Moshe Adler “Tax the Rich” Historical and Economic Adolescence

Recently Dr Moshe Adler, who teaches economics @ Columbia University and is the author of “Economics for the Rest of Us: Debunking the Science That Makes Life,” published an Op-Ed in the LA Times in which he demanded we tax the rich. His case was made on a misunderstanding – or intentional mis-stating – of history, a lack of acceptance of American’s Constitutional balance of powers, and the historical results of the policies he demands, results proving that his policies fail in every time, culture and nation with catastrophic effects on the environment, lives, hopes, families and the future.

Adler opens by laying the blame for the mild recession of 1991-93 at the foot of Bush 41, and begins his case that tax cuts result in economic decline. (A more honest review of that recession and subsequent recovery, one free of Progressive ideology, can be found here.) He continues with the economic advance under President Clinton, blaming this advance on tax increases by the Democrat Congress Clinton lost by moving too far Left in his first two years.

He then dismisses as myth the often-proved theory of “trickle down”: “This was, of course, a reincarnation of the GOP’s trickle-down theory.”

Trickle-down may be a theory, but so is Relativity; so what? Fact: After the tax cuts by a Democrat Congress during Reagan’s first term, federal revenues more than doubled. If you want more tax revenue the only proven way is to lower tax rates. JFK did it in 1961, making the case for “trickle down” without calling it that in a nationally-televised speech. It set-off the 1960s productivity and economic boom.

And the liberal trope of blaming Reagan for deficits really needs some educated explication: Only the House of Representatives can initiate tax legislation. Reagan had a Democrat House. The “Reagan tax cuts” were, in fact, tax cuts passed by a Democrat Congress. Those Democrat tax cuts nearly tripled federal revenues. The deficit increased hugely, but that was because the Democrat Congress did what Democrat Congresses always do – they spent more than they had, as we have just again seen in Nancy Pelosi’s House.

If Dr Adler wants to understand the deficits that, he writes “decimated government services,” he needs to understand the cause of those deficits. As only Congress can spend, blaming deficits on the executive mis-states the facts and mislays blame – intentionally or accidently – by Dr Adler. As he is a professor at Columbia, one assumes he knows history and the Constitutional Balance of Powers, so his laying at Reagan’s feet a deficit caused by a Democrat Congress vastly overspending the nearly-tripled revenues from a tax cut by a Democrat Congress is intentional and done to make an ideological – not a historically or economically accurate – point.

This is fundamentally dishonest.

Dr Adler then proceeds to the tax increases during Clinton’s first term, blaming these increases for a reduction in unemployment.

The deficit reduction and unemployment decrease were a result of changed spending policies, of course. It is fantasy to pretend that a change in tax policy alone, without a change in spending policy, will cause deficits to decrease substantially. In the 1980s, for example, taxes were cut by a Democrat Congress, tax revenues increased enormously, but spending patterns remained the same, so the deficit grew.  In the 1990s, taxes were cut but so was spending, by a GOP Congress, including Welfare Reform, legislation passed three times by the GOP Congress before Clinton finally signed it following the continued reduction in Democrat House seats after the 1996 Democrat losses in the House. Unemployment decreased and revenue increased also as a result of the Internet Bubble, partly created by bad Fed policy, the popping of which hurt millions.

Dr Adler asks at this point, “Was it the tax increase alone that caused this spectacular drop in unemployment?” And answers, “Probably not.”

Of course not. To paraphrase Carville, “It’s the spending, stupid!”

Adler continues his re-write of history blaming the deficits Clinton inherited on Bush 41. Again – Bush 41 had a Democrat House. Reagan had a Democrat House, all tax legislation, including tax cuts, originates in the House. Prior to the 1994 Gingrich Revolution, the House had been controlled by Democrats since 1949 – the longest single-party domination of a Western legislature in history, other than the notoriously corrupt PRI in Mexico.

Any budget deficit inherited by Clinton came from a House of Representatives controlled by Democrats for half-a-century. But Adler is not writing history, he is writing ideology, so he leaves-out this important point. In fact, the deficit began to close once the GOP took Congress in 1994, but as a result of spending reductions. (This is similar to Obama blaming the GOP for the deficits he inherited, when, in fact, Democrats took control of Congress in 2006 and Obama was one of the Democrat pols voting for these budgets.)

