The Pecker solution. Plus debt, growth, and the top excuse offered by Wall Street parasites.

Lots of brief topics on debt and society and politics, this time, and if you make it to the end I promise something deeply thought-provoking for you economics wonks...but first a comment on the Bezos-Pecker imbroglio.

Jeff Bezos brought to life my decadal proposal that someone torch the foundation of all mafia empires - blackmail. I've long held that today's world is only explicable if hundreds, maybe thousands of powerful people are being blackmailed, each thinking he or she is all alone. (It's a top Kremlin tactic, going back to the czars.) I portrayed a gutsy politician shattering the dam (in a started novel) unleashing a flood of confession-revelations that save civilization. But sure, a rocket-building, SF-loving, unafraid zillionaire makes sense.
(The classic line: "You say you have negatives? Great! Print me some glossies please?)

Jeff should follow this fantastic essay with another, urging more of the blackmailed to come forth. As I describe here.

In fact, my old idea of a "Henchman's Prize" might lure out even more. Notice how this path doesn't just mean escape from the blackmailer's clutches. In Jeff's case, it leads to a kind of elevation and redemption. As I point out in an open letter to every new Latin American president who claims to want to end the cycles of graft, one speech - one declaration - could lift the monstrous cloud. Indeed, just a few weeks after I published my appeal to the new president of Mexico, Andres Manuel Lopez Obrador hinted at something similar, without providing (alas) details.

Ah well, if no one will listen to me, well then perhaps the world will listen to the richest man in the planet. And yes, we do have (and desperately need) friends in Cloud City.

== Saving civilization from high debt and slow growth? ==

I confess an ulterior motive for praising this cogent article by Tim Morgan. It begins with daunting news -- it's not only in the developed world that prosperity growth has stalled. The fast-rising upper half of the developing world has been the engine of the world economy for 20+ years, but that boiler is apparently cooling. And when you lack growth, then the fast-rising rate of debt - fueling rentier asset bubbles and braking money velocity - becomes more than just a problem. It becomes a poison.

  

(To be clear, the Republican Party raved that Supply Side ("voodoo") tax gifts to the rich would both stimulate growth and reduce public debt. How many times must you prove 100% diametrically wrong before you lose credibility?)

Morgan is not without hope. There are ways to fix this, and they are rooted in what's worked ever-better for 200 years... entrepreneurial enterprise that is kept truly competitive by thoughtful-adaptive regulation that limits inevitable oligarchic cheating, of the sort that Adam Smith denounced and that our parents in the Greatest Generation wisely outlawed. And so we get to my favorite paragraph:

"The good news is that we’re not going into this new era wholly lacking in knowledge. The trick is to understand what that knowledge really is. Keynes teaches us how to manage demand – or can teach us this, so long as we don’t turn him into a cheerleader for ever bigger public spending. Likewise – if we can refrain from caricaturing him as a rabid advocate of unregulated and unscrupulous greed – Adam Smith tells us that competition, freely, fairly and transparently conducted, is the great engine of innovation. More humbly, or perhaps less theoretically, but surely more pertinently, experience tells us that the “mixed economy” of optimised private and public provision works far better than any extreme."

Several members of my blog community have linked to this, asking if I wrote it originally, so consistent is it with my own drums -- the study of Adam Smith and fiscally responsible Keynsianism, along with the spectacular success story of public investment in research, education, health and infrastructure, which can only be denied by the hysterically delusional.

No I didn't ghost write that -- (I lived in Britain for a couple of years, but would never spell "optimised" that way; shudder.) But I do recommend having a look. Tim Morgan continues:

"Going forward, we should anticipate the collapse of the “everything bubble” in asset prices, and should hope that we don’t, this time, go so far into economic denial as to think we can cure this with a purely financial “fix”. I’m fond of saying that “trying to fix an energy-based economy with financial fixes is like trying to cure an ailing pot-plant with a spanner”. We should understand popular concerns, which seem to point unequivocally towards a mixed economy, extensive redistribution and an economic nationalism that needs to be channelled, not simply vilified."

None of this will happen unless the last remaining Knowledge Castes who cling to the mad right finally acknowledge what the scientists, teachers, journalists, civil servants, skilled workers, and almost every fact-using profession - including the maligned "deep state" protectors - all know. That the worldwide mafia-commie-oligarchy axis is no friend of anything we value. They are the Olde Feudal Enemy of every type of freedom and progress. And it will take all of us to achieve what the Greatest Generation did, a whole human lifetime ago.

 Save civilization.

== Again, the greatest judo move Pelosi could pull... ==

While the reform package that will be passed by Democrats in the U.S. House of Representatives consists of all good things that will help improve ethics, efficiency and fairness, it's still fairly minor stuff. Democrats should pass rules that really change the dynamic, like permanently giving some power to the minority! 

