Lies, Damned Lies, Statistics and “Trickle Down” Economics

Posted on April 1, 2013. Filed under: Economy | Tags: , , , , , , |

Ronald Reagan wearing cowboy hat at Rancho del...

Ronald Reagan at Rancho del Cielo. (Photo credit: Wikipedia)

Mark Twain wrote in his autobiography:

Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: “There are three kinds of lies: lies, damned lies and statistics.”

While Twain may have been mistaken in his attribution of the quote to Benjamin Disraeli, Earl of Beaconsfield (1804–1881) (it is still unknown who it was that said it first), the fact remains that statistics are among the most twisted and misleading form of mathematics in existence.

You can use statistics to say anything you want them to say, especially depending on the question being asked.

For example, and this may be a bit of a stomach turner, a recent survey at Yale University (yes, THAT Yale University) showed that 3% of students had had sex involving animals.


Well, it turns out the survey was taken by about 40 people, meaning that exactly one person (of the 40) admitted to have engaged in bestiality.

But by turning the number into a percentage (1 out of 40 is 2 1/2 percent, but they rounded up), it makes it seem like more than it really is. It’s not as exciting (and I use that term loosely) to hear that only one person made that confession. Instead, they make it sound like 3% of students at the university have engaged in this behavior, at the very least, more than one person.

Do you see how the smoke and mirrors were applied?

So what does this have to do with Supply Side economics (better known as “Trickle Down” economics)?

Scholars have spent an inordinate amount of time and effort to prove that Reagan’s economic theories didn’t work. A lot of people believe them.

I lived during that time period, and I’m sorry to report that they did work, contrary to the belief of scholars across the country.

I read a blog where the focus was on taxation on the wealthy and how that impacts wages for everyone else. The argument, based on a study emanating from the University of Chicago (big surprise there), was that the idea was that by lowering income taxes on the rich would cause them to have greater incomes, which they would then pass on, or “trickle down” to the poor, who would then earn greater wages.

The focus of the study is entirely misplaced, and really mischaracterizes Supply Side economics. (I’m not suggesting the blog is mischaracterizing anything, just the study is doing the misrepresentation)

By the time Reagan took office in 1981, inflation was out of control, and unemployment was steadily rising.

The 1970’s were characterized by recession, energy crises, price and wage controls (as opposed to restrictive monetary policy), the unceremonious withdrawal from Vietnam, stagflation, and increasing unemployment.

As a nation, we felt bad about ourselves. It was probably the first time that we ever really questioned ourselves as a nation. By 1979, Jimmy Carter had given his famous “malaise speech”, and a few months later, the Shah of Iran entered the United States for medical treatment, and kicked off the Iranian Islamic Revolution. The American embassy in Tehran was seized, along with 66 hostages. Several were released, leaving 52 in Tehran, until Ronald Reagan, who won in a landslide in 1980, was sworn in in January, 1981. While Reagan had received much of the credit for the release of the hostages, it was actually the Carter administration that had done much of the heavy lifting in getting the hostages released.

That’s where we were in 1981. A lot of people thought America’s best days were behind her, and that she was in decline.

Reagan then set to work. His own Vice President, George H.W. Bush, during the 1980 primary, had referred to Reagan’s plan as “voodoo economics”, a term Reagan’s opponents latched onto.

Opponents of the “trickle down” theory like to point out that lower tax rates on the wealthy only gives them more income, but does not translate to higher wages for workers. Of course it doesn’t. Only opponents of the theory has ever claimed it was supposed to do that.

Here’s what Reagan did, what would become known later as “Reaganomics”.

He lowered personal tax rates, the upper rate by 29% (from 70% to 50%, then later down to 28%. He lowered the capital gains rate to 20% (from 39%), effectively cutting them in half. He and his Fed chief, Paul Volcker increased interest rates to strangle inflation, then brought them back down. He deregulated industry.

Unemployment, which had skyrocketed right after he took office, turned sharply down as he applied his policies. As people returned to work, we began to feel good about ourselves again. His policies were not designed to raise wages for workers, and this is where the mischaracterization often happens. His policies were designed to lower the unemployment rate and put us back to work. Wages only increase when unemployment is low.  When unemployment is high, as it has been the last several years, wages stagnate and fall, because people will work for lower wages just to work.

The key was Reagan slashing the capital gains tax in half. Capital gains is the driver of investment, not income taxes. It was also his deregulation of business that allowed for the recovery.

As unemployment fell, wages rose. Reagan started one of the largest periods of economic expansion that ended at the end of Clinton’s last term. Between the two of them, they created 35.4 million jobs, and left the unemployment rate at 4.2%.