The incomes of poor families rose during the Clinton years, and Adler revises history that this was due to tax increases. No, it was due to the internet bubble, the 1980’s Democrat tax cuts that kept creating millions of jobs throughout the 1990s and into the 2000s, and Welfare Reform, pushing millions of workers back into jobs and back into the labor pool. Even Democrats against Welfare Reform in 1996 later admitted that it had done wonders for the poor by making them productive again.

A report came out a couple of weeks ago noting that America had spent about $13 trillion on anti-poverty programs since the Great Society in 1965. Result: No change in the poverty level and a $13T deficit.

Adler and his cohort want to continue to throw good (borrowed) money after bad, and their programs ALWAYS fail. The “Progressive” policies demanded of the modern Left have never worked – anywhere, in any time, in any culture, and they deprive the market of investment capital, thus lowering the standard of living for all of us.

What makes this worse is that Democrats basically have no stake in the future they busily are destroying. They don’t have any children to pay for this borrowing and spending. Blue State (and European and Japan – everywhere that the social policies of he Left have been in-vogue) demographics are in steep decline. In some European nations, this decline is irreversible. Democrats pass these same programs here that always fail – and leave GOP children behind to pay for them. It’s a free lunch for the Democrats and their voters, but it has to be paid for and they refuse to populate the tax pool to do so.

This is way past simply immoral.

The lesson Adler draws from his mis-stating of history – intentional or otherwise – is that raising tax rates will gain federal revenues and the rate increase must be “substantial.”

Even Obama disagreed with this on the campaign trail. In one of his interviews, I think with Chris Wallace, Obama talked about raising tax rates. Wallace pointed-out to him that doing so lowered tax revenues and that everyone from JFK to Clinton to Bush43 had learned that lowering tax rates raised tax revenues. Obama admitted this in the interview, but said that raising rates wasn’t about revenues; it was about “fairness.”

History shows us that tax rate increases always lower tax revenues. There are no exceptions to this over any five-year period.

FDR’s Treasury Secretary Morgenthau in 1937 told FDR and then Congress, “[we have] spent more than anyone has ever spent and nothing has worked [to put people back to work].” In fact, European nations that had not followed Keynesian deficit logic already were nearly out of the Depression in 1937, the year it got so much worse in the US as a result of FDR’s “Progressive” policies that even the NY Times headlined 1937 as, “The Depression within the Depression.” (HIstory, again, repeats,. Those European nations smart enough not to have followed Obama-Keynesians off a cliff are recovering faster than are we.)

Adler goes off the deep end with this statement: “It is clear that the private market is unable to create the jobs we need.”

This is the most absurd economic statement I have ever heard or read.

From the standpoint of tax revenues, ONLY private sector jobs matter, as they are the only jobs creating new dollars for taxing or consumption. Creating Public Sector jobs is a net drain on the economy.

Arguing that the way out of the deficit hole we are in largely as a result of the Democrat CRA and rejection by Democrats of 17 different tries by the GOP to re-regulate the GSEs, is by increasing Public Sector jobs, which cost tax revenue, is just infantile absurdity.

Adler, quite deep in his hole, continues digging: “The level of uncertainty in the economy is such that most investors are choosing to wait, and banks are reluctant to make loans to those who are reckless enough not to.”

Try to find a radio or TV station not advertising loans and mortgage rates right now. This simply is Liberal cant because loans aren’t being made and Democrats don’t understand why not.

Banks aren’t making loans because no businessman or woman in his or her right mind would go out and borrow money when they have zero idea of what the tax laws will be in 45 days. This uncertainty is a result of two things at the macro level: No Congressional budget being passed this year by 9% Nancy and her Congressional House (which is illegal), and the completely unknown tax status as of 1 JAN 2011.

This Prof Adler teaches economics yet has zero clue on how our economy works and wants to emulate policies that have failed everywhere they have been tried.

