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Economic Theory

While “Tea Party” activists have gotten most of the press this election cycle, they haven’t been the ones providing the heavy lifting for right-wing thought and plans.  Every candidate needs more than “we’re angry!” if they expect to be elected.  On the right that tends to take the form of what we might call Austrian School Economics, which includes the campaign of Tom Emmer for Governor of Minnesota.

I’ll spare you the details of this set of theories – you can follow the link yourself.  The short version is that a high tax social safety net diverts wealth away from the vibrant part of the economy, individual choices, thus destroying wealth and ultimately working against its own aims by making everyone poorer.  You don’t hear about this philosophy too directly because its adherents know it’s a real snooze and its detractors honestly don’t seem to understand where it’s coming from.  I’d like to do my best to explain why this theory doesn’t work.

Integrated Economies (with Scale): The basic economic theory operating on the right is that nearly all government should be treated as waste.  This neglects a number of ways in which the need for a service is clearly universal and benefits from large scale.  For example, an expensive road project has the potential to save considerably more money in reduced repairs to cars and less time wasted on the road dodging potholes at low speeds.  Similarly, universal education may increase the overall productivity of an entire society by improving skills and reducing criminal activity – and that investment may be far too difficult for many people to make on their own.

There is nothing wrong with evaluating what government does based on its return to the people.  We all know that you can never perform this kind of calculation perfectly and that there are some things, such as taking care of the very sick or very old, that a civilized people simply have to do.  As flawed as a calculated return is, however, it at least opens up a dialogue that is currently closed by the “all government is a drain” rhetoric.

Lack of Rigor:
The Austrian School is famous for telling people that you simply can’t do experiments on economies – so you have to look at it from an individual and logical perspective based on choice.  The fun comes in “Game Theory”, a somewhat rigorous scientific approach to choices that often goes against Austrian dogma – but let’s leave that aside.  If we were really to believe that cutting taxes would, over the long haul, generate more income for us we should have a few solid examples of how this should play out.  There has to be some kind of roadmap for what will happen and how we can evaluate it.

That doesn’t happen.  We’ve been cutting taxes for many years in our state and no one has ever tried to show how it will benefit us in any detail.  They haven’t even tried to look back and run through the details of how it’s been working.  Without any kind of roadmap or detail I think that wise voters have to see this as a kind of cult and reject it out of hand as nothing more than (CowPuckey).

Political Reality: At the Federal level we’ve had a solid 30 years of this philosophy forming at least a major part of the Republican philosophy. This party held the Senate, House, and Presidency from 2001 to 2007.  Did our Federal government actually become any smaller in this period?  Did our budget actually shrink?  The short answer is that adherents of this philosophy tend to have a terrible track record of doing what they say they will.

Granted, at the state level the Republicans have never had even close to full control of the system.  But it should be obvious that Pawlenty has been the most powerful governor we’ve had in a long time, thanks in no small part to DFL disorganization.  We’ve seen tax decreases, yes, but without equal cuts in actual spending – and a terrible imbalance has resulted that was solved by shoving K-12 expenses into an IOU due out in the future.  The political reality is very stark – for all the hardline talk, government only grows.  The lack of engagement inherent in this philosophy has precluded any real consensus building and clearly worked against any kind of real implementation.

There are three solid reasons why this philosophy doesn’t work, but they all boil down to one real problem: lack of connection to reality.  The heart of right-wing economics these days is a rigid theory that rejects any need to be proven and does not allow discussion, denying the traditions of our democratic republic.  That’s why it needs to be rejected.

12 thoughts on “Economic Theory

  1. Good article Eric (altho part of me wishes you didn’t use the word cow pukey).
    I think what is interesting is that the two major theories (keynsian being the other) is that they grew out of the aftermath and enormