Common Cents

From the latest blog (Politics and Letters) to join the Blinks here at Murat11. I’ve been having some fun here, and plan to have more. To wit (this excerpt from a two-part article on comparisons between the current situation and the Depression):

Greenspan concurred: "intended investment in the United States has been lagging in recent years, judging from the larger share of internal cash flow that has been returned to shareholders, presumably for lack of new investment opportunities." (Age of Turbulence, p. 387) (Italics mine.)

So the Bush tax cuts merely fueled the housing bubble-they did not, and could not, lead to increased productive investment. And that is the consistent lesson to be drawn from fiscal policy that corroborates the larger shift to profits, away from wages and consumption. There is no correlation whatsoever between lower taxes on corporate or personal income, increased net investment, and job growth. (Italics, again, are mine.)

For example, the 50 corporations with the largest benefits from Reagan's tax cuts of 1981 reduced their investments over the next two years. Meanwhile, the share of national income from wages and salaries declined 5 percent between 1978 and 1986, while the share from investment (profits, dividends, rent) rose 27 percent, as per the demands of supply-side theory-but net investment kept falling through the 1980s. In 1987, Peter G. Peterson, the Blackstone founder who was then chairman of the Council on Foreign Relations, called this performance "by far the weakest net investment effort in our postwar history."

The responsible fiscal policy for the foreseeable future is, then, to raise taxes on the wealthy and to make net contributions to consumer expenditures out of federal deficits if necessary. When asked why he wants to make these moves, Barack Obama doesn't have to retreat to the "fairness" line of defense Joe Biden used when pressed by Sarah Palin in debate—and not just by the lunatic fringe where hockey Moms and supply-siders congregate. The leader of the liberal media, the New York Times itself, has also admonished the Democratic candidate on his proposed fiscal policy: "Mr. Obama has said that he would raise taxes on the wealthy, starting next year, to help restore fairness to the tax code and to pay for his spending plans. With the economy tanking, however, it's hard to imagine how he could prudently do that." (NYT 10/7/08)

In fact, if our current crisis is comparable to the early stages of the Great Depression, it's hard to imagine a more prudent and more productive program.