Why do this, when that minority party is Republican? Because Democrats will be out again, sooner or later, silenced and impotent... unless they set precedents now!

 My top proposal? Give every member of the House one subpoena per term, that can compel anyone to testify for 2 hours before a committee.

Sure, some GOPpers will use such a power to irritate and pursue grudges (virtually the only use to which they put subpoenas and hearings, when they were majority!) So? That means they'll be approving this minority right, institutionalizing it. (Maybe make that vow a necessary part of using their subpoenas.) But other Republican legislators will wait, hoping to use their one subpoena to benefit the home district. And why not? Pulling them away from their caucus is bad?

We've seen how the lack of such a minority power kept Congress from meaningfully exercising any meaningful oversight, when the only grownups (Democrats) had zero power to investigate anything at all. Envision how just 200 hours of such testimony, this last term, would have empowered Dems to apply accountability, even from a minority.

The crux: letting goppers vent blowhard-steam when they are in minority is a small price for letting demmies apply real accountability, when they have their minority turn.

It would also vest individual members with a measure of autonomy that might possibly lift their gaze from pure partisanship. 

It's one of several proposals in my FACT Act.

== The most fundamental lie of Wall Street Parasitism ==

Among the dumbest but most effective religious dogmas is the rationalization that Wall Street parasites provide a ‘valuable service’ in the “creation of liquidity, raising capital for growing businesses and determining proper price levels.” 

These are utter and diametrically-opposite-to-true lies, as shown in this article on the Evonomics site (where Adam Smith would be publishing, today.) But the essay doesn’t go far enough. The whole justification for Wall Street's “proper price arbitrage” excuse is actually insane on a basis of physics and biology… thermodynamics, in particular.

Dig it. All living things exist by creating pools of reduced entropy (their living bodies) by tapping a high quality energy flow to create order inside the body and export more entropy into the environment. Eventually that entropy departs as infrared that flows into space. (Idiotically blocking that outward drainage with greenhouse gas is a related-but-separate topic.) 

Now focus: it is energy GRADIENTS or downhill FLOWS of energy — the steeper the better — that living creatures use, the way differences in height power a water mill, or differences in heat propel a steam engine.

Plants turn the steep gradient of high quality sunlight into carbohydrates. Herbivores take the high concentrations in plant carbs and turn them into more herbivores. That packs-in concentrations carnivores can then access. Health comes when there are only a few such gradients, letting each one be steep enough for the plants-herbivores-carnivores to each thrive.

Oh, but sometimes parasites wedge in and tap these gradients, by sucking sap or blood, in effect making the flow more shallow. Look at a plant or animal afflicted by parasites and tell me it is healthy!  And yes, you are having the "aha!" moment right now. Because that's exactly what “proper-price-seeking” arbitrage or micro-trading of equities does to the “value” of a stock or commodity, making a million nibbles or cuts in order to flatten the slopes! While the parasite (trader/broker/HFT-program) sucks a little value each trade, the company or pension fund loses the gradient or value difference that its life depends upon.

Oh, but the parasites croon “see how the price differences (energy gradients) are flattening? It’s a gooood thing! A goood thing!” 

Surely you've seen how some wasps implant parasite eggs that make the cricket ignore its victimization? These are parasitic wasps. You are the cricket.

Maybe some of you have heard or seen this argument elsewhere… I never have, even though it utterly disproves the “proper price discovery” rationalization of Wall Street parasites. What I’ve described is a “contradiction of capitalism” far more deadly than any described by Marx. It’s why - in the words of Douglas Adams - these guys will be “first against the wall” when the revolution comes.

Oh, do you want to prevent a violent, French-Russian style Revolution? Want an American style generational reform instead? One that re-invigorates a flat-fair-competitive market economy? 

Well then these guys should be First Against The Wall.

== Finally... the China Dilemma ==

This is BY FAR the most important article you can read about China's leadership caste, by an Australian diplomat/journalist of immense insight. Join the site (free) in order to read it.

Follow this with my own insights, which dovetail with Garnaut's, but bring in Chinese PRC mythologies about central planning and AI.

What's missing from both analyses is the context of Xi's uneasy alliance with the other major, anti-western player... the Putinist-Mafia front, the arc that Vladimir Putin has built for a new Warsaw Pact, stretching from Moscow to Crimea, Ankara, Lataika, Beirut, Damascus, Baghdad to Tehran. It is a despotic swathe whose connecting tissue is not ideology -- the Russians are embryonic-czarist, Erdogan is Sunni, Assad is Alawite, and the Muktadists+Ayatollahs are Shiite. What's the connective tissue then?

The Saudis -- did you see Putin's gleeful high-five with Mohammed bin Salman, a few months ago? -- may be genuinely terrified of Iran... though I am starting to doubt it. They have every reason to join Putin. Why?

