The Law of Supply and Demand

When members of Congress left for their August recess, they fully expected to come back to vote on a number of tax cuts, including the permanent repeal of the estate tax.

Hurricane Katrina changed all that.

A week after the hurricane, Matthew Gardner wrote in the San Diego Union-Tribune about what the slow response to the disaster revealed. "This glaring failure should be a wake-up call for anyone who still believes that the administration's tax cuts have not hampered its ability to effectively prosecute multiple wars while providing basic services to its own citizens."

Gardiner says Congress "can confront the horrible reality of a nation that is incapable of caring for its most vulnerable citizens in their time of greatest need -- or they can continue to pretend that tax cuts for the wealthiest few impose no costs on the nation as a whole."

But why would the ruling party cut taxes for the wealthy instead of, say, providing childcare for the poor, or making sure the District of Columbia has enough money for every student to get his own textbooks?

The answer lies in trickle down economics. Fans of the theory don't like to use that term because it astutely describes the phenomenon -- the economic benefit flows downstream until it's just a trickle. Yes, if the wealthy pay out less in taxes, they will invest more and hire more (and go on vacation to Europe more) but they'll hire at a minimum wage that, at the moment, puts a full-time worker with a family well below the poverty line. Besides, the wealthy (and corporations in particular) are notorious for exploiting loopholes in the tax code, so one wonders just how high a tax rate they're really paying.

Ultimately, is everyone helped under such a system? Quite possibly. But the people at the top are helped disproportionately to the people at the bottom -- particularly when need is factored in -- resulting in an ever increasing wealth disparity and cycles of poverty that aren't broken simply by growing the GDP. Plus, there's the general concern citizens of a democracy should feel when too much wealth is concentrated into the hands of a powerful few. (Think Russia's oligarchs.)

My skepticism should not be construed as a blanket condemnation of the Reagan tax cuts. Surely we can agree that a top tax bracket of 70 percent is outlandish and it was a good move to get that figure down significantly.

With the recent extension of the tax cuts for capital gains and dividends (cuts that help only those who can afford to invest) and the ongoing push for a permanent repeal of the estate tax (a tax that also hits only the wealthiest), we're back in the mode of supply-side economics -- the idea that with more money in their pockets, the country's elite will invest that money back into the economy, spurring growth.

On the flip side (demand-side) leaving more money in the pockets of those living paycheck to paycheck virtually guarantees that it will be rapidly recycled into the economy as they make necessary purchases at local stores. Choosing to save the money for a larger purchase, like a home, would also be an economic good.

I would be interested in hearing from Debaters who can make a good case that the benefits of supply side economics are more substantial than the benefits of demand side.

The idea of supply-side economics was born when a guy called Arthur Laffer sketched a curve on a cocktail napkin in 1974, and the debate over its merits has been raging ever since.

In his Friday column, a triumphant E.J. Dionne heralded the end of this era, declaring supply side economics solidly debunked. Dionne believes Republicans are finally starting to see that "the help-the-wealthy, damn-the-deficits approach doesn't hold together, either as policy or politics." I'm not sure what his evidence is of this change of heart -- I haven't seen any -- but I welcome any evidence Debaters may find.

By Emily Messner |  December 18, 2005; 9:25 PM ET  | Category:  Beltway Perspectives
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Ms. Messner,

You write: "Fans of the [trickle down]theory don't like to use that term because it astutely describes the phenomenon."

Somehow I doubt that's why they object. But if you want to imagine that they object only because calling it "trickle down" is "astutely" descriptive, go ahead. It only prevents you from engaging their position with serious arguments.

If you don't know the arguments your opponents would use in support of their position, then perhaps you should think more before attacking.

Posted by: Gideon | December 19, 2005 08:55 AM

Gideon-

Perhaps you could enlighten Ms. Messner? Actually I don't think that's necessary because she links to a page that outlines with great detail the arguments used in favor of supply side economics (and summarily dismisses them as erroneous).

I assume that Ms. Messner has read the article she linked which makes me wonder whether or not you got further than fourth paragraph in her article.

I would love to hear your defense of trickle down economics. The evidence seems to suggest that it doesn't work. People who argue that it generates revenue would have to ignore the actual revenue that accomponies Administrations that cut taxes. People who argue that the government "owed" tax cuts because surpluses suggested unfair tax policies would have to explain 4 decades of unmitigated deficit spending (and why that was any less fair). People who argue that tax cuts are necessary to stimulate economies should be compelled to abandon those tactics now that the economy has recovered. People who argue that tax cuts are necessary to force the government to spend within its means should explain why over a decade of the Tax-Cutter party's control of the legislative and executive branch have increased spending.

It's curious that someone would accuse Ms. Messner of failing to address the "arguments" supply siders produce without actually producing a single one of those arguments. Are we to imagine these arguments, Gideon? Do you have any? If so, why the reluctance to offer it?

Have a great week. Looking forward to your response.

Posted by: Will | December 19, 2005 12:31 PM


My dispute was with her dismissive characterization of those who favor so-called "trickle down economics". As you yourself say, she "summarily dismisses them as erroneous".

