Reaganomics, it just won’t die

by | Aug 13, 2013 | Features, Political Theory

The passage of the North Carolina state budget this year has shown that even after almost 40 years, supply-side economics are alive and well (despite evidence that it actually has no effect on the economy).  For those of you who don’t know, supply-side economics, better known as Reaganomics or trickle-down economics, was created in the 1970’s to replace the Keynesian system used by many nations during the previous forty years.  Government responses to the stagflation in the 1970’s, caused primarily by the spike in oil prices, seemed to show that Keynesian Economics didn’t work, and opened the door to supply-siders.  Bear in mind of course that Keynesian ideas were a driving force in rebuilding Western Europe from a pile of post-war rubble AND helped bring us out of the Great Depression, not to mention being used by the US during our greatest period of economic expansion.  But yeah it wasn’t a global over reliance on a single source of energy that primarily comes from politically unstable parts of the world that was the problem, clearly it was Keynes.

Championed by Ronald Reagan in the 1980s the idea that cutting taxes on the wealthy and businesses would free up more money for them to spend, thus stimulating the economy, gained a place in the American economic debate and hasn’t left since.  Now there are some glaring problems with this theory, like the fact that the rich can already buy everything they want, and that big business has never been in the habit of passing on tax savings to either their customers or their employees.  There’s also evidence that eight years of supply-side economics led to George Bush Sr having to raise taxes in his first term of office, thus dooming his presidency to one term.

Despite all of that evidence, the North Carolina legislature has clearly decided that this is the best way to write a budget.  They’ve cut corporate and individual taxes, in order to attract more business to North Carolina.  They’ve set taxes to be cut each of the next three years and once this magically brings more businesses to NC (theoretically giving the state more revenue) they’ve left the door open to bring the corporate tax rate down to zero (for an example of how this is supposed to  work, click here).  Did you click? Good, so here’s the scary thing, if you replace Step 1 with “Cut taxes” and Step 3 with “Growth” it’s the exact same plan!  They’re relying on faith in an economic theory that doesn’t work to fill in the rest.

Aside from all of issues with supply-side economics in general, businesses look at a lot of factors when locating somewhere, factors like a highly educated work force (NCGA cut UNC system spending 2.5%), schools for employees’ children (cut caps on class sizes and eliminated teacher positions), and quality of life (cut spending on urban greenways).

See guys, faith can be a great thing in spirituality, or even in your favorite sports team, but personally, when it comes to economic policy, I want to see numbers.



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