Because the common thread is an affiliation of mafia clans with wholly-owned national sovereignties. Ideology is not as important as snuffing out the rule of law. And especially a unified-shared loathing of one particular western innovation -- the non-governmental NGO.

In this context, the position of the Chinese clarifies. They share an allied goal of demolishing constitutionalism and rule of law and western confident individualism. 

At the same time, the Chinese do have an ideology and a Confucian sense of order. Moreover, they know that eventually they will have to confront these mafias. Moreover, the West is the source of all good things. It must be bled at a careful rate that keeps us too weak to interfere, but still laying golden eggs.

The Chinese also feel time is on their side. It is not on the side of the Mafias, who know they have this one decade to wreck us, or else all (for them) will be lost.

Tech obsolescence? Universal Basic Income? And the Age of Amateurs

Thought provoking for the coming weekend: Stewart Brand’s “Long Now” reflections about which aspects of our world change rapidly... and which more slowly... and how this can help us grapple with vital issues, like education.

One from my own such list: About a century ago, John M. Keynes prophesied that rising industrial production would pour forth so much wealth with such automated efficiency that the forty hour week (just then coming into fashion) would be reduced to thirty hours, then twenty, as jobs were shared and and the working class got more leisure time. 

As it happened, there was a vast world out there that still needed to industrialize, and the West’s appetite for ever-more goods kept factories and mines etc. humming hard for all of those decades. Indeed, the developing world uplifted itself primarily out of the spending by Americans and others, of trillions of dollars on mountains of crap we never needed. A strange - and by far the most successful - kind of foreign assistance. And yet it never threatened the 40 hour week.

But there’s something on the horizon. A century forestalled, the era foreseen by Keynes seems about to dawn, with automation appearing about to render most kinds of human industrial employment wholly or partially obsolete. Indeed, many white collar jobs and even creative tasks seem prone to takeover by AI systems. Local production of goods and food may end the long chains of container ships crossing oceans, an ecological godsend, but perhaps tipping the world economy into convulsions.

Yes, there will be job losses... accompanied by vastly improved ability to produce anything humans want.

If the Keynes era dawns, then we’ll face decisions:

- Who will own the means of production and the cornucopia that pours forth? If it is a classic, feudal pyramid, then exploitation and unfairness are guaranteed, followed by revolution. But it needn’t be that way.

- Will paychecks be replaced by UBI or Universal Basic Income? Or else by giving every citizen a “share” in these urban factories and farms, so they can live off dividends?

- Either way, how will folks spend their time?  We are already in an under-appreciated era of hobbies, pastimes, avocations and amateur sagacities. There are more blacksmiths and sword makers in the U.S. today that in the Wild West or European middle ages.  In my novel Foundation’s Triumph… and separately in EARTH… I posited an Age of Amateurs, and it is already here -- almost completely ignored by pundits, economists and jeremiad-spewing pessimists.

But… will that suffice for all people?

- If all of this happens under the guidance of Artificial Intelligence, will they help us to design better ways for a better era?  And will we agree with those super-minds about what “better” means?

== Getting better all the time...==

A living human may spend a whole life earnestly improving. He or she may become among the wisest of our wise.  Then they die.

The one thing that can improve cumulatively... and after 6000 years of feudalism, we finally did start to do it... is civilization.  We are better, stronger, more perceptive and knowing and -- yes -- wise than all our ancestors. As the best of those ancestors would have wanted!  (Indeed, if they failed to make this happen, then that indicts them as unwise! The best compliment you can pay the "Greatest Generation" is to admit that they made America even greater, and then greater still.)

This rising path is not because of some leftist historical imperative. Nor is it the right's insane teleology of so called "cyclical" history. It is the result of several Enlightenment inventions like reciprocal accountability, that foster positive sum games. Those games mean that a civilization that outlives human members can grow wiser than the sum of its parts.

Fanatics hate this concept! They want the individual human soul to be the only thing that matters.  Zero sum. You get to be a lord or a peasant. You're "saved" or spend eternity in some sadistic hell. But if there are positive sums, then there is something better, greater, more important than one egotist's soul. That more important thing is... us.

I believe that. Hey, let's admit that I have an ego the size of the sun! And yet, I avow that I'm relatively unimportant. There are things worth dying for. And we are building them. Together.

One of you reminded us of a quote  quote from Joan Vinge, in her prize-winning novel "The Snow Queen."

"Indifference is the strongest force in the universe. It makes everything it touches meaningless. Love and hate don’t stand a chance against it. It lets neglect and decay and monstrous injustice go unchecked. It doesn’t act, it allows. And that’s what gives it so much power."