She doesn't give any arguments for supply side economics, and I was suggesting she try to face those arguments rather than dismissing them without even describing them. Linking to them isn't nearly sufficient. It puts the burden on the reader rather than on herself.

It's not my obligation to prove her wrong. It's her obligation, if she wants to be taken seriously, to try to understand both sides as best she can before choosing one of them. If Ms. Messner wants to educate herself, she's welcome to look at the numerous articles, scholarly and otherwise, on the internet in defense of supply side economics. But that will be her decision. So far as I can tell, she's decided not to consider those arguments, even though she pays them lip service by linking to them. My making more arguments here will only lose me time.

Posted by: Gideon | December 19, 2005 06:05 PM

Gideon-

Ms. Messner linked to an article that summarily dismissed those arguments only after -as you requested- it addresses them. The link, in case you missed it, was http://www.prospect.org/web/page.ww?section=root&name=ViewPrint&articleId=10000

I think Ms. Messner was very forgiving to trickle down economics, possibly too much so. It is not her "obligation" to present all the subtle nuances of the pro-supply side debate.

You appear to be an advocate of supply-side economics. If you are, isn't The Debate precisely the type of place you should be arguing your position?

I'll ask you a tough question even if Ms. Messner forgot to preemptively read your mind: Do you think that tax cuts generate enough growth to increase government revenues.

Posted by: Will | December 19, 2005 06:28 PM

Tricle down is really the horse and oats theory of economics. For those of you who are unfamiliar with this more refined version of the tricle down theory, it goes like this, in theory:

If you shovel enough oats into the north end of a north bound horse, there will be enough oats coming out of the south end of the hourse for us little sparrows.

Of course the end product coming out of the hourse is an apt metaphor for the worth of horse and oats or tricle down theory.

The cold hard fact is those administrations who practice horse and oats Reagan/Bush run huge deficits with anemic economic growth. Clinton who practiced more traditional economic policies, pay as you go, eventually ran budget surpluses, created a strong dollar and generated robust economic growth and increases in real wages benifitting all compensation levels.

I am suprized anyone is still alive who would argue for horse and oats. I guess I always undrestimate the numbers if horses a_____ there are around.

Posted by: Red Ruffian | December 19, 2005 09:44 PM

What about the idea that Presidents are not responsible for the economic ups/downs..? I've heard that Clinton had it so good b/c Reagan/Bush did all his heavy lifting for him.. is this untrue?

Posted by: gonzo | December 20, 2005 01:54 PM

If Presidents are not responsible for economic ups and downs than why should we entertain Presidential arguments for tax cuts that use recessions as a reason for?

Can we at least hold Presidents responsible for deficits, since they have veto power over appropriations bills?

If your premise is that "Presidents are not responsible for economic ups/downs" than how on earth can it follow that "Reagan/Bush did all [Clinton's] heavy lifting"? Were Ronald Reagan and George H.W. Bush Presidents or weren't they?

Posted by: Will | December 20, 2005 02:23 PM

Posted by: Colin | December 20, 2005 02:56 PM

As is the case with "intelligent design" the only debate is in the President's mind. Let's examine the Reagan but more so Bush anti Robin Hood approach to tax reform. As "Vice" said recently "we had to make hard choices in cutting the budget, but we went over the options with care...." Sure-hurt the kids and poor, first, right Dick? He went onto say that we are cutting only in areas where we can afford to trim the fat-insteresting comment from him.
What did he mean?? Let's cut people off of food stamps and medicade-those lacking any personal elasticity in their budgets. I guess Cheney thinks that food and medicine are "optional" for those who loose their coverage. And we are doing this all so the super-rich will get more tax cuts-money they do not need to survive.
The "trickle down theory" is a great rhetorical device, but nothing more.
To work, all of those at the top have to-at least to a degree- be selfless, altruistic people. In my experience, the rich tend to niggle even their tax lawyers down to the last cent, each year. The rich are like nations: They don't have friends, they have interest and the majority of them involve their own lives.

At the end of the day, it has been shown time and again, that little of the money-in form of tax breaks given to the rich-ever "trickles down" even a layer or two. During Mr. Bush's term in office, the gap between the poor and wealthy has increased, yet his remedy-albeit another moment of Rovian Rhetoric-is to pitch more money at the uberwealthy. The real losers are the middle class because they will have to pay-off a throtling debt which did not exist when "W" took office. If this trend continues, those in the middle will simply cease to be- sooner rather than later. By continuing to gorged tax bucks on the rich, the Prez will only hasten the speed by which the distance between rich and poor increase, and the middle class just ends.

Just like "My Pet Goat" on 9-11, "W" will keep reading to the kids while American's starve and died for his fools-gold like belief in trikle-down. There is a fool born every minute and the fact that any subscribe to trickle down is proof.

Posted by: BigBirdDem | December 20, 2005 06:18 PM

What a moron!!!! I have to make sure not to read anything under Ms Messner's byline in future, it's a waste of my time.

Posted by: Dennis | December 22, 2005 09:18 PM

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