Adler further is “puzzled” that we Americans don’t better-understand our recent history that he thinks supports his argument, and brings the Eisenhower Administration into the puzzle:

“During Dwight Eisenhower’s presidency, the highest marginal tax rate was 91%, and this permitted Congress to pass the National Interstate and Defense Highways Act in 1956, a law that funded the interstate highway system, and the National Defense Education Act in 1958, which paid for a major expansion of state universities all over the country. Today, with roads, schools and the healthcare system crumbling all around us, our needs are even greater.”

“Revisionism” doesn’t quite do justice to Adler’s rewrite here.

America stood alone at that time in world manufacturing, distribution, communications and information technology, food production, transportation infrastructure, etc. Not only did we act as Adler states, we also paid for the Marshall Plan to rebuild a Europe again devastated by the Europeans who had devastated it a generation earlier, who gave the world Fascism, NAZIsm, Socialism, Communism, and whom the Left demands we not only BE like but BE LIKED BY.

(Newsflash: No one cares about Europe, least of all Europeans. Read The Future of the European Past.)

But to use the complete historical anomaly of Eisenhower’s economy to defend tax and spend policies that have failed everywhere they’ve been tried, and were rejected by Clinton and JFK is adolescent, at best.

America’s Middle Class standard of living during the Eisenhower years was far below what we now take for granted, even amongst those in “poverty” today. But Adler also misses three enormous facts. In the Eisenhower years there was zero global competition, minorities had little access to careers or Middle Class jobs, and the overwhelming majority of women were not in the labor force. In short, Eisenhower had to deal with a basically closed market with fewer than half as many workers as a percent of our population as now is the case.

This argument really is not worth addressing any more than would be an argument using ancient Greece or pre-war Germany to defend current policies. It works for Adler only because of the dismal state of education in America, which also is the only reason we have the Democrat party of today – at all (…or the Religious Right.)

(And if an Ivy Prof’s history, Constitutional understanding and logic can be destroyed by a layman like me, why are people paying $50K – $10K annually to have their kids mal-educated by  him?)

Adler closes with yet another refrain of “tax the rich,” which brings four comments immediately to-mind:

1.  Who gets to define “the rich”? Why them?

2.  If “the rich” want to pay more taxes, they have the address of the IRS. I haven’t seen any of the  billionaires calling for higher tax rates (Gates, Buffet) sending billions to the IRS, have you? In fact, Geithner, Daschle, Kerry and many others have proven beyond doubt that Democrats won’t pay the taxes they pass. What was the news the other day? That federal workers owe “billions of dollars” in back-taxes? Since federal workers overwhelmingly are Democrats who vote for more taxes, why don’t they pay them? Does Charlie Rangel ring any bells with Dr Adler?

3.  At the same time, as I have noted elsewhere, Social Security can be fixed by raising those taxes – eliminating the cap. This is utterly reasonable. Those above the cap are at least as, if not more so, responsible for electing the Congresses we have elected the past 42 years since Democrats put SS revenues into the General Fund (so they could spend them; some things never change), starting us on the road to bankruptcy we now find ourselves well-down. We ought to help pay for the mess we created. But fixing SS also means removing it from the General Fund. As long as politicians from either party can pretend that the hundred-trillion-dollar-hole of SS doesn’t matter when discussing budgets, the problem won’t be fixed. Even the GOP “Balanced budget” during the Clinton years ignored this problem.

4.  The case also can be made that in a reasonable and educated society tax rates for the super-wealthy can be far higher than now. Absent ideology, please explain to me why the marginal rate on income – INCOME – above some number ($10M? $50M?) ought not approach confiscatory. The problem of ‘who gets to decide,’ remains, but step back from the brink – at what point does an income at those levels not become absurd? Think about it this way: Prior to the elevation of the Baby Boomers, CEOs would have been embarrassed to make a zillion times more than their lowest-paid workers, to live in palatial mansions in gated communities when their employees were barely scraping by. The CEO of IBM, with 90% of the global computing market in the 1980s, made only $5M. Now we have guys at financial institutions drawing $50M?  Why is this not absurd?