== Miscellaneous items of interest! ==

Your Biases: This site offers a poster of hugely important wisdom about the ways we fool ourselves. These are somewhat different than "logical fallacies."  They overlap, but are separate things. (The same folks offer a logical fallacies poster.)

Onalytica: This site specializes in tracking topics and traffic in order to trace who are the biggest "influencers" in each of several dozen fields.  Imagine my surprise when their influencer chart of Artificial Intelligence (AI) had a familiar face at the very center of the mesh.  Oh, this isn't the first group to reach a similar metric-conclusion about my place in the discussion.  I just find it rather... well... not entirely plausible!

Still, there's a need to rock any set of comfortable assumptions, especially in such an important field. And poking is what I do...  Let's all poke away! 

Poor millennials! Here's a good story on the millennials' challenges and economic changes. More than a bit whiney, but there are legitimate complaints. And yes, the ones I have met are better people than boomers! And yes, that is to the credit of boomers and X-gens! Because we were clearly great parents.

Forget doll houses! This New York exhibition offers miniature landscapes and cityscapes with moving cars and people and a variety of techniques.

The ‘500 mile problem’ is especially acute between LA and San Francisco. It will be a decade before the Super-High Speed Train is completed… or Elon’s alternatives get traction… and the airport hassle is nasty.  So a new company is offering luxury sleeper busses that deliberately slow down to keep the ride smooth and so that you’ll get a full 8 hours.  

This Goop Shaman cleanses your wardrobe of evil spirits. Some people simply have too much money. It's our duty to relieve their burden. The bigger picture? This was “wisdom” in 99% of the societies our ancestors lived in. Enemies of the enlightenment want to bring back this darkness… and not all of them are on the mad-right.  The left has its… (sigh.)

A philanthropy prize award winner Community Warehouse sells high quality, donated construction materials and staffs the operation with ex-offenders. Taking a page from Costco, the organization is members-only and offers low-prices to members, which include landlords in the neighborhood. Through its straight-forward operation, the Warehouse serves ex-offenders, the neighborhood, and repurposes materials from construction sites all while running a business near break-even.

Separated at birth? We all run into or spot humans who look a bit like us. Lots of folks used to comment on my (I think vague) resemblance to Andre Agassi. Now some say I’ve got “a total Peter Gabriel thing going on.”  PG is a hero of transparency who has funded Project Witness for decades, so that’s cool.  I wish I had a voice like his.

Proclamations of doom are perennial flowers which have sprouted in the garden of human imagination since earliest times. Oracles appeared whenever turmoil caused nations and peoples to feel uncertain about the future. From ancient Sumer, to India, to Iceland, astrological portents used to set off recurring waves of public hysteria. In honor of the coming (or not-coming) Rapture event... may I reprint an article of mine from the last century? It seems even more relevant today. Alas.

== And More miscellany of interest! ==

Here's a very tiny sampling of past apocalypse ravings. Maybe 0.0001%.  In case you missed the reason. Here's the latest silliness. There has got to be a way to corner guys like this into making a bet on it! Better yet, go to his followers and offer pet-care contracts... we'll take care of your pets after you rapture. But pay in advance!

Yipe! There actually are “after the rapture pet care” sites! They cover a whole range. This one is hosted by (they assert) rapture believing evangelists whose apparent sincerity is only exceeded by their stunning hypocrisy. They guarantee that their volunteers are unbelievers who won’t be saved… and who will nevertheless sign up to do this – without any vetting or listing of those ‘volunteers’ by location or any guarantee they actually exist. Never mind that. The trusting folks who register (for a $10 fee, kept by the organizers) can then dismiss all worries from their minds, content that some damned-but-generous atheist or Jew will slog across the apocalypse, with blood pouring from his or her eyes, to care for your cat (when there will be vastly more urgent calls for compassion, nearby), and do all that for zero compensation. Never mind that you prayed daily for Armageddon to bring this suffering to anyone not exactly like you. Rest assured that these vetted martyr-saints will handle everything for Fluffy, while dodging seven-eyed scorpions and Beasts and lion-horses…

…as stunningly depicted in this fabulous, terrifying/hilarious web comic by Patrick Farley.   

But… wait… what did I just call those volunteers? Could that mean what it seems to mean?

Possibly less of a scam are sites created BY the non-saved, who treat it as a business venture that can be enforced and supervised by the rapture-saved folks' Jewish (and presumably left-behind) lawyers.  

On a lighter note. Some of you may recall that GLORY SEASON featured – along with feminist genetic engineering and other marvels – a rustic version of Conway’s Game of Life. Here’s one more simulator to play with.

Now... rise up and believe again! Lovely. Procul Harum in 2006 doing “Whiter Shade of Pale” with a pops orchestra.

And end on a note of enjoyment. Entertaining…. Best stunts of the year.  And we’re supposedly decadent?   Age of amateurs, indeed. We are beyond amazing. We're amazingly amazing!

