The Edmond Sun

May 2, 2013

Austerity, like supply side, is a scam

Stephen Dick
CNHI News Service

CNHI News Service — Used to be, economists knew that the way to growth was through robust economic activity: corporations would invest in their long-term economic health by hiring workers with good wages and producing goods everyone could buy and use.

It was more than an economic theory. All economists had to do was look at American communities and watch them  work. Things began changing in the 1970s and took a radical turn in the 1980s with supply-side economics, which said that money should be funneled to the rich, primarily through tax cuts, and they would use their wealth to create new businesses and jobs.

Their largesse would trickle down to everyone.

What should have been discredited from the beginning based on the fundamental nature of capitalism, took hold because it made the rich a lot richer. But a funny thing happened. The rich kept their money, moved production overseas, cut jobs and closed factories. They figured that if politicians were dumb enough to let them, they’d take everything in sight and give nothing back. That’s been the dominant economic policy of conservatives for the past generation. Texas Gov. Rick Perry said during the presidential campaign that supply side being the only economic system that worked was a settled matter.

When George W. Bush was appointed president, he inherited a large surplus, which he promptly plunged into a deep deficit. No conservatives, even economists, decried the deficit in those years, but they’ve been relentless in criticizing President Obama about runaway government spending. Republicans have spent the last four years arguing for spending cuts that will hurt the poor and tax cuts that will enable the rich.

This process, called austerity, has grown up in stark contrast to the liberals’ preferred method of boosting the economy: stimulus, not cuts, along the lines Keynes outlined.

In 2010, conservatives got the intellectual boost they needed to say “game over” in favor of austerity. A report issued by two Harvard economists, Carmen Reinhart and Kenneth Rogoff, argued that when debt rises to 90 percent of GDP, growth suffers. A recent study, however, from an economics team at the University of Massachusetts, trashes the Reinhart-Rogoff report by showing that it left out countries that experienced growth after debt reached 90 percent of GDP. The Reinhart-Rogoff report maintained a growth rate of -0.1 percent with 90 percent debt load. Put in the countries they left out of the mix and growth is 2.2 percent.

A report in the Wall Street Journal last week told of Europe slowly turning away from austerity in favor of stimulus. Why? Because austerity aggravates issues such as unemployment and putting food on the table.

Paul Krugman, in his April 26 New York Times column, had as good a takedown of Reinhart-Rogoff as has been written. The rich, he noted, know that austerity is leveled at the working classes and poor but won’t touch the wealthy. It’s top-down class warfare to slap on austerity measures on the working public already reeling by the supply-side money grab.

Krugman doesn’t get around to asking why. Why do the true believers on the right think austerity will work? The answer is they don’t or, if they do, they don’t care. If there are draconian spending cuts that will put new money in the market to enable debtors and investors to rake in more cash, conservatives are all for it. That’s why they favor privatizing Social Security and Medicare. This would pump billions into the great casino on Wall Street where the rich would go after it as if the USA turned the mint over to Dow Jones.

All conservative economic theories — austerity, supply side —  have to burst because their premises are based on a flaw: that the rich need more money so it can trickle down. After more than 30 years of this scam, you can look at American communities and see that it’s not working.

STEPHEN DICK is an editor at The Herald Bulletin in Anderson, Ind.  He can be reached at