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Current Events from a Science Perspective

In his internationally renowned work, Capital in the Twenty-First Century,  Thomas Piketty says that extreme economic inequality can only be sustained by “apparatuses of justification.”  He states, “ The existence of such “apparatuses” can hardly be disputed; the notion that wealth rightly belongs to those who possess it, no matter the means by which they acquired it or the needs of others around the world, is certainly well within the mainstream of contemporary thought, especially in North America and Europe. Ideas such as this did not, however, permeate contemporary culture on their own. They are derived, developed, and distributed by corporations, government offices, “independent” think-tanks, etc.” Two apparatuses of justification that immediately came to mind are trickle-down theory and the lies created by the Cornwall Alliance.

The trickle-down theory claims that the best way to promote economic prosperity for everyone is to give tax breaks to large corporations and those already wealthy. The idea this promotes is that they will create jobs and provide opportunities for those less well off. It was tried on a large scale in the United States under Reagan, Bush ll, and Trump. Over the years, many poor and middle class citizens have voted for politicians advocating trickle down theory. It is a flawed theory, wealth actually flows upward and pools at the top.  Meanwhile, after 40 years, they are still waiting for their share of the wealth trickle-down. The wealthy have become wealthier, the poor poorer, and the economic inequality in the United States has grown to unacceptable levels, as shown in the graph below.

After all that time, many Americans still do not realize how they have been fooled, as the chart below shows.

The Cornwall Alliance was originally started to help the poorer countries adapt to climate change. When E. Calvin Beisner took over as its spokesman, he interpreted that to mean that the Third World countries needed to use more fossil fuels. Never mind that they do not have the infrastructure or wealth to acquire and use them. Under his leadership, the Cornwall Alliance has become funded by dark money, most of which can be traced to fossil fuel companies. Who else? Beisner created the Green Dragon Monster, which he uses to represent environmentalists who want to reduce our dependence on fossil fuels. He uses “climate alarmist” to represent the 99.5% of climate scientists who have shown that climate change is caused by man’s activity, and “climate doomsayer’ for those who agree with scientists that global warming is harming the Earth.

Beisner uses religious arguments to reach out to conservative Christians and solicit donations. There is little evidence that the money goes to the poor, being used mostly to pay himself to distribute his message. He interprets, “God giving man dominion over the earth ”, Genesis 1:26-28, to mean that God has given man the right to exploit nature as he pleases. Apparently, he has very little understanding of ecology. Pope Francis’s encyclical on ecology, Laudato Si, says that “climate change is real and mainly a result of human activity.” “The problem is urgent. Never have we so hurt and mistreated our common home as we have in the last two hundred years.” Beisner claims that Pope Francis was just wrong, probably news to most Catholics.

Beisner’s position is even at odds with his own Presbyterian faith. The Presbyterian Church is now recommending divestment from fossil fuels and it was one of the first churches to address global warming. The Presbyterian Church first noted its “serious concern over global warming at the 1990 General Assembly, when it warned that the global atmospheric warming trend (the greenhouse effect) represents one of the most serious global environmental challenges to the health, security, and stability of human life and natural ecosystems’’.

There are many other examples of apparatuses of justification. You may recognize them by their tendency to label their opponents with unflattering terms; by their opposition to scientific research; by their derision of mainstream religious leaders; and, by their distortion of the truth. Ask yourself, “Who profits from their message?”, and if it is a special interest group, recognize it for what it is. And above all else, vote for the political candidates opposed to those special interest groups.

© 2021 – J.C. Moore, All rights reserved.

The Trickle-down Theory, has been around a long time. Back in the 1800’s, they called it the Horse and Sparrow Theory. If you feed the horse enough grain, some of it will be left over for the sparrows. No economist took it seriously. By Will Rogers day it was called the trickle-down theory and the picture shows what he thought of it. Eric Laffer convinced Ronald Reagan that he should try Laffer’s version of it, and the economy grew less while the public debt ballooned. George W. Bush tried the same thing, and that plus two unfunded wars put our nation deeper in debt.

At the state level, Oklahoma has tried their version of it. They are now having to make cuts in education, infrastructure, the salaries of public workers, and pension plans. Even yet, Oklahoma is cutting taxes even more next year thinking that the problem is that they just have not tried it hard enough. Governor Sam Brownback has put Kansas deeply in debt with his experiment, he calls it, with the trickle-down theory. He refuses to raise taxes even though there is $179 million budget shortfall. Governor Brownback, too, thinks the problem is that Kansans just have not wished hard enough that Tickle-down Theory will work. He is also wishing that the $500 million budget deficit projected for next year will somehow magically go away.

