Posted in Rants on July 7th, 2011 by Ed

This Salon piece on "The final nail in the supply side coffin" is making the rounds, which is great inasmuch as anything pointing out that corporate profits are quite robust during our wageless, jobless, pointless Recovery is a good thing. That said, I have a bone to pick. As ready and eager as I am to mock the ridiculous sorcery that is Supply Side Economics, I am even more eager to object when people use such phrases as slogans rather than to refer to a specific set of ideas. While cutting corporate taxes is a supply side idea – and since no one has to pay them anyway it doesn't much matter what the rates are on paper – cutting the individual income tax isn't. And that has been our primary, if not only, economic policy preference since the 1970s.

Cutting the income tax is a demand-side solution. And that – far moreso than actual supply side ideas – has proven useless in spectacular fashion as a driver of economic growth. The theory is to give wage-earners more money to spend, which is great except that A) most wage-earners are already paying so little in Federal income tax that the cuts have little substantive impact, B) cuts are always lavished on a small population of high earners who are more likely to save than spend, and C) the civil religion of debt repayment, coupled with staggering levels of household debt, ensure that income tax cuts are just a way to funnel some money to banks and mortgage lenders.

We could talk all day about the pluses and minuses of various economic policy prescriptions. Instead, the debt ceiling nonsense brings up a much more interesting issue: the Obama administration, perhaps even more than any previous one, casts in high relief the fact that the United States does not have bad macroeconomic policy. It has no coherent economic policy at all.

Let's say you have a restaurant. It's an Indian takeout joint. Business isn't going well, so you try lowering your prices. Then you try increasing them. Then you try adding a frozen yogurt bar in the front lobby. Then you change the entire concept from Indian takeout to neo-American bistro cuisine. Then you change back to all Indian food but you change the name to P.J. Pickleshitter's BBQ Pit and Family Restaurant. To say that you would have a bad business plan would be inaccurate because you have no business plan at all. You're just drunkenly careening from one idea to another, none of them related or building upon previous steps you've taken, blindly hoping that something will work.

In the span of two years we've gone from Obama the Keynesian (although he showed his true colors early on by caving and making the bulk of the stimulus useless tax cuts) to Obama the Spending Cutter. Think about that. He came into office with an $800 billion spending package and now he's agreeing to an even larger amount – rumored to be over $1 trillion – in spending cuts. Regardless of how you feel about either of those individually, it's pretty clear that they make absolutely no sense together. None.

When Nixon said "We're all Keynesians now" it wasn't his ringing endorsement of Keynesianism but an acknowledgment of the consistent, dominant idea guiding US economic policy since the 1930s. What are we now? Neither party has anything that resembles an economic policy, with the Democrats a limp combination of neoliberalism and whichever way the wind is blowing that day and the Republicans pretty much devoted to low taxes as an end rather than a means. Thus we end up with Reich/Clinton DLC horseshit or Frankenstein's monsters like Paul Ryan's "roadmap" combining sharp reductions in government revenues with plenty of big government (military, handouts to key constituent industries like agricultural subsidies, etc.)

Is it any wonder that nothing changes, let alone improves? We can't commit to one economic policy for more than 18 months. Arguably we haven't committed to any policy at all in forty-plus years but instead have approached economic policy buffet style, choosing all the cakes and pies while leaving the nasty green vegetables behind.