-->

Must the Rich be Lured into Investing? Who are the Real "Job Creators?"

Why should Mitt Romney and the fabled "one-percent"  pay only a 15% marginal tax on investment income ... half the rate charged to a dentist or auto mechanic on wages earned from work?  This was not the case until recent Republican Congresses slashed taxes on passive, unearned dividends and capital gains.

The rationale for that immense tax cut for (mostly) rich investors was simple and alluring - that super-low rates would entice more of the rich to invest in companies within the U.S., helping them to increase their productive capacity and hire more workers. Moreover, the resulting boom in economic activity would then result in so much new tax revenue, even at low rates, that deficits would disappear.

Let's put this in context with a term you may have heard. "Supply side" economic theory maintained that this flow of investment capital would pump up the factory end of things, increasing the supply of goods and services, offering them cheaper, thus stimulating demand.

In contrast, the standard Keynsian "demand side" model was to fight recession by ensuring that poor and middle class folks had enough cash ("high-velocity" money) in their pockets to buy - or "demand" - goods and services. Whereupon producers would be drawn into greater production.

For a more detailed description of the differences between these two economic models, see my earlier missive  A Primer on Supply-Side vs Demand-Side Economics. (It really is one of the top issues of our day and an informed citizen should know about it.) Here in this place, I'll try to be brief.

Who was right? Blatantly, the Keynsian approach worked in the 1940s, when massive government spending on WWII resulted in a boom that ended the Great Depression.  A boom that then continued for 30 years, till Vietnam crushed it against a wall. Throughout that period, high tax rates and stimulative spending seemed to work, whenever the economy needed a little help. Moreover, during that era, a very flat social structure - (CEOs earned only a few times what factory workers did) - combined with the most rapid growth of the middle class and the most vibrant era of startup capitalism in human history.

That does not make Keynsianism perfect! Critics like Friedrich Hayek, have indeed exposed some faults and blunders that later Keynsians, like Paul Krugman, openly admit and have striven to correct. Still, the Demand Side approach can point to many clearcut successes.

In particular, it is plain that during recessions, when economic activity lags and deflation looms, what you want is "high velocity" money in circulation - money that will pass from buyer to seller and then to another seller and so on.  Not money that just sits.

Does Supply Side have a similar track record? Not even remotely.  Not even once. Simple charts - and hard conclusions from the Congressional Research Service - show that the Supply Side assertion was... and is... utter mythology.  None of its predicted effects ever happened.  And let me reiterate.  Not ever, even once.

Specifically, cuts in tax rates for dividends and capital gains have never had any long-term effects upon capital investment, since records were kept in the United States.  (See this cogent article putting the myth to rest, once and for all. Also my article: A Primer on Supply-Side vs. Demand-Side Economics.)

In fact, this is no surprise, for several reasons:

1) Supply Side assumes that the rich have a zillion other uses for their cash and thus have to be lured into investing it!  Now ponder that nonsense statement. Roll it around and try to imagine it making a scintilla of sense! Try actually asking a very rich person.  Once you have a few mansions and their contents and cars and boats and such, actually spending it all holds little attraction.  Rather, the next step is using the extra to become even richer. Naturally, you invest it.  Whatever the tax rates, you invest it, seeking maximum return.

Instead of enticing the rich to invest, these super low dividend and capital gains rates simply used money taxed from middle class wage earners to give bonuses for speculations wealthy folks were doing anyway.  If anything, the only major effect, other than budget deficits, was a pumping up of asset value bubbles.

2) Now to be sure, some of the rich ... a few... put a fair amount of their wealth into truly bold and risky new enterprises.  I know such men and women, who engage in Venture Capitalism or starting up creative new enterprises. And just so you know that I'm no socialist I believe this kind of investment truly should be encouraged by taxing it at a very low rate!  Not only because of the risk, but also because equity shares that are bought de novo directly from a new firm actually deliver nearly all of that value directly into capitalization and company development.

In contrast, most exchanges through the NYSE or NASDAQ are purchases from other stock-owners who happen to disagree with you about prospects for future capital gains and dividends. It is just as much a betting/gambling system as any Vegas casino, Your trades may marginally raise or lower the posted price, allowing the company to raise a little capital on the side, but almost nothing from your stock transaction actually goes to the company itself, or into new products or plants and equipment.

(Hence, that kind of investing - by far the largest portion - helps industry only at appallingly low levels of efficiency, but diverts management into spending nearly all its time trying to bribe stockholders with short term benefits, ignoring long-term company health.)

No wonder Adam Smith himself expressed contempt for passive investments that he called "rents"... compared to investments in which the owner actually gets involved in starting up or entrepreneurial development of long term company or enterprise health.

