latin America as they are in the US.

And that’s why trickle-down economics is (still) stupid. It’s created millions of new jobs in Asia and Latin America, and greatly enriched America’s already stupendously wealthy, but it’s done squat for Americans who weren’t already members of a yacht club. And it’s a bit curious how conservative enthusiasm for free trade extends only to one production factor: capital. They’re less keen on porous borders for labor.

There’s a much more efficient way to stimulate the US economy via fiscal policy. The lower your income, the greater the fraction of it that you consume (as opposed to save or invest). And consumption is primarily done locally – through rent, groceries, gas, etc. So when you give ordinary working people a tax cut on their wages, that little extra in their take-home is almost certain to go into the local economy, to boost aggregate demand, to which firms respond by hiring.

Ryan couldnt be satisfied with giving away the farm to the very rich – he does it by taking money out of the pocket of people who really would spend it locally: students, the working poor and the elderly – by cutting Pell Grants, EITC, Food Stamps, Medicaid and Medicare. As a bonus, he’d also cut Head Start and public investment in renewables. Ryan one-ups Reagan’s dumb with dumber.

This aint rocket science. Because their 30 year-old fantasies have been so utterly discredited, conservatives have to come up with ever more elaborate fictions – like Job Creator’s faithful servant, the Confidence Fairy – to obfuscate the true basis of their fiscal policies. Conservatives seek to cut taxes on the wealthy as an end in itself – the rest is lipstick for the pig. Reagan and Bush Duh’s big tax cuts led to weak deficit-fueled recoveries, compared to the tax increase on the rich that kicked off the Clinton Boom and surplus. The other great post-war boom occurred during the 1960s, when marginal tax rates on the wealthy were over 70%.

The good news is that Ryan’s budget has zero chance of becoming law. We might be thankful that conservatives in Congress content themselves with empty partisan gestures – Ryan’s latest offering to a make-believe deity is of the same species as the House’s 50th vote to repeal the ACA. That the Tea Party’s economic illiteracy is exceeded only by its parliamentary ineptitude is a happy coincidence for which we all should be grateful.

 

Refs:

http://www.politico.com/story/2014/04/paul-ryan-budget-medicare-health-care-105234.html

http://mediamatters.org/research/2014/04/02/fox-touts-paul-ryans-new-budget-plan-ignores-ec/198715

http://ctj.org/ctjreports/2014/04/another_ryan_budget_gives_millionaires_average_tax_cut_of_at_least_200000.php

http://www.huffingtonpost.com/leo-w-gerard/gop-budget-the-anti-robin_b_5142770.html

HAPPY EASTER !