Politics – Supply Side / Trickle Down Nonsense

Trickle down and supply side economics are much criticised and widely regarded as nonsense.

That doesn’t stop those whose ideology fits with it making claims based upon it. George Osbourne’s latest foray into this is one of the funniest.

Not only does he put out the same tired excuses about the 50p tax rate not raising any money (HMRC estimated £3 billion in revenues – more would be possible if tax loopholes were closed) but he also makes the astonishing claim – with no evidence – that the higher rate of tax would result in job losses. Sorry, George, but there is no evidence for a even a correlation between higher taxes and lower employment.

You know why? Because supply side economics is a busted flush. Demand stimulates the jobs market. Yes, putting money in people’s pockets through tax cuts will mean more spending in the economy and create demand for jobs, but that money is much better put in the pocket of the poor, who are more likely to spend it. The sort of people who would pay the 50p tax rate are more likely to stick it in a bank account / stocks / offshore.

You want to create jobs? Get money in the pockets of lower and middle income people. The best way to do that right now? Employ people. Put them to work doing productive jobs, give them the money to spend in the economy and the rest follows.

Of course, that would require ditching ‘plan A’ – the military equivalent of the officers ordering the rank and file across a minefield whilst sitting back at HQ drinking and playing cards. But he has no intention of dropping it. Indeed, he and Cameron are out on the offensive with the Tory party conference kicking off. Cameron is now calling the wealthy ‘job creators’ borrowing from Romney Campaign terminology and making the division in British politics more and more like the one in the US of a crazy free-market socially conservative right wing party up against a very moderate slightly left-leaning party.

But for the right to justify their lurch, they have to make out the left to be much more left wing than they are, and Cameron was more than happy to oblige;

“He [Ed Miliband] is using One Nation as a sort of cloak to…talk about some quite left wing ideas about business, about banking, about wealth creation, about entrepreneurship, about tax and the rest of it. The slogan only works if the policies go with it, and you can’t have the slogan without the policies, or the policies without the slogan. And so, it seems to me, it just doesn’t add up.

“It’s one nation – but it sounds more like East Germany than Great Britain.”

He proclaimed in the Sunday Telegraph.

Strong words. Strong, bafflingly ridiculous words. As if asking for responsibly capitalism is tantamount to Communism.*

But it’s becoming an increasingly common sight and experience for the accepted economics to be challenged as a left-wing viewpoint, whilst a wave of supply side ‘experts’ (usually businessmen who’d make a lot of money from tax cuts) are trotted out to provide a balanced view on economic debates whenever the BBC does a programme on the issue. As a result, like with all these attempts for balance, the two views are perceived as equally valid, the truth somewhere in the middle and no one sure of the facts.

Forget that we know we can grow the economy right here right now (well, a few months down the road) by spending to create demand in the economy. Some guy who’s afraid he’ll get hit by a tax hike says that the reason the economy’s stalled is lack of skilled workers, because the banks aren’t lending, because of regulation or whatever else… Take a trip down any main road in a city centre. Check out the bars and restaurants. Ask if they’re having trouble recruiting the ‘skilled’ workers necessary, or if their number one problem is actually that they’re not getting enough customers. Ask the thousands of businesses that go bust every year in this country if it was because of regulation, or because of a lack of customers… Ask the small business owner who’s considering buying up next door and expanding his enterprise whether he’s not doing so because he can’t get the bank loan, or whether it’s because he’s afraid he’ll not get enough customers through the door to pay for it…!

It’s really basic and obvious stuff. Economics can so easily be over complex and complicated to understand. Now is not one of those times.

Trickle-down doesn’t work. The 50p tax payers aren’t benevolent Downton Abbey types who view their wealth as a means of providing employment. Supply side is a nonsense when demand is what’s lacking in the economy. Yet still, the Camerons, Osbournes and wealthy cling, and will continue to cling, to any philosophy which backs their actions and what is in their benefit. Meanwhile, we’re in a situation the left would love to be in, were it not for the terrible nature of recession. A situation where ‘tax the rich, give money to the poor’, isn’t just a slogan based on philosophical ideals, but one grounded in economic reality.


Useful Links:

Paul Krugman Article on Supply Side in the States

Guardian – Wealth Doesn’t Trickle Down

Martin Wolf on Supply Side Economics

Side note:

*But that’s got to be the right’s tactic; social democracy and communism must blend into one. Expecting the rich to pay their fare share must become bashing wealth creators. Anything that will be good for the country must be painted as a hit. It’s going to be a tough battle for the Tories to pull it off.

That said, the Tea Party have shown just how receptive people can be to their idiotic ideas and the morality play economics they promote makes for a compelling narrative in middle Britain as much as middle America. They’re also playing a long game by setting out on this path. It *may* cost them the next election, but they’ll succeed in pulling Labour closer and closer to the centre at each election. In the meantime, the seeds are sown, and future elections become easier and easier. People come to think of the rich as job-creators. Welfare and benefits become dirtier and dirtier words. Taxes fall, spending has to in order to keep pace.  And twenty, thirty years from now we find ourselves thinking about  Thatcher as a centrist.

Mr Cameron is defiant. “Are the Conservatives deserting the common ground of British politics? Absolutely not. I think the common ground of British politics, right now, ought to be [doing] everything you can to fire up the engines of enterprise and aspiration to get the economy moving, while holding onto the things that people care about passionately, like the NHS. I think that is absolutely where we are.”

There’s no way such an intelligent man can actually believe that. But as Romney’s 47% remarks show, it won’t be long before the right begin to believe their own nonsense. And when they do, it’ll lead to even more zealous, even more radical moves.


About iwastoldtheredbegin

Politics of the Left Wing and Liberal variety, plus gin!
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