New Economic Data Shows that Right Wing Economic Theory Is Simply Wrong.

Even as Republicans blather on about the evils of a so-called "government takeover of health care," economic news has provided two new key illustrations that the intellectual foundation of right-wing economic orthodoxy has collapsed.

First, the most recent economic numbers on changes in Gross Domestic Product (GDP) and employment made it increasingly clear that -- as The New York Times reported last Saturday -- the Obama economic stimulus and the massive government intervention in the financial markets were the critical medicine needed to prevent complete economic collapse.

It is now clear that, left to their own devices, there can be no doubt that private financial markets would have pulled the entire economy into another Great Depression. Though job losses continued, last month they continued to shrink from their massive January highs. At the same time, the contraction of the GDP dropped to its lowest level since Lehman Brothers collapsed last September.

Even as the right continues to rail against the Obama stimulus package, there is now near-universal consensus that the $700-billion-plus stimulus bill is largely responsible for beefing up the GDP in the last quarter. Studies by the private research firms IHS Global Insight and MoodysEconomy.com concluded that it is already responsible for saving 500,000 jobs.

Everyday there is fresh evidence that government spending to stimulate demand was critically necessary to pull the country out of the economic tail spin caused by the reckless risk-taking of essentially unregulated private financial markets. Contrary to right wing theory, private consumer demand and new business investment are not leading the way out of the Great Recession -- in reality, government demand was an absolute necessity.

But the second piece of economic news tells even more about the bankruptcy of right wing economic thought. Throughout the heyday of Reagan's "supply side revolution" and Bush's tax cuts, the Republicans and the right wing intellectual establishment have hung fast to their foundational belief that tax cuts for business would create private sector jobs.

Well, the great experiment in "trickle down" economics is over and the results are in. The New York Times reports that, "For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring."

In fact, since George Bush and the Republicans in Congress passed two massive tax cuts, we have seen a massive, secular decline in the creation of private sector jobs.

Of course it won't surprise anyone that this decline has been led by the reduction of American manufacturing jobs. There has been a decline of 3.7% in overall manufacturing jobs in the United States over the last decade.

Remember that we're talking here about an absolute lack of increase in private sector jobs -- zero increase in actual jobs -- even as the population of the United States has grown. Economists tell us that the economy must create 150,000 new jobs each month just to stay even with population growth.

The failure of the economy to produce any private sector jobs at all would have been even more devastating had it not been for a small but significant growth in public sector jobs at the state, local and Federal levels. Of course these are precisely the kind of jobs that the Republicans and Right decry at every opportunity. "Every one knows," they say, "that job growth is really driven only by the private sector." Wrong...maybe in the imaginary world of the Heritage Foundation or Cato Institute, but not in the real world of the American economy.

And let's be clear, the Bush tax cuts didn't just produce fewer jobs than advertised. They didn't produce any private sector jobs at all. The whole experiment in handing over money to the wealthiest people in America so they could use it to benefit the rest of us was a colossal - empirically verifiable - failure.

Turns out that when given the chance to use all of those tax cuts, the top two percent of the population used them to speculate in exotic derivatives, to drive up the prices of high end real estate, pay exorbitant prices to the designers of $4,000 blouses and $2,000 shoes. There is absolutely no evidence that they made any more investments in new manufacturing plants, or started up any more businesses than they would have had they paid the same tax rates that they did when Ronald Reagan took office and private sector job growth was 3% per year.

No, instead the rich used the Bush Tax Cuts to create the gigantic economic "bubble" that ultimately burst and caused immeasurable hardship and suffering to millions of average Americans and everyday people across the globe.

Bottom line is that the rich sold America a bill of goods. Give us big tax cuts and we'll give you jobs growth, they told us. America kept its end of the bargain, and the rich reneged entirely on theirs.

In a word, the economic theories of the Republicans and the Right were simply wrong. In fact, they were elaborate intellectual justifications for the richest among us to enrich themselves even more.

The Republicans and the Right Wing establishment will continue to ignore reality, to repeat their slogans, to pander to fear, stand up for wealthy special interests. But history has rendered its verdict. Everyday more and more people see clearly that the Right Wing ideological emperor has no clothes -- and realize that if, together, they take control of their own destiny they can build a foundation for long-term economic prosperity that benefits us all.

Robert Creamer is a long time political organizer and strategist, and author of the recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.

 

Comments

[Cobia]

"In a word, the economic theories of the Republicans and the Right were simply wrong. In fact, they were elaborate intellectual justifications for the richest among us to enrich themselves even more."

A prime example would be former U.S. Senator Phil Gramm, PhD, (R-TX/UBS), one of the architects of those theories, and a key legislative implementor of them.

