Zonie readers will have to forgive me. I've reached a point where Arizona's cruelty, narrow-mindedness, magical thinking and self-destructive policies are ... boring. I promise to snap out of this fugue state next week.
John Boehner already is measuring new draperies for the speaker's office and Republicans seem confident of at least retaking the House, if not the whole enchilada in 2010 and then 2012. Their policy prescriptions haven't changed: military adventurism, deregulation, slashing and blocking important domestic investments — now justified by the deficit they ran up — and, especially, tax cuts. Nothing is more Reaganesque than cutting taxes.
According to Republicans, this accomplishes two goods: It raises more tax revenue for the government because it lures capital from shelters into productive uses, and, it encourages more capital formation that creates jobs. Everybody wins. George H.W. Bush derided the first part as "voodoo economics" and Paul Krugman wrote a most convincing takedown in 2003. Even so, tax cutting has been American governing orthodoxy for 30 years. Just the possibility of letting the George W. Bush tax cuts expire or returning to the estate tax that has been in place for nearly a century provokes apoplexy.
The second part of the tax-cut argument had more resonance. Even I once believed that if you really wanted to stick it to the rich, reduce their rates enough to make it impossible for them not to want to invest. Some of that is bad history, of course. The American economy did very well with Eisenhower's 90-percent range top bracket for the wealthiest, and the greatest boom of the 20th century and first surpluses in decades came after Bill Clinton slightly raised taxes. But the final blow to the tax-cut argument came under George W. Bush, as taxes were slashed on the rich, major corporations got away with paying no taxes and the estate tax was whittled to nothing. Yet the Bush years saw a net gain of a mere 1 million jobs, wages stagnated and income inequality hit levels not seen since at least the 1920s. What went wrong?
If we take the Republican argument seriously, two significant changes occurred since the glory days of Ronald Reagan.
First, with the deregulation of the financial markets, the very rich have been able to reap much greater returns by investing in non-productive activities. These include hedge funds that exist to break up companies and shed jobs, the vast trading of derivatives and other play-money schemes, and the universe of the shadow banking system including its various plays and swindles, making money off of money, even in overnight deals involving billions of dollars. Why settle for a "modest" return that would fund a company doing productive work and creating living-wage jobs when you can get sky-high "multiples" at the financial casino? This infrastructure didn't exist in the 1980s, when Wall Street was still fairly buttoned down, and the corporate raiders were only getting started. The Michael Milken swindle was an outlier, although the shape of things to come. The 2000s beneficiaries of tax cuts were instrumental in causing the financial collapse.
Second, the rise of China and globalization in general have opened a world of other places for the very wealthy to invest and for corporations to do business taking advantage of a surplus of skilled labor. In the 1980s, the American economy was still intact as a manufacturing powerhouse. No more. Even the most high-end technology, R&D and design jobs are no longer a given here. Corporate "America" has rushed overseas to new markets. But it's exporting much less, while employing cheap local workers to do jobs there that were once done here. It imports the finished or near-finished products back to the United States where over-leveraged "consumers" buy them at Wal-Mart and blame brown people for their money troubles.
Other factors are at work. The loss of pluralism in the marketplace, especially with the weakening of unions, has removed important counterweights on the behavior of the wealthiest. So has the quiet coup of the government, which has taken away the essential government roles in ensuring a healthy, competitive market, including antitrust, regulation and a fair deal for workers. More difficult to quantify but perhaps most profound is the shattering of the social compact and the consensus that kept it going, a consensus of the commons and our responsibilities to one another.
As a result, America faces years of prolonged unemployment and falling living standards for the middle class. It confronts a serious deficit caused by war, tax cuts and recession. And more tax cuts won't fix any of it. They make it worse. They have already been shown to fail. Now, as we fall further behind in education and lay off teachers, see our inadequate transit systems collapse, close parks and cut library hours...all this is just the beginning. As America falls apart in an economic and social collapse partly fueled by the religion of tax cuts. All this, and voters will run off the cliff again?