Will Rogers had the theory right. Money trickles up and pools at the top. Those at the top really like that, and they pour campaign money to politicians who will try keep trying the Trickle-down Theory. If there is one good thing that comes out of Brownback’s experiment in Kansas, it will prove once and for all that the Trickle-down Theory does not work. Why should it, it never has.

The Laffer Curve: Laffer economics, or supply side economics, is based on the idea that cutting taxes will provide more money for investments and job creation. That in turn should increase economic growth, resulting in an increase in tax revenue. That has not worked well in practice.

The idea was not new to Arthur  Laffer, but he used it to greatly shape the United  States’ economic policies during the Reagan Administration and to this day.  Laffer used the curve  below to argue his case:

It is based on the idea that at a zero tax rates, the government collects no taxes – and at a 100% tax rate,  the economy would collapse, resulting in zero tax collected.  If taxes are too high, then cutting them will cause a move to the left on the curve, toward higher tax revenue. The top tax rate when Reagan came into office was 60%.  Laffer used his curve to convince the Reagan Administration that lowering the tax rate would move the country to the left on the curve, stimulating the economy, and increasing tax revenue.  Did it work?

Empirical data: Laffer, and those favoring  supply-side economics, often point to the 3.5%  growth in GDP during the Reagan years as validating their theories. However, the GDP growth was less under Reagan and George W. Bush, when tax rates were low, than under administrations where the tax rates were higher.  The table below compares economic indicators among administrations:

Laffer was certainly wrong about tax cuts leading to GDP growth and increasing tax revenue. Certainly, the public debt grew substantially when taxes were lower. Public debt was high during Eisenhower’s administration because of war debts and because he built the interstate highway system that accelerated economic growth under following administrations.

What went wrong?   Basing economic decisions on Laffer’s theory involves accepting the assumption that tax rates are the main factor driving economic growth, an assumption not borne out by the empirical evidence. Also, Laffer did not present evidence showing that the maximum in his curve was at 50% . Some economists argue that the curve should  actually look like this :

If that is the case,  cutting the tax rate from 60%  would not necessarily stimulate the economy, but certainly would decrease tax revenue, as happened.  Taxes need not be as high as the optimum rate,  but they should be high enough to pay the country’s debts .

Recent tax cuts: Despite its failures, Congress is still trying to justify tax cuts using Laffer’s Theory. A recent survey of 40 economists found that not one agreed with Mr. Laffer that reducing the top tax rate would lead to economic growth over the next five years. A University of Chicago poll  taken in 2012 found that of 40 leading economists, not one agreed with the statement: ”  A cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut. ”  The results of the survey is listed below:

  Still, Paul Ryan has proposed  a budget that would reduce the top tax rate to 25%. The nonpartisan Tax Policy Center estimated Ryan’s budget would add $5.7 trillion to the deficit over the next decade and would increase the after-tax income of the top 1% of citizens by 18%.  His budget is a case of ideology trumping practical economics.

 State tax cuts: Arthur Laffer now sits on the Board of Directors of the American Legislative Exchange Council (ALEC).  One of  ALEC’s  goals  is to pass laws at the state level which allow wealthy citizens and corporations to avoid regulation and taxes.  Laffer’s research has been used by members of ALEC to try to justify state tax cuts by claiming  that the nine states that have no income tax had the highest rates of job creation, as shown in his chart below:

 It looks impressive, but most of the growth was in Texas and in a carefully chosen time period when job growth was strong because of oil revenues and population growth.  Besides carefully picking his data, Laffer also ignored other economic indicators – and didn’t do a comparison with high tax states. If Laffer were correct, the nine States  with the highest income taxes should have failing economies. However, that is not the case, as shown below:

  The nine states with high income taxes had higher economic growth , a much smaller decline in household income, and almost exactly the same unemployment rate. Laffer’s research was biased and would never stand up to peer review, yet many states have used it as a justification for income tax cuts for the wealthy.

 Summary: Laffer’s theories are highly popular with the wealthy who want to lower  their income taxes, and with those who want to reduce the size of the Federal government.  While Arthur Laffer may be charismatic, his theories are not borne out by empirical evidence and we should not make economic decisions based upon his theories or his articles. While money may trickle down, it flows upward and pools at the top.  Cutting top tax rates has led to a more regressive tax structure, shifting more of the tax burden to sales taxes, property taxes and a myriad of government fees. Following Laffer’s economics has led to a great disparity in wealth in United States and a crushing national debt.  Arthur Laffer’s legacy is not economic growth, but a long spiral downward into debt and austerity and a tremendous increase in the number of poor Americans. Forbes put it best a couple of years ago – “Economist Arthur Laffer has had a long, distinguished career. Unfortunately one of the things that has distinguished it is that he has often been extremely wrong.”