Will It Actually Take Another Great Depression?

I have now watched, I believe, four GOP debates for the upcoming election in 2012. Since being the leader of the United States is similar to death–in that until it’s happened to you, you may not be the best individual to command its understanding—it FIRST falls upon candidates to prove to like minded individuals, that they are the best qualified to represent the conservative point of view in order.

 

After studious observation and the taking copious notes, I have finally concluded that the most vital tenets of today’s GOP are:
 
1) They hate taxes. Boy, howdy do they hate taxes. They hate taxes so much that their stated position is they’d choose no deficit reduction, and even a default on United States obligations, over raising even a dollar in new taxes. Hating taxes is the absolute, number-one core belief of the modern GOP.
2) They hate regulations. OMG do these people hate regulations. They hate bank regulations and they hate business regulations. They hate laws that enforce regulations. They hate laws that punish people or businesses that defy regulations.

 

Got it? Good. Now—the only question I have, is why?
 

#1–Taxes Disliking taxes is completely understandable. I mean, who LIKES taxes? No one likes taxes, just like no one likes visiting the dentist or going to the DMV. Most of us accept them because the alternatives are worse.
 

The GOP’s argument, however, is that even a default and a second financial meltdown; even Great Recession 2.0, are preferable to a single dollar in tax hikes. How about negotiating? Pfft…no way. I suppose that this could simply be political posturing. But I’m inclined to take John Boehner at his word.
 

I have heard Speaker Boehner on numerous occasions’ state, “The fact is you can’t tax the people we expect to invest in the economy and create jobs.” Another frequent Boehner-ism is, “To stimulate GDP growth, a tax cut has to reduce the marginal tax rates upon which the decision-makers in the economy base their decisions to work and, above all, to invest.”
But marginal tax rates are the taxes that affect that one more thing over and above a tipping point.

 

Under the assumption above, let’s assume you make $1,000,000 annually and we impose a 50 percent tax on every dollar of income above $1,000,000. That makes working more, worth less to you. Right? However, suppose we cut the deduction for your mortgage interest. That raises your taxes, which nobody likes, but it doesn’t give you a reason to work less. Wait, huh? This type of logic gives insufficient weight to the distinction because it not only rules out marginal increases, but by definition it rules out cutting tax expenditures as well.

 

But by the laws of real capitalism, cutting any stream of expenditures that creates the actual fuel for growth, would be apocalyptic for the economy. Given the flexibility of the wealthiest members of the spending public, does it even meet the sniff test to assume that a modest increase would suddenly cause them to retreat into darkened multi-million dollar homes, board up their windows and lock down their wallets? And if we’re going to simply give them more profit, for no extra work, I can guarantee you that either the first, second, or third thought to occur to the wealthy individual will be, “Gosh, thanks rube”….not, “Gosh, I think I should go out and hire somebody”. I mean, Come On!

 

So, am I simply being naive? Ummm, no.
 

The fear animating Republicans is apprently that we will eventually end up with three rounds of tax increases: First, the tax increases in the Affordable Care Act, the bulk of which fell on the wealthy. Second, an expiration of the Bush tax cuts for income over $250,000. And third, further tax increases on the rich as part of a coming budget deal.
But even if you add all that together, you’re still not looking at inordinately high taxes on the rich — more likely is the probability that they would be closer to that like we saw under Clinton, but nowhere near what was in place under Reagan….who in his second term realized his mistake and was man enough to raise the taxes again, albeit too little too late.

 

At this point, the following standard fears apply with particular force. “Marginal tax rates affect behavior”, say GOP economists. So, I ask myself, do Republicans believe that high-income people are overly fragile and sensitive because they have more flexibility to decide how much they’ll work? Wait, Huh? What?
 

Or does Speaker Boehner actually think that in 2013 or 2014, he’s going to have to cut a deal that raises taxes, so it’s a smart play to hold the line until then in order to keep total tax rates, particularly on the rich, from being raised repeatedly, to levels where they were before we fought two unfunded wars and gave out exorbitant tax reductions to contributors?
 