Anyone who tries to claim that Reaganomics didn’t work is being blatantly dishonest. or ignorant of the facts. Obama’s claims of creating 4.5 million  plus jobs leaves out the millions of jobs lost under his watch in the first two years of his administration, when he was spending the taxpayers money so freely, trying to combat “the worst recession since the Great Depression”, a label that is as dishonest as it comes.

Another “statistic” that liberals like to toss out is that the reason unemployment is being so stubborn for Obama is because those mean Republicans won’t let him add government jobs. They claim, that in response to the recession that ended in 1981, Reagan added 100,000 government jobs, so that’s what brought the unemployment rate down by 5% (from about 11% to 7.2%). That sounds patently ridiculous, just on the surface. Because, if it were true, then the unemployment rate in 2010 under Obama (by May, 2010, to be exact) should have collapsed when he hired over 600,000 new Federal government workers.

People forget, he had a Democrat Congress, and was still unable to get anything accomplished.

People also have this idea that smaller government means fewer government employees, and this is not always the case. Smaller government can also mean getting the growth of spending under control. Adding 100,000 government workers over the course of 30 months (a little under 3 years is about 30,000 a year). Reagan also had to deal with a Democrat controlled House for his entire administration, and yet he was still able to broker deals.

Reagan’s goals were to get the economy moving again. And if his policies didn’t work, why was he able to win by a larger landslide in 1984?

We had a great run in that 20 year period of growth. I also pointed out in another post that both Clinton and Reagan had better GDP growth than Obama has.

Whenever someone tries to discredit the economic recovery that Reagan brought about, they look at a single aspect to move their agenda forward. They tend to not look at the entire picture (and I’m sure I haven’t included the entire picture, either, but I have included more than most liberals). Wages ultimately increased because unemployment was low.

The cure is not more government spending or government regulation. It doesn’t work. It didn’t work for FDR, and it hasn’t worked for Obama.

The left is trying to push it’s “middle out” approach. Back in 2012, the president made a speech in which he said “I am here to say the [the supply siders] are wrong. I’m here in Kansas to reaffirm my deep conviction that we’re greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, when everyone plays by the same rules.

Well, Mr. President, you’re the one who is wrong. Supply side economics is not about “being on your own”. It isn’t about playing by different rules than everyone else, and everyone does have a fair shot, it’s just that most people won’t take it.

The next thing that has been severely misconstrued by the Marxist crowd is that business is there for the benefit of the worker. That is an absolute, steaming pile of horseshit. Business does not exist for the workers. As a micro-business owner, my wife and I started it up so that we could earn a little extra money. We did not start it up so that we could hire people and pay them. We started it for us. We have discussed hiring people to help us, but we feel that it will hurt our bottom line, especially with Obamacare. So, we will do what we can on our own.

The lesson is that without business (and business owners) there are no jobs for people to work at. Government can only create one kind of job: government jobs.

So, why is the middle class shrinking? Because jobs are being moved overseas to avoid taxes, regulations and lower costs. This is the global economy that Clinton pushed for.

But how does “middle out” economics work, exactly? No one knows, because we elected President Slogan, who knows how deliver a great message, but doesn’t know a damn thing about policy other than checking which way the wind blows. Creating a better education system and upgrading outdated infrastructure? Well, if the government wasn’t interfering with education to begin with, we might have a world class educational system. I mean, I have a nephew who is in the 5th grade, who cannot tell me what a cell is, can’t do long division, and can’t tell Oregon from Washington on a map. That’s what government run, teacher’s union dominated education is doing for our children.

The American Enterprise Institute goes as far as arguing that “middle out” economics is “trickle down” (or “top down”) of a different variety. That is, the economy works only from the government (the top) on down.

It has been argued by leftists, that according to the CIA world factbook, that the 1960’s was the greatest decade of economic expansion in the United States. The 1960’s was the longest, post World War period of labor growth, followed by the 1982 – 2001 period (which was briefly interrupted in 1990-91 by recession). However, expansive fiscal policy caused a recession at the end of the decade.

What happened during the 1960’s? Well, there was the draft, a war in Vietnam, government spending (but not to the scale of the Second World War), income taxes dropped 22% (from 91% to 70% in 1965).  But trickle down doesn’t work.

The biggest difference between the 1960’s and the 1980’s to 2000 was the turning away from regulation and government control/domination of business.

I honestly think the primary reason the economy still continues to struggle is because of the return to government control policies. This is, in part, how government has grown too large. We are returning to where we were back in the 50’s and 60’s. But it was Romney who wanted to take us back to those periods.

The only thing that President Slogan has succeeded at is dividing us. He has sold his “us versus them” rhetoric, and people bought it. It worked so well the first time, that he gave the same speeches, the same rhetoric, and the same promises he gave in 2008, only the sheep were too dumb to realize it.

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