I wish that someone with more time for such things than I have would go back and catalog all of the dire predictions made by Republican/conservative economists, and compare them to reality. Boskins 2009 op-ed is a Wall Street Journal/Hoover Institution conservative rant. And in looking at how it could have gotten things so wrong, we might learn something not only about how Boskin was wrong, but about how the conservative commentators, then and now, were and are wrong. 1. He mischaracterized Obamas platform. Although Obama ran on a middle-class tax cut being paid for by repealing the Bush tax cuts for the wealthy, Boskin focused only on one part -- the repealing of the Bush tax cuts for the wealthy (which happened to be the least politically appealing part of the package). 2. He then goes off on a trickle-down economics rant about how raising the top tax rate back to 39.6% would reduce incentives for our most productive citizens... to work, save and invest. This argument, based on the principle that, as Hubert Humphrey once put it, If you give the elephants more to eat, eventually the mice will get some too, has more emotional appeal than basis in reality. There has never been any convincing study that shows that if a rich person can only take home 60% of his profits, he will lay off someone that he hired when he could take home 65% of his profits. Or to look at it from the other side, no one has ever demonstrated that a rich person will say, OK -- now that I get to take home 65% of my profits instead of only 60%, Ill hire another employee. 3. He takes a vague statement -- high marginal rates distort economic decisions -- and runs wild with it. First, to say that high marginal rates DISTORT economic decisions suggests that there is some lower rate that does not distort economic decisions. This pejorative verb distort is the problem here -- EVERY tax rate affects economic decisions at some level. When does affect become distort? I guess, its when Boskins personal tax rate goes up. Second, he mentions the principle -- as every economics student learns -- that the damage rises with the square of the rates. Admittedly, I was an economics undergraduate student a long time ago, and I am prepared to assume that they are teaching more and different things in economics classes these days, but if they are teaching that now, it is as an unproven and unprovable hypothesis. Third, even if it is true, the degree of distortion is nowhere near a doubling. The most that could be said from raising the top tax rate to 39.6% from 35% is that for about 2% of the taxpayers, there would be a 13% (4.6/35) increase in the top tax rate paid. But for most of even those 2%, the increase in TOTAL taxes would be in the single digits. The point is that, even correcting for the fact that this is an op-ed and not an economics research paper, this is polemical writing. 4. The 2009 economic collapse was not a supply-side problem -- it was a demand problem. The issue was not that the rich didnt have enough money to hire another employee -- it was that the poor and middle class had no cash with which to buy more things, so companies couldnt sell what they were already making, so they laid people off. 5. A large part of the problem in 2009 was the collapse in the economies of state and local governments. Tax bases and tax revenues shrank dramatically and suddenly. 6. Physicist Richard Fenyman, one of the most brilliant scientists of our age, was fond of saying that a scientist looking at nonscientific problems is just as dumb as the next guy. An economist looking at, say, defense strategy -- as when he talks of a large defense drawdown (mainly getting out of Iraq and Afghanistan) leaving large holes in our military -- doesnt really know what he is talking about.
Posted on: Wed, 24 Dec 2014 15:42:14 +0000
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