Upon leaving the Senate he took a lucaritive VP/Vice Chairman (emphasis on the 'Vice') position with the Swiss financial giant UBS, a key player in the kiting of the derivatives market.
UBS was recently fined (~$150-$900 million) for its shady dealings, most involving its 'private bank' activities, and sheltering American account holders; all the while Gramm held his influential position with them (his portfolio was precisely the affected areas).

"UBS said the full cost of the settlement, including the fines and writedowns of auction-rate debt it will redeem, is estimated at $900 million...UBS reported a net loss of...($25.6 billion) in the nine months through March, more than any other bank."

http://www.bloomberg.com/apps/news?pid=20601087&sid=asdBwkzlyq5g&refer=home

When the UBS culpability and penalties were announced recently, I saw no MSM reference to Mr. Gramms' tenure at the foreign mega-firm. Curious, no?

BTW, UBS sure got their moneys' worth paying Mr. Gramm to be a VP with them, didn't they?
Will we see any indictments forthcoming?
.

[peterg76]

Real economists (as opposed to people paid to say what the rich what to hear) have been telling us this for thirty years. Still, it can't be repeated often enough.

[QuietLightTraveler]

And income inequality in the US grew and grew under the philosophy of supply side economics. Supply side economics is, and always has been, supply side BS. Even if it worked, it is fundamentally wrong.
Since it doesn't work, let's not hear of it again.

[QuietLightTraveler]

Yea, the big corporations and executives that led them indeed invested in the creation of some new jobs, but the jobs were out of the US where they could hire cheaper labor.

[twofish]

Time to fire the rich. And I think it's one position we can leave unfilled.

[JayDDrew]

This should have been headlines on every newspaper and every internet and blog site every day since the day Bush left office.
Yes, supply-side economics is a humongous failure. And the only plan the one-trick-pony Republicans have for the economy right now is, you guessed it, more tax cuts!!
Bu the 800 lb gorilla in the room is the export of jobs, particularly manufacturing jobs, overseas. That is the great equalizer: as those other countries increase in wealth, ours decreases. And why are those jobs going overseas? To feed the Great God of Corporate Profits.
But a gropu of Americans are too ignorant to realize "socialism" is the cry to arms by the political puppets to get them to preserve corporate profits. Case in point: the political shills for the insurance companies are calling the public option socialism to scare Americans away, but it's all in the name of preserving corporate profits.
Thomas Frank, that's what's the matter with Kansas.

[kitsinu]

Bush Jr did little beyond play cheerleader for the economy, just as Hoover did before him. It took Roosevelt coming in and creating the FDIC (among other things) to get the economy moving.

Laissez Faire conservatives need to realize we need government regulation in the market. If you disagree, then you are advocating abolishing the FDIC. Can you imagine the chaos abolishing the FDIC would cause?

[JayDDrew]

"...a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets......"

""...Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he (Greenspan) told the House Committee on Oversight and Government Reform."

This is from October, 2008. Mr. Greenspan basically indicts the rich and corporations, admitting that he was wrong in believing his wealthy colleagues would do what's best for everyone and this country, and not just what is best for themselves.

The "free markets" are made of people. People are flawed. Without rules and regulations, their is chaos.

Folks, welcome to the chaos of deregulation.

[marinara]

Is Robert Creamer calling for creation of public sector jobs? Public sector jobs are created at the stroke of a pen, by political will that Creamer's blog summons.

That would be great but, public service jobs aren't in the same class as profitable farming and manufacturing jobs. Created jobs don't add any wealth to the system. Nothing in this blog about the difference between service jobs and productive jobs. Seems like Robert Creamer is an angry guy, but he's missing a basic fact about the transformation of the American economy. Service jobs are vital to a healthy economy, but we can't run the economy without an engine, simply the kind of engine that produces widgets and consumable goods. We aren't able to trade our service sector output for needed imports, and we never will be able to. Kind of like building an economic house from the top down. Don't forget the foundation.

[research]

Well said!

Deregulation, derivatives and leverage outstripped the Main Street economy investments by 10 times, before this crash, and before the great depression.

The Bankster would rather gamble on quick gains, then take the time to learn main street investment choices, specially when getting unfunded CDA investment insurance from AIG.

Credit Defaults swap "investment" insurance, thousands of folks folks can insurance the same "asset" without even owning that asset. Think about that:

It's Gambling at the track, with the for instance, the home loans as the horses!

And Credit Default Swaps continue unchecked.

FDR forced the banks into an audit his first day in office. Obama lent the banksters 24T$ and counting, and still guarantees their losses with TARP.

[wilsonveteran]

Once again the posters here show no understanding of economics. I will ask again. Can someone explain to me how trickle up economics works? Where does the money come from that the government will have to give us to start this program? How this will increase jobs? Can anyone here do that or are you just going to give me more left wing rehtoric. Can you even send me to a website that explains how this works? Personally I believe it is something that Obama has just invented to win an election and expand government and government spending.

