At This Point, Supply-Side Economics Could Hardly be a Bigger Failure

Cut taxes and you create jobs. Cut taxes and you create jobs. Cut taxes and you create jobs...

Say it over and over and it becomes true. Never mind that supply-side reasoning sets basic economics on its head and argues that it's not demand that drives employment, it's low taxation. Cut taxes, create jobs, end of story. It helps that the argument behind supply-side economics almost seems logical; if taxes are lower, businesses can afford to hire more. I say "almost logical" because that's the problem -- it fails to consider history and the facts, considering instead the world the way supply-siders wish it was. It isn't rational.

Demand drives job growth, because employers hire people they need. More demand, more need for workers. A bakery that can't keep up with demand for its bread hires more bakers. It will not hire more bakers than it needs. And if taxes are so low that the bakery is flush despite weak demand, they still won't hire more bakers if they don't need them. Who's going to hire employees to sit around and do nothing, simply because you can afford to? You take that extra money and you put it where it belongs -- in your pocket. You're a business, not a jobs program or a charity.

But that's supply-side economics and job growth in a nutshell; cut taxes and businesses will hire people they don't need, simply because they can afford to. It pretends that employers are in the business of employment, not in the business of making money. If my taxes go down, while demand for my product or service remains unchanged, then I'm going to pocket those tax savings. Because I'm in the business of making money.

And that's the purpose of supply-side economics. All that stuff about hiring because you can afford to is a rationalization, a smoke screen. It's about getting more money to big business and serving the investor class and that's it. The fact of the matter is that businesses employ as few people as they can get away with. And if taxes are down and demand is down or flat, then that tax break pads out the profit margin.

Want to see it happening in the real world? OK, here ya go...


[ThinkProgress:]

Last week, the New York Times reported that, despite making $14.2 billion in profits, General Electric, the largest corporation in the United States, paid zero U.S. taxes in 2010 and actually received tax credits of $3.2 billion dollars. The article noted that GE's tax avoidance team is comprised of "former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress."

After not paying any taxes and making huge profits, ThinkProgress has learned that General Electric is expected to ask its nearly 15,000 unionized employees in the United States to make major concessions.

This year, 14 unions representing more than 15,000 workers will negotiate a new master contract with General Electric. Among the major concessions GE has signaled that it will ask of union workers is the elimination of a defined contribution benefit pension for new employees, a move the company has already implemented for its non-union salaried employees. Likewise, GE is signaling to the union that it will ask for the elimination of current health insurance plans in favor of lower quality health saving accounts, a move the company has already implemented for non-union salaried employees as well.


So, we cut GE's taxes to the bone and they're asking workers to take pay and benefit cuts. Supply-side economics would argue that this should result in a hiring binge and all those tax savings "trickling down" to the workers. But instead, the company is trying to screw its workers. Why? Because they're in the business of making money, not the business of employment. To assume anything else is to engage in wishful thinking and fantasy economics.

And this fantasy economics isn't just hurting workers' paychecks. Yesterday, McClatchy reported the obvious -- that through the floor taxation is responsible for budget shortfalls in state after state after state. It turns out you can't fund government with happy talk about the good times right around the corner. Here we see another promise of supply-side economics fail to materialize. This time, the promise that cutting taxes increases tax revenues.

At this point, anyone still clings to this supply-side fantasy is a gullible fool. That is, anyone who isn't rich or isn't a politician being bankrolled by the rich. I'm talking to you, teabaggers, talk radio zombies, and objectivist Libertarian Utopian moonies. We're watching this scheme fail all around us. The real world is finally intruding on the supply-side fantasy world. None of this stuff works. We have proof. And that proof is called "America." This trickle-down BS is bringing us to the point of disaster, where wages are stagnant, unemployment is high, government is all but unfunded, and the middle class is taking it in the shorts. We've cut taxes for the rich and cut taxes for corporations and cut taxes for Wall Street, over and over, and all we got in return was screwed. It just plain doesn't work. And we've been at it long enough to know that doing more of it doesn't make it work any better.

We tried it your way, supply-siders. Now it's time to go back to recognizing that the term "supply and demand" actually means something. It's time to go back to the real world.

-Wisco