Economic Lies

Seemingly we are in a political season with no end! Sure it is an election year, but really, when are politics silent? There is an election somewhere nearly every year and that’s OK; this is a democracy and we get to vote on matters of importance. However, I’m talking about the ludicrous political claims and counterclaims we are subjected to non-stop. After a while we tune them all out. We may favor listening to ‘our guy’ because it gives us security knowing someone is speaking up for our position. But is the other side listening? Or engaging in meaningful communications? Or is it all debate tactics designed to debase ‘the other side’ and keep our noses clean? 

In no other arena of American life do these shenanigans appear than in political economic issues. For starters, Robert Reich, the former Secretary of Labor, offers these seven lies frequently presented as truth. Reich is an economist, an academician. He has written and researched and added to the accumulative knowledge base of our society. He knows what he talks about. He’s not a politician trying to earn votes, power or money. Here’s what he has to say:

Seven Biggest Economic Lies 

1. Tax cuts for the rich trickle down to everyone else. ~Baloney
2. Higher taxes on the rich would hurt the economy and slow job growth. ~False
3. Shrinking government generates more jobs. ~Wrong again
4. Cutting the budget deficit now is more important than boosting the economy. ~Untrue
5. Medicare and Medicaid are the major drivers of budget deficits. ~Wrong
6. Social Security is a Ponzi scheme. ~Don’t believe it
7. It’s unfair that lower-income Americans don’t pay income tax. ~Wrong

Care to learn why these items are lies?  Here’s my understanding of the economic realities:

1. The trickle down theory of economics did not work for Presidents Reagan, Bush Sr. or Bush Jr. They sounded good but trickle down requires the dollars saved by the rich to be invested in companies, new businesses, new technology, etc. It usually winds up in bonds, stocks and luxury goods purchases. The latter rarely drive innovations in new technology or business start-ups.
2. Similar to #1, above, the theory is that if the rich have less disposable income, the loss of their purchasing and investment power would place a drag on the economy. The logic is the same as the first lie. In addition, recent deficits are partly caused by the loss of government revenue directly attributed to the drop in tax rates for the rich. One trillion dollars worth. Adding that back to our government’s revenue stream would help balance the budget and lead to a calmer investment market, and price and interest rate stability.
3. A large segment of declining employment in recent years has been the shrinking of government employment rolls. Local, county and state governments simply didn’t have enough money to continued paying salaries for over a million jobs. And those revenue declines came to us courtesy of the sick economy. The loss of these jobs came after corporate layoffs and worsened the recession considerably. Even after corporations began adding new jobs, government layoffs continued. This is a lag characteristic of a prolonged economic downturn. Now that business activity is improving and unemployment is ebbing, governments will begin rehiring laid off workers.
4. Deficit spending by the federal government is the number one tool for counteracting recessions. This has been in the economic textbooks ever since George Maynard Keynes. And it has been proven over and over again to work. What politicians did to warp Keynesian economics was to push perpetual deficit spending. That doesn’t work. It causes inflation, waste and eventual instability of the economy leading to a recession. Central governments who create and manage a national currency can participate in the deficit spending law. States and other government entities cannot. This is basic Money & Banking Economics. Check it out.
5. No, the federal deficit has been driven to enormous size because of the tax cuts for the rich, Iraq War, Afghanistan War, 9/11 and its aftermath. Together they account for over $5 trillion dollars of the current deficit, all started during the Bush Administration. Some are being repaired. Afghanistan war is being wound down; Iraq War is over; 9/11 restorations have been made and worked out in the economy; 9/11 security programs continue to press higher government costs and contribute to the deficit but logically so; and the tax cut for the rich is nearing elimination.
6. Retirement security and pension stability is part of the economy’s floor of operation. Destroy that and watch the economy dive into the endless abyss. Social Security is backed by a trust fund. $5 trillion has been borrowed from it by Congress to fund its irresponsible spending habits and poor political choices. Ponzi scheme? Hardly. Congress’ operations? Closer to the truth!
7. Low income citizens pay the same property, sales and excise taxes as everyone else. Income tax is just one of the taxes levied on Americans. And the poor often pay some state income taxes. Federal tax exemptions are available for most citizens; for the very poor, such exemptions save lives not standards of living.

Much more could be written and discussed on these issues. But the truth is often hard to match up with the sound bites which distort facts. Before believing, examine the issues carefully and ask some experts for more information. The economy you save may be your very own! 

April 28, 2012