Framing Economics

Continuing to think of themes for the 2006 mid-term elections (see previous post on Paul Krugman's latest column), I believe that Democrats should start talking more about the economy and frame it not in the way of wealth distribution as Dems have done for so long, but to talk of that inequality in terms of economic opportunity for all Americans, and not just a select few. But we're going to need some ammo to debunk some of the conservative economic myths.

Daily Kos diarist bonddad offers a list of commonly used economic "lies" from the Right and explanations as to why they're wrong. Here are a few:

Tax cuts create economic growth

I explained this in depth in this diary. The reality is interest rates have a much stronger impact on economic growth. Lower rates, and the economy grows. Raise them and the economy slow. In addition, this relationship existed long before the laffer curve came into existence and formed the bedrock of Republican economic thinking for the last 25 years.

I should disclose I am more of a monetarist than some of my other center-left economic brethren. This may be because of my previous job trading bonds or the fact that I agree in part with some of Milton Friedman's analysis.

Tax cuts create jobs.

Clinton raised taxes. Bush cut them. Clinton's economy created 22 million jobs. To date, Bush's has created a little under 5 million. Any questions?

The reality of Bush's economy is corporations have instead decided to horde cash instead of using the their increased revenue from tax cuts to fund job creation. Take a look at savings figures on page 14 from the Flow of Funds report. You will notice that corporations are actually the only economic sector to have a net positive savings for the last 5 years. Instead of using their increased cash to increase their payrolls, corporations are using their savings to either buyback stock or go on a purchasing spree.

Tax increases lead to recession.

Clinton raised taxes in 1994. That was followed by 6 years of economic expansion. Reagan raised taxes in 1984. That led to 6 years of expansion.

It's very important to remember that when tax increases are supposedly aimed at deficit reduction, the markets will typically purchase longer-dated Treasuries, lowering yields, making the cost of borrowing cheaper, increasing growth. Look at this chart. After Reagan raised taxes (in theory to reduce the deficit), the bond market reacted as previously described. The same is true of Clinton's increases.

And for the more visually minded, Daily Kos and European Journal diarist Jerome a Paris has a good post with lots of charts and graphs noting how barren the income growth has been for lower income groups (and how large it's been for the upper strata).