The Democratic theory of prosperity
March 2, 2001
Few subjects are infected with more pettifoggery and outright dishonesty than the theory of prosperity; that is, what accounts for economic good times. The outstanding example is what Democrats are saying about Bush's proposed tax cut.
Democrats give themselves credit for the economic boom that we are currently enjoying, or enjoyed up until recent months (which actually began, by the way, in 1991). They say it's due to the tax increase of 1993 and fiscal discipline over the years since, conveniently forgetting that Democrats were consistently on the side of spending more than the Republican Congress from 1994 on was willing to permit. Our prosperity, they say, is due to the ending of government deficits, which permitted interest rates to fall, hence spurring the economy.
Now they agree, however, that a tax cut is called for as a stimulus to bring the economy out of the current slow-down. George W. Bush's proposed "massive" $1.6T tax cut over ten years, however, they say is much too large.
Dick Gephart, among others, told us we mustn't repeat the "disastrous" mistake of 1981, when tax cuts allegedly resulted in deficits and economic bad times.
There are so many things wrong with this that it's hard to know where to begin.
First, Democrats have offered no explanation for the current slow-down. The government is paying down the debt in the hundreds of billions, more than ever before, yet the economy is going downhill like a bobsled. If Democrats can claim credit for the economic boom of 1991 to 2000, are they not also responsible for the recession of 2001 to who-knows-when? At a minimum, the know-it-alls in the Democratic Party owe us an explanation, but don't waste your time looking for it because they haven't a clue.
Second, if the boom of the 1990's was due to their tax increase, how is it that a tax cut is supposed to be a cure for our current problems?
Third, Gephart's comments about the 1980's are claptrap. Interest rates declined drastically in the early 1980's, and the Reagan tax cuts ushered in an extended economic boom, probably accounting for the good times of the 1990's more than anything else. Fiscal discipline was the last thing in the minds of Democrats in Congress in those days, who habitually described Reagan's proposed budgets as "dead on arrival," larding them with massive increases in social spending.
Fourth, the claimed relationship between government deficits and interest rates has never been shown to exist.
Fifth, Bush's proposed tax cut is not nearly as large as Democrats claim. Bush's $1.6T represents only about 5 percent of the projected government revenues of around $27T over the next ten years, and it is only a little over 1 percent of cumulative GNP. Hardly sky-falling numbers.
In our world of TV grandstanding and sound bites, it is hard to find a particle of truth in the din of noise. The Democratic theory of prosperity, the basis of their claim for support, achieves something new even in this age: complete incoherence.