Re: [Marxism] Tinker Bell, Pinochet And The Fairy Tale Miracle Of Chile

["Ruthless Critic of All that Exists" <ok.president+marxml@xxxxxxxxx>]

On Dec 11, 2006 3:47 PM,  <Dbachmozart@xxxxxxx> wrote:
>
> Tinker Bell, Pinochet And The Fairy Tale Miracle Of  Chile
>
> by Greg  Palast

>  Milton Friedman himself coined
> the phrase, "The Miracle of Chile." Friedman's sidekick, economist Art
> Laffer,  preened that Pinochet's Chile was, "a showcase of what supply-side
> economics can  do."
>
> It certainly was. More exactly, Chile was a showcase of  de-regulation gone
> berserk.

The New York Times
January 20, 2008

Is the New Supply Side Better Than the Old?

By AUSTAN GOOLSBEE

[...]

<http://www.nytimes.com/2008/01/20/business/20view.html?ref=us>

In some circles, supply-side economics fell into disrepute because it
didn't seem to work. After all, the budget deficit exploded when the
government cut taxes in the 1980s and again in the 2000s, and it
disappeared when the government raised taxes in the 1990s.

But many critics have missed important research by some very prominent
economists that has revived some supply-side ideas, giving them an
aura of academic respectability. The leading Republican candidates do
not advertise their academic influences, but they appear to have
adopted these ideas.

The work of the new supply-siders shies away from the old claims that
low taxes will generate an explosion of entrepreneurship or extra
hours on the job. Instead, it just looks at the data. When top
marginal rates fell, as they did under President Ronald Reagan in 1981
and 1986 or under President Bush in 2001 and 2003, taxpayers whose
rates declined the most reported the biggest increases in income in
the following years. The supply-side advocates attribute those gains
to tax cuts and argue that the Laffer curve — which suggests that some
tax cuts can pay for themselves — may live yet.

Some of the most important research was done by Lawrence B. Lindsey,
former head of the National Economic Council under President Bush and
now the senior economic adviser to the Republican presidential
contender Fred D. Thompson. But the origins of the current debate, and
the seriousness with which it is taken in academic circles, largely
center on the work of the Harvard economist Martin Feldstein.

Professor Feldstein, head of the National Bureau of Economic Research,
is perhaps the godfather of modern public-sector economics and is
often cited as a potential Nobel laureate. The former chairman of
President Reagan's Council of Economic Advisers, he has always been
known for his conservative views. He has brought more comprehensive
data to bear and has made the most influential case; if you accept the
evidence he offers, progressivity in the tax code appears very
damaging. Raising taxes on high-income people seems to make the
economy much less efficient and raises little revenue.

As he put it in a 2006 interview published in a magazine of the
Federal Reserve Bank of Minneapolis, when you raise top marginal
rates, "it shows up as lower taxable income." He added: "A reduction
in taxable income, whether it occurs because I work less or because I
take my compensation in this other form, creates the same kind of
inefficiency."

But for all the renewed interest in supply-side ideas, the politicians
espousing these views have missed three important points that have
come out of the continuing academic debate.

First, the impact of high-income tax cuts depends on how much
additional income a person can keep. When President John F. Kennedy
cut top marginal rates to 70 percent from 91 percent, take-home pay
more than tripled for these taxpayers, to 30 percent from 9 percent.
That is a big difference. By contrast, letting the Bush tax cuts
expire so top rates rise to 39.6 percent in 2011 from 35 percent,
cutting the take-home share to 60.4 percent from 65 percent, hardly
seems the stuff of tax revolution.

Second, other research has shown that the new supply-side movement
missed a fundamental shift over the last 30 years — the dramatic,
disproportionate rise in the compensation of high-income people. The
new supply-siders have confused this shift with the impact of tax
cuts.

An example illustrates the point: Emmanuel Saez, a professor of
economics at the University of California, Berkeley, has compiled data
on the incomes of the very rich from 1913 to 2006. Using his data, my
calculations show that in the four years after top marginal rates were
cut in 1981 and 1986, and in the three years after the rate cut of
2003, average real salaries (subtracting inflation) for the top 1
percent of earners grew 18.8 percent, 22.5 percent and 17.4 percent.
But for the bottom 90 percent of earners over those periods, the
average salary changes were 2.6 percent, minus 0.3 percent and minus
0.1 percent. A supply-sider might see this as evidence of the growth
power of cutting top rates.

But the data also show that incomes at the top have been growing
rapidly regardless of what happened to tax rates. In the four years
after the increase in top marginal rates in 1993, average salaries
grew 18.7 percent among the top 1 percent of earners and less than 0.1
percent for the bottom 90 percent.

Seeing the same pattern when taxes rose as when they fell indicates
that tax cuts weren't responsible. It suggests that cuts for
high-income taxpayers likely gave windfalls to those whose incomes
were already rising sharply because of broader market forces.

Third, recent research has documented that much of what the new
supply-side economics attributed to tax cuts was really just the
relabeling of income. Sometimes the increase in personal income was
matched by an equal and opposite decrease in corporate income. At
other times, increases in personal income turned out to be a result of
corporate executives shifting the timing of their year-end
compensation from a high-tax year to a low-tax year.

Shifts like these have nothing to do with supply-side economics. The
academic debate continues, but thus far, the new Laffer curve has
looked more like a fleeting figment of economic imagination.

That is sad, because it would be great if we could cut taxes and raise
revenue at one stroke. Alas, the research suggests that we will have
to pay for high-income tax cuts the old-fashioned way — by actually
cutting spending or just busting the budget.

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