3) So what about "targeted investing"?  The towering hypocrisy of supply side tax cuts for the rich is that they are claimed (without a scintilla of evidence) to help create jobs. But then, why treat investments overseas equally to those made in domestic companies? President Obama proposes narrowing the super-low rates to U.S. companies that are (a) startups, or (b) demonstrably adding jobs, or (c) investing directly in new equipment or R&D.  For this he is derided for "picking winners and losers"... even though the list of targeted tax breaks for GOP-favored industries like coal and oil are myriad. (and outrageous.)

4) In fact, we spoke earlier about how stock and equities markets have lately become the tail wagging the dog.  Instead of serving the capital needs of companies, firms like Mitt Romney's Bain Capital show that productive corporations making goods and services are now like cattle, farmed by Wall Street, to be bled or dissected at whim.  Nor is the whim even human anymore! Most trades are now propelled by hyper-aggressive, parasitical "flash trading" computer programs that vastly amplify volatility, sap investor earning potential, and threaten our entire economic system in a dozen ways.

5) The reduction of dividend and capital gains tax rates almost to zero has coincided with the rapid ending of the relatively flat social structure that we inherited from the Greatest Generation of the 1950s and 1960s.  Back then, the rich managers of major corporations earned only ten or twenty times what factory workers got, a situation that still exists in Japan. Only now, American wealth disparities are approaching levels not seen since the American Revolution.

The last thing that the GOP or Fox wants you to do is look across the last 6000 years.  The class that they call "job creators" used to have another name. Lords.

6) The outrageous inherent unfairness of passive dividend-clipping getting far better tax treatment than earned wages is inherently suspect.  It is exactly what you would expect rich and powerful men to lobby for, whether or not their supply side rationalizations were true!  It should be no surprise that, in our money-drenched political system, those with such power and influence have benefited immensely.

But are the arguments and rationalizations valid at all?  At minimum, supply-siders should bear some burden of proof.  Their experiment has been run, now, for more than three decades, and never once has their core predication come true... that cutting taxes on the rich will result in increased overall revenues and a vanishing federal deficit.

Yes, reducing deficits would be good!  Indeed, under Clinton they vanished. The middle class, according to all opinion polls at the time, wanted any surplus to go to buying down debt.  It was the upper caste who used the surpluses as an excuse to demand immediate tax cuts.  So where does maturity reside?

The results are utterly conclusive.

Supply side is disproved, top to bottom.

What we need in this depression - and by most of the metrics it has been a depression, not a recession* - what's needed is what ended the last one. The circulation of high velocity money that goes hand to hand very quickly, generating economic activity with every transaction. Not the exact opposite, money that sits in portfolios, not helping capitalize industry but simply fostering the aggrandizement of a parasitic caste.  One the the founding father of free enterprise - Adam Smith himself - quite despised.

"All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons."

Smith is not talking about charity, but the vigor of trade.  In this case, we "share" by buying from one another.  The middle class is very good at that.  It is the middle class that - assisted prodigiously by technology and science - propelled our economy to be the wonder of the world.

It is the middle class who should get whatever tax benefits can be doled out.  They'll use it to make small startups.  They'll use it to educate bright, competitive kids.  They'll spend it!

They are the real "job creators."

====
Addendum: November 3, 2012 - R.I.P. "supply side economics" 

In a November 1 report we learn that that Senate Republicans applied pressure on the nonpartisan Congressional Research Service (CRS) in September to withdraw a report finding that lowering marginal tax rates for the wealthiest Americans had no effect on economic growth or job creation. 

"The pressure applied to the research service comes amid a broader Republican effort to raise questions about research and statistics that were once trusted as nonpartisan and apolitical," the Times reported. Democrats in Congress resurfaced the report. Republicans objected that it underminde the governing fiscal philosophy of the party, that tax cuts for the wealthy will spur growth and benefit everybody.

Changes over 65 years in the top marginal tax rate and the top capital gains rate do not correlate with economic growth. Reduction in top rates appears to be uncorrelated with saving, investment, and productivity growth. However, top rate reductions do associate with increasing divergence of national income going to the top 0.1%

This is important... and was always obvious.  Even in 1776 Adam Smith described what the rich actually do with sudden cash infusions. They put it to work in "passive rent seeking" and only rarely into capital equipment or risky new products and services. (Risk taking can be rewarded in other ways.) And that cash flow to the rich reduces the velocity of money. If there were ever a time not to do that, it is during a recession, when we want high money velocity, put cash in middle class pockets! (In fairness, during runaway inflation, largesse to the rich - reducing money velocity - actually makes some sense.) 

George H.W. Bush called Supply Side "voodoo economics. It was and is.

A Primer on Supply-Side vs Demand-Side Economics

Russ Daggatt's latest missive discusses whether the Stimulus Bill has had good effects.  His analysis is well worth perusing... and spreading the link.