[verskk]

The government doesn't need the money up front as explained by the principles of Keynesian economics and deficit spending. It's sort of like spending credit. It increases jobs because putting money in the hands of the middle-class means putting it in the hands of those likely to spend it on products within the American Economy, rather than investing it in foreign markets, speculation, or increasing jobs in China or the third world where jobs are cheaper like the upper class have done. They did so because it was cheaper, and that's understandable, but it did nothing to spur job growth and the economy here. The Middle-class however, are likely to spend the remaining money on "middle-class things"...i.e. instead of foreign investment and the like, they spend it on cars, houses, things at the local markets and department stores. These things provide an influx of money to businesses in America (because that's where middle-class Americans shop...they aren't likely to go to a store in China) and with this extra money, those who are efficient have the money to expand their operations. There ya go :)

[3dtrix]

Any manager who lets you back in the ring after your performance here the last 24 hours should be barred from the sport. You never landed a punch, and led with your chin in every round. There's something to be said for never giving up, and something else to be said for throwing in the towel when you're licked...

[JaneK13]

Government is creating all the jobs these days. Did you know tht nearly half the working people in the nation are now employed by the government in one way shape or form -- federal, state, local, county, military, car companies, banks, etc. Of the other half, most are living at least partially on government benefit programs: social security, welfare, food stamps, government pensions,etc.

What should make us curious is: where is the government getting the money to provide all these paychecks & benefits?? Think about it!

[wilsonveteran]

I have thought about it and it scares me. This is why socialist countries go broke.

[guajiro]

You're deliberately being dense Wilson. There have been innumerable posters here (3Dtrix, BeezleBub, WesinOhio, etc.) whose assertions you refuse to engage after asking for someone to explain, as you have done yet again here. First, there's no one here calling for a trickle-up effect. Not that it won't work, except you're calling for a defender of that position when no one has stated it. Still, discussion here is for the sake of knowledge so why not. Your constant assertion that the government will have to give the middle class money is, one more time, off base. The same principle of tax-breaks that you say works for the wealthy is what works for the middle class. Just because the job creation that the middle class produces is not of the magnitude of a Fortune-500 company does not mean that there are no jobs being created. When a middle class person receives taxs breaks, they use that money to add a room to their house thereby creating a job for the contractor, roofer, sheetrocker, etc. The neighbor might decide to go on a trip around the country, thereby increasing jobs in the tourism sector when they stay at hotels, eat at restaurants. etc. Again, your premise that the government somehow mails a check to everyone in the middle-class amounting to one trillion dollars is foolish.

[Msohio]

These people still don't get it and they have lower middle class and poor people still continuing to follow their nonsense. Even without facts. Pathetic.

[BluestateGuyInTX]

And we will continue to suffer until the average person in the street votes his raw economic interests instead of voting for whatever scarecrow the right throws out there. Hint: if you fear gay marriage more than BoA then you grossly miscalculate the threats in your life. Fear of foreigners, non-whites, different religions, gays, you name it. These churning fears are used to divide and conquer the vast majority and leave them susceptible to the theft that the top 1% is perpetrating. We have to realize that the economic elite in this country is a gang of criminals who insist on arrogating the majority of our wealth to themselves. We do not owe the top 1% a living. Their sense of entitlement has to be seen for the sick joke it is. We have been tricked into thinking that paying their fair share and earning a fair salary is somehow "punishing the rich". What an absurdity!

[thepianodiva]

GREAT article, Mr. Creamer. The idealogy and actions of the Right has been an unmitigated disaster for this country. Note also the new stats on the redistribution of wealth-a new Hyper Gilded Age. But they will not change their tune-motivated as they are by their "religious" belief, their fetish, their greed.

[verskk]

This article pairs nicely with the recent article showing how the gap between the upper- and middle-classes is greater now than even during the "roaring 20s"

[3dtrix]

Coincidence - or left-wing conspiracy? I hear creepy organ music...

[wesinohio]

Frankly, it is clear that much of the wealth in our country has been, frankly, stolen inside a broken market system. The solution might be to tax that stolen wealth away and to build a new economy comprised of small businesses, for the most part.
An economy comprised mainly of many small businesses will maximize liberty, accelerate learning, reduce the sizes of mistakes, increase stability, put more people in control of the economy, pluralize political influence and make more people happy in the process.
That is very desirable, however, the process of achieving it is problematic. Still, we should set out to move in that direction and to adopt and implement corresponding public policies. It won't and shouldn't happen all at once, and the process of doing it has to honor private property, while trying to eliminate the private theft that imperfect markets facilitate. What I want to see is a public solution, not public theft, and the solution that I foresee is based on the important fundament of maximizing liberty within a pluralistic and cooperative framework. Some fair way of doing this must be found or we are in store for more problems. Taxing away wealth that has essentially been stolen might be part of the solution, using it to promote changes in our market structure, perhaps through public and hybrid public/private investment systems.
The people who are stealing from us will probably disagree with me.