I’ve also posted before that a reasonable way to address this would be to allow a private company to pay its CEO whatever it wants – it’s a free market – but that any salary and benefit combo greater than 100X the lowest-paid employee or consultant would be taxed at 99%. The division of wealth in America has grown starkly since Boomers took over, and it is not moral to continue it, nor is it good public policy. The market must be left (mostly) free to deal with this directly, as above, and not have unaccountable bureaucrats setting salaries, as Obama’s “pay czar” seems to think he has the authority to do. This proposal would allow that.

Frankly a flat tax at a nominal rate of 17-20% would work for me, but it would work nationally only if we lowered our spending. What Progressives always want to talk about are revenues in the belief that ALL the spending they demand is justified. It is not. Fix the spending and then put revenues in-line with the needs. This never will happen, of course, which I also have posted before. Nothing prevents a state from saying to the Feds, “Look, we’ve evaluated the 18 enumerated powers of the Federal Government as outlined in the Constitution. We figure they cost about $X. Per-capita, our portion is $Y. Here’s a check. Now get out. If you need more, come and convince our legislature, but WE will collect tax revenue from OUR citizens and send you what you need to execute your authorized powers… and no more. (It isn’t as though the Feds willingly will give-away power to the States that created the Federal Government; it will have to be taken back, or we will be Europe – and fail, just as Europe is failing.)

But – remember: Democrats don’t care about the future. They don’t care if America fails. They don’t have kids. Neither they nor their nonexistent heirs will be here. These Progressive policies are truly a free lunch for the childless or those with fewer than 2.1 kids.

Adler starts to close by bringing Eisenhower and Clinton back to the fore.

The party of the president is irrelevant in discussing tax policy. Only an ignoramus or an ideologue would continue to hang his hat on this point. One assumes Adler is not an ignoramus.

But here’s a foundational argument that Prof Adler is not stating. Either he’s too dumb to understand it, or smart enough to grasp that doing so would destroy his argument: Adler writes that basically we need more public sector jobs and more government spending to get out of the economic mess we are in.

Follow that logic: If more taxing is done and more public sector jobs are created, and if that’s a good thing, then making ALL jobs public sector and raising taxes to 99% on everyone would be a VERY GOOD THING – and his logical end-result: We’d – in HIS logic – fix the economic mess, have everyone employed, be out of debt, etc.

…BUT…

If we DID this, took his logic to its conclusion, there would be no money to pay those public sector workers. Money only can be created in the private sector; the government only launders and then redistributes private sector money. If all jobs were public sector, we’d be broke and there would be ZERO jobs. That is the logical outcome of his prescription for wealth and full employment and success.

Perhaps Dr Adler would say, “No, we’d still have some private sector jobs.” Why? Why does his logic go so far – and no farther? Why if his logic works on many, it does not work on all? If his logic only works on many, do we decide how “many” that is and change policy THEN? Who decides “how many”? SEIU? AFSCME? Prof Adler?

And, oh-by-the-way, this all has been tried before. It was called the USSR, and it no longer exists. It failed. Utterly. It destroyed the environment, families, hopes, dreams and lives – by the millions. It IS the outcome Progressives demand. And the demographic catastrophe left-behind by the Progressive policies of the USSR remains HUGE.

The question always remains, are these folks worth engaging? Or does one simply look at them across the elevator, smile, nod, plan one’s day and say,

Look, Moshe, I know you have these ideas not borne out by history in any time or place and that have always led to failure of governments, societies, cultures and families. And I’d really like to try to help you become more educated in the real world. But I have only so much time in my life and … are you familiar with the saying about why trying to teach a pig to sing is hopeless? Wastes your time and annoys the pig? Well, my time is running …. Have a nice day!”

About Alex Scipio

About Alex Scipio: Alex moved out of the People's Republic of California to the Free State of Arizona, finally tiring of the lack of the Bill of Rights, the overgrown idiocracy, and the catering to non-Americans & welfare recipients. He still wonders how America got from Truman, Eisenhower, and Daniel Patrick Moynihan to the Liberal and Conservative extremes so badly managing America today. And, yes, islam DOES need to be annihilated. And doing what he can to get folks away from the extremes of political life.
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