My own take on things is more abstract. So let's step back and examine how Democrats and Republicans have become identified with two quite opposite economic theories. We'll start with the Republicans, who still clasp fealty to Supply Side Economics (SSE), a theory once labeled "voodoo" by the elder George Bush, but now mainstream conservative catechism for three decades.

A PRIMER ON SUPPLY SIDE VS DEMAND SIDE ECONOMICS

Supply Side holds that you best stimulate economic activity by Increasing the net wealth possessed by society's top echelons -- people and groups who have no urgent material needs.  Instead of spending it on direct "demand" purchases, these wealth-owners will invest any marginal wealth-gain (say from tax cuts) on things that increase "supply" -- factories, new businesses, innovative goods and services.  Thus the name Supply-Side. 

Interestingly, the most famous proponent of this approach was Karl Marx, who maintained that the owner-capitalist class propels industrial development by re-investing profits in plants and equipment, thus building up society's capital stock and the means of production. SSE is, in that respect, an entirely Marxist theory.

Of course, Marx then looked farther ahead.  He hypothesized an eventual "completion" of this capital-formation process, a final phase when all the factories are finished - an image we now find ludicrous, since productive capacity must be updated at an accelerating pace. (Hence there will always be a need for capitalists.)  Still, it seems kind of sad that SSE supporters won't ever acknowledge this fundamental root of their theory. They do not study their ideological forebear. Nor do they try, as Marx did, to extrapolate where their prescription may eventually lead.

But let's examine the key SSE predictions. (All theories should make confident predictions that are clearcut and testable.) For thirty years we have heard Supply Side zealots forecast that reducing taxes on the rich will:

1) result in direct investment of the released wealth into "supply" capacity for producing innovative goods and services.

2) stimulate so much new economic activity that even lower tax rates will rake in enough new revenue to erase any deficit caused by reducing taxes on the rich.

3) eliminate government debt, resolving any apparent conflict between reducing revenue and fiscal responsibility.

EFFECTS UPON POLICY

This lengthy definition is needed understand why a credibility deficit now burdens the Republican Coalition.  All through the 1980s, 1990s and 2000s, the mantra was:

- if the federal budget is in deficit, cut taxes on the rich, in order to repair that deficit.

- if the federal budget is in surplus, cut taxes on the rich, because it's their money, not the government's, and there will henceforth be no rainy days.

- in times of peace, cut taxes on the rich, because government has lower priority in peacetime.

- in times of war, cut taxes on the rich, because... well, this one never made sense even by conservative logic. Indeed, this was the first time in US history that the clade of uber-wealth demanded ever-increasing state largesse even while the nation was under deadly threat.

In any event, we must admit that the core demand of SSE believers has been utterly consistent. Reducing taxes on the uber-wealthy is good for America, across all circumstances, under all conditions and without limit.

TESTING SUPPLY SIDE THEORY

For three decades, SSE proponents told skeptics "just watch and see what will happen!"  (Whenever top tax rates were cut.)  Okay, we've watched. And absolutely every large-scale forecast made by promoters of Supply Side Economics failed -- diametrically -- without major exception.

The uber-rich did not take their tax-break largesse and invest it in innovative/productive equipment.  They poured it into either passive investments -- what Adam Smith derided as "rent-seeking" -- or else risky financial instruments and asset bubbles.  Above all, the direct forecast that reduced revenues would erase federal deficits went directly opposite to observed fact.

TESTING THE OPPOSING THEORY

The one period over which deficits decisively vanished came right after Bill Clinton got moderate increases in taxation on the rich, in 1993, followed by stringent pay-as-you-go budgetary management. What we saw then was a combination of budget balancing, strong economic activity and revenue-based debt reduction.

So now let's examine the competitive theory - Demand Side Economics (DSE)... also called modified-Keynsianism.

Named for long-ago FDR advisor John Maynard Keynes, this theory holds that economic activity is driven by demand for goods and services. Moreover, money in the hands of the middle and lower classes has greater inherent VELOCITY -- meaning that a given dollar will be spent and then re-spent more often, if the middle class is passing it around with sequential purchases, than if it is stockpiled in a rich person's portfolio.

(Mind you, by this theory, tax cuts for the rich might actually make sense when rapid inflation in an overheated economy calls for decreased monetary velocity!  I never said that such cuts are NEVER called for. Indeed, JFK's tax cuts did achieve all of its intended goals.)

Under Keynsian or Demand-Side theory, the government should spend heavily, even deep into debt, when the nation is in recession, in order to get high-velocvity economic activity going again.  Hence the recent surge in stimulus activity, in the first year of the Obama administration (see Daggatt's article)... in sharp contrast to the equal-scale "stimulus" measures taken in the last year of George W. Bush's term, most of which went to shoring up the positions of those at the top of the social-economic order.

