Holman Jenkins' Lost Decade

Holman W. Jenkins Jr. is a member of the editorial board of The Wall Street Journal and yesterday he tried to spread some holiday cheer amongst his readership by pronouncing the coming decade a "lost" one arguing that bad times don't produce good policy.

Policy is always bad to a degree, but long periods of prosperity tend to be self-reinforcing since powerful interests are born with the means and motive to preserve the status quo. That status quo may really be a contributor to prosperity, such as regulatory restraint and moderate tax rates. That status quo may in some respects be ill-advised, such as excessive subsidy to housing debt.

But once prosperity blows up, the quasi-virtuous policy circle becomes an unvirtuous one as new interest groups come to the fore to exploit an appetite, previously weak, to impose their costly or vindictive wish lists. And even well-meaning policy gets twisted and rendered incoherent.

The first sentence tells you all you need to know about Holman Jenkins and conservative ideolgoues, policy is always bad to a degree. Government is inherently evil or at best inept in the conservative world view. Well, it is when you staff it with sycophants that profess to hate government and yet run up the size of government and its obligations in the trillions of dollars.

The fact is simply this. We just had a lost decade and we can't afford another. More than just a fiscal stimulus, we need a return to a progressive tax policy with a return to pre-Reagan levels for the highest marginal tax segment, those who earn over $200,000, the return of an estate tax, and most especially the closing of tax loopholes for corporations who simply do not pay their fair share.

It's bizarre to me how conservatives can hold onto a failed ideoolgy and an economic worldview that has no basis in reality. James K. Galbraith made a brilliant observation in a footnote on page 35 of his landmark volume on conservative supply-side economics, The Predator State. It reads:

. . . this does not mean, necessarily, that the rich got richer during the early Bush years, in consequence of their favored tax treatment. For, during at least the early pahse of the Bush Administration, the new rich of teh stock-bubble decade grew markedly less rich, in consequence of the deflated value of their capital holdings. The tax cuts served only in part to compensate them for their losses. From a political point of view, Bush's discovery was that teh elites have an asymmetric view of gains and losses. They credit an administration much more for loss-compensating favors done on the tax side than they do for the sequence of policies that generate inflated incomes in the first place. They favored Bush over Clinton, even though under Clinton they were richer, on balance, than under Bush.

That's right, I was wealthier (and I am 99% sure you were too) under Clinton than under Bush even though I got a tax cut because Clinton's economic program lifted all boats and made that slice of pie for the bottom 40% significantly larger thus spreading the wealth and injecting more money into the economy by creating real wealth. The poverty rate fell consistently under Clinton from about 15% of the US population to just over 11%. Under Bush, we are almost back to where we were under his father. Overall the number of poor in the United States increased by 26% under Bush and the extreme poor by 56%. That's a lost decade if you ask me. So while the top 1% under Bush has prospered most of the rest of us, on balance, are either marginally less well off or significantly worse off.

My advice to my conservative friends, stop worrying about tax cuts (or tax hikes in this case) and sit back and enjoy the prosperity that a fairer progressive tax scheme will bring. The Danes have a top marginal tax rate of 63% and they're the happiest people on Earth.

Tags: Conservative Economic Thought, Poverty in America, Progressive Tax Policy, Wall Street Journal Op-eds (all tags)

Comments

7 Comments

Re: Holman Jenkins' Lost Decade

Galbraith merely restated human nature. People after all credit themselves before they would credit circumstances. So naturally returning "their" money is better then building the environment to create it in the first place.

While changing the marginal tax rate may be warranted. I think you miss or downplay the real cause of the disaster. The change in the dividend and capital gains tax rates. That is was all but guaranteed the massive injection of leverage into the system while masking the risk. Corporate profits rose as a percentage of GDP to 1920's levels because corporations were encouraged to disperse profits instead of longer term capital investment.

With the complexity of our tax code I really wonder just how progressive a progressive income tax really is. I think 2005 proved just how embedded Social Security is in our society. Perhaps it is time for a radical restructuring of the entire revenue side of the government.

by Judeling 2008-12-25 05:37PM | 0 recs
Re: Holman Jenkins' Lost Decade

While changing the marginal tax rate may be warranted. I think you miss or downplay the real cause of the disaster. The change in the dividend and capital gains tax rates. That is was all but guaranteed the massive injection of leverage into the system while masking the risk. Corporate profits rose as a percentage of GDP to 1920's levels because corporations were encouraged to disperse profits instead of longer term capital investment.

You're right or perhaps more precise than I was. This is the issue. I more wanted to articulate a quick and rapid response to Mr. Jenkins. But included in my definitive of progressive tax poilyc is a redressing of the capital gains and dividend tax rates. Thanks.

by Charles Lemos 2008-12-25 06:02PM | 0 recs
Re: Holman Jenkins' Lost Decade

To be honest I tend to blow right past statements like Holman's because I have come to the conclusion they have no clue at all.

I watched someone the other day on Kudlow argue that the coming government intervention made it necessary to move your investments overseas. It never seemed to dawn on him that nearly ever other government in the world is much more involved in direct management of their economy then ours.

The salesmen have taken over. So it really doesn't make any difference if a hardware guy runs a car company or a bottler runs a software company. Its all just numbers.

It is the sales mentality that needs to be changed.

by Judeling 2008-12-25 07:34PM | 0 recs
Re: Holman Jenkins' Lost Decade

They may not have a clue, that is true, but Holman Jenkins has a podium and an audience. The nature and visciousness of this economic debacle needs to be clearly and desively pinned on those who caused it.

My bete noire is Arthur Laffer. Yours?

by Charles Lemos 2008-12-26 12:15PM | 0 recs
Re: Holman Jenkins' Lost Decade

You will NEVER convince the 23% of Americans that are conservatives that their failed economic policies are deadly deadly deadly and worthless for 95% of us.  Note which States are the red States and you will get the point.

Da Professor

by chevlum96 2008-12-26 08:42AM | 0 recs
Re: Holman Jenkins' Lost Decade

While it is very, very  important for Democrats to show America that the minority voice will be heard in a government that is controlled by one party, I think that the DINOs make for good showmanship. The Blue Dogs are a great front for Democratic diversity. We keep them around but make sure they don't have any power.

by xodus1914 2008-12-26 06:04PM | 0 recs
Re: Holman Jenkins' Lost Decade

Good post -- keep on keeping those WSJ wackos honest.

by RandomNonviolence 2008-12-27 05:44PM | 0 recs

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