Economics 101 for the Republicans
Most interesting development of the holiday season? I’d say it’s Pope Francis’s appropriately uncharitable critique of “trickle-down economics.” In case you missed it, last week the new pope took direct aim at conservative economic doctrine.
"Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world," he wrote in a papal statement. "This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system."
Think about that. Even someone who leads one of the world's largest faith-based organizations thinks that conservative economic theory needs a fact-based reality check.
Now, ideologues like Sarah Palin may well worry that, having taken over from a conservative pontiff, Francis is getting all popey-changy (sorry), but in fact, Francis has helped underscore a vital point: The acid test of economic doctrine isn't its theoretical appeal but rather how well it works in the real world.
And by that standard, several central tenets of contemporary conservative economics just don't make the grade.
One is the oft-repeated claim that income-tax hikes on upper earners would deliver a body blow to the economy. Remember the many conservative warnings about the dire effects that would transpire if taxes were raised on upper earners, or, as the GOP styles them, "the job creators"?
Well, taxes on the wealthy went up at the beginning of the year. The economy wasn't devastated, nor the recovery derailed.
"There really hasn't been any meaningful change over the last three years," says Mark Zandi, chief economist at Moody's Analytics. "In terms of the broader macroeconomic statistics, these three years have been roughly the same."
Job creation, certainly, has continued on a slow but steady trajectory. So far this year, the private sector has added an average of about 167,000 jobs a month. That's somewhat less than in 2012, but at a time when the economy has also felt the impact of the federal sequester cuts and the end of the payroll-tax cut, that plodding progress belies the GOP's predictions of a serious economic setback.
Then there's the oft-made claim that income tax cuts pay for themselves. You have to search long and hard for a credible economist who endorses the notion that at or near our current level of taxation, income tax cuts will generate more revenue than they cost the federal treasury.
And yet, that's something Republican candidates have repeatedly asserted since supply-side economics became the GOP's dominant doctrine back in 1980. Indulge in that magical thinking, and presto: The party that once knew there was no such thing as a free lunch can offer one in the form of a tax cut without offsetting program cuts.
The assertion that tax cuts pay for themselves has long been a bugbear for Brendan Nyhan, an assistant professor of government at Dartmouth College, who studies the persistence of erroneous beliefs and misconceptions. As part their graduate research, in 2006 Nyhan and Jason Reifler, another political scientist, presented an online audience with a mock news account that included an actual quote from President Bush asserting that his tax cuts had helped increase federal revenue. Some also received corrective information noting that federal tax revenues had experienced a sharp decline following the Bush tax reductions and had finished the previous year at their lowest level of GDP since 1959.
Surely those who received that information abandoned their belief that Bush's tax cuts had increased federal revenue? Umm, not quite. "Conservatives presented with evidence that tax cuts do not increase government revenues ended up believing this claim more fervently than those who did not receive a correction," the two political scientists wrote in a 2010 paper.
That speaks to the tenacity of cherished beliefs. Mind you, hewing to erroneous tenets even in the face of the facts is not a failing unique to conservatives; Nyhan's research found that liberals were also susceptible to disregarding inconvenient truths.
But it's the GOP that has the bigger problem here. After three decades in faith-based fantasy land, it's long past time for Republican economics to return to the real world. Someday, they may just thank Pope Francis for pushing them along.