Now, to a person who genuinely despises all deficit spending, both SSE and DSE methods may seem horrific.  Both claim to use deficits and state-largesse to stimulate the economy, under a notion that economic activity will thereupon surge ahead and resulting revenues will later erase the incurred debt.  Only there are some truly major differences.

1) Demand-Side (Keynsian) deficit spending goes to where each dollar will have high velocity impact, as their theory predicts. In contrast, Supply Side largesse for the rich definitely did NOT go into predicted capital formation. (Marx was wrong.) It simply made the rich richer.

2) Completely aside from macro-economic effects, the beneficiaries of Demand Side largesse - the poor and middle class - may have some actual direct need. Fulfilling that need (if done well) may result in creation of either more-skilled workers or more small businesses. In contrast, it is hard to see how Supply Side sends the money to a place (the rich) where a direct need merits government intervention.

3)  Supply Side is a monotone.  "Give money to the rich under ALL circumstances, at all times and conditions, no matter what.

In contrast, Keynsians have proved that their policy is adaptable and variable, un-dogmatic and contingent upon circumstance.  They spend lavishly in order to get out of recession, because that is what Keynsians do. (Right-wing rants and rails against the current governing party acting consistently with its own economic theory is simply hypocritical.  You had your turn, now it is theirs.)

But the 1990s prove that Democrats have credibility for being situationally flexible.  When a recession ends, they spend more cautiously, remove the largesse, and start building up savings. In fact, had Bush continued the Clintonian policy of debt buy-down in good times, a considerable reserve fund would have been available to help us ride out the present crisis.

4) The experts -  professionals who have actually spent their lives studying this difficult field - generally despise Supply Side Economics. That may seem a good thing from the perspective of those who increasingly call expertise a disqualifying trait. From contempt for the Civil Service and the US Officer Corps to distrust of universities and the climate experts who have achieved miracles in weather forecasting, it's become clear that one side in our tragic, debilitating "culture war" does not want to hear the professionals on any matter, least of all economics.

.5) In fact the situation is not entirely black and white! Keynsianism has had its failures. Economics is a dismal "science" and Demand-Side has many problems dealing with a complex economy.  Furthermore, pre-Clintonian Democrats sometimes acted as if the law of gravity did not apply. That potential always lurks on the left (witness Greece, today.) Moreover, Democrats did play some (lesser) role in the unleashing of our recent Asset Bubble.

Nevertheless, Keynsianism has a long, eighty-year record of being right in the most general sense.

Government should outspend its revenues in recession, directing high-velocity stimulus toward the middle class.  Then, in good times, it should use adequate revenues to build up reserves.  The Pharoahs knew this. It is even in the Biblical story of Joseph.  It is common sense.

What does not make sense is to hold fast to an alternative "voodoo" theory - Supply Side Economics - that has always and universally failed in every major prediction, after being tried repeatedly for three decades.

A theory that is quasi-Marxist, in that it openly aims to propel the rise of an all-powerful aristocracy of wealth in exactly the manner that Marx prophesied, taking us toward the sort of class divisions that had old Karl chortling and rubbing his hands, murmuring "Yessss!"

== Addendum November 2012  R.I.P. "supply side economics" ==

Only... in that context take this proof of what I've long held. The blatant fact that Supply Side economics has never been true. In a November 1 report we learn that that Senate Republicans applied pressure on the nonpartisan Congressional Research Service (CRS) in September to withdraw a report finding that lowering marginal tax rates for the wealthiest Americans had no effect on economic growth or job creation. 

"The pressure applied to the research service comes amid a broader Republican effort to raise questions about research and statistics that were once trusted as nonpartisan and apolitical," the Times reported. Democrats in Congress resurfaced the report. Republicans objected that it underminde the governing fiscal philosophy of the party, that tax cuts for the wealthy will spur growth and benefit everybody.

Changes over 65 years in the top marginal tax rate and the top capital gains rate do not correlate with economic growth. Reduction in top rates appears to be uncorrelated with saving, investment, and productivity growth. However, top rate reductions do associate with increasing divergence of national income going to the top 0.1%

This is important... and was always obvious.  Even in 1776 Adam Smith described what the rich actually do with sudden cash infusions. They put it to work in "passive rent seeking" and only rarely into capital equipment or risky new products and services. (Risk taking can be rewarded in other ways.) And that cash flow to the rich reduces the velocity of money. If there were ever a time not to do that, it is during a recession, when we want high money velocity, put cash in middle class pockets! (In fairness, during runaway inflation, largesse to the rich - reducing money velocity - actually makes some sense.) 

George H.W. Bush called Supply Side "voodoo economics. It was and is.

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