Andrew Samwick, who served as chief economist on the staff of George W. Bush’s Council of Economic Advisers, thinks that the whole discussion is maddening. “I just find this to be a ridiculous distraction,” quotes Ezra Klein. “These are small tax changes we’re talking about. It defies any sort of logical reasoning that there’d be such large effects.”
 

To Samwick, says Klein, the specific set-up of the tax code is, for the moment, a distant, second-order concern. The deficit forbodes much larger. Once we get that under control, we can worry about the precise way to set up the tax code to maximize the incentives to work and invest. But getting the deficit under control is almost certainly going to require some revenue increases. “I don’t think any Republican should be taken seriously on matters related to the budget until they lay out a set of circumstances under which they’d be willing to raise tax rates,” Samwick said. “And I haven’t heard any Republican in leadership give even a hint of that.”

 

Besides, if it is indeed necessary to get the tax code just right in order for the economy to grow, wouldn’t we have been in a depression for the last 40 years?
 

The bottom line is that these GOP theories were tested…and recently. In the 1990s, Clinton raised taxes, particularly on the rich. The GOP emphatically declared that tax increases were going to kill the economy. What actually happened? We got rid of our deficits and the economy grew robustly for 10 years. What if it happens again? We might get rid of our deficits and the economy would grow robustly for another 10 years.
 

Well shut the front door! #1 really just boils down to politics. Huh. Well. I’ll be damned.

 

#2–Regulation It’s a tune we hear often. “Low taxes, regulation, (and) reducing litigation. It is the free enterprise system and the private sector that create wealth and opportunity, not government. Eliminating overly burdensome, intrusive regulations is the key to private sector growth.”

 

But a commitment to the principle of laissez-faire evidently goes only so far. Both the Great Depression and what’s now being dubbed the Great Recession occurred under similar periods of de-regulation with very similar results.
 

The growing number of similarities is striking. To name just a few:
 

Income Disparity. By the 1930s, more than 60% of the population was living below poverty levels, while a mere 5% of the wealthiest people in America accounted for 33% of the income, and the richest 1% owned 40% of the nation’s wealth. That uneven distribution of wealth was mirrored in the unequal distribution of riches between industry and agriculture.

 

Global Economic Crisis. Although as a country America prospered during the 1920s, most of Europe, was in the throes of economic decline, primarily as a result of WWI. America soon became the world’s banker, and as Europe started defaulting on loans and buying less American products, the Great Depression spread to America fueling less demand, therfore slower to no growth, and the vicious circle expanded.

 

Speculation And Overleverage. With only loose stock market regulations in place before the Great Depression, investors were able to speculate wildly, buying stocks on margin, needing only 10% of the price of a stock to be able to complete the purchase. Rampant speculation led to falsely high stock prices, and when the stock market began to tumble in the months leading up to the October 1929 crash, speculative investors couldn’t make their margin calls, and a massive sell-off began. While the great rise in the stock market was fueled by optimism and false hope, the plunge was marked by stark fear.
 

Dust Bowl During The Great Depression. A drought that lasted from 1930 to 1936, known as the Dust Bowl, aggravated the problems of the Great Depression. More than a million acres of farmland were rendered useless because of severe drought together with years of overfarming; and hundreds of thousands of farmers joined the ranks of the unemployed.
 

So given the above, why would the GOP be so doggedly inclined to ignore the role that un-regulated business practices played in causing the causing the Great Depression and the unambiguous results that those philosophies played?
 

Maybe it’s because most U.S. voters have diminishing attention spans and even less knowledge of U.S. history.
 

Then again, the answer may lie in who faired the best during the Great Depression. Now I wonder who that could’ve been? Hint: It wasn’t the middle-class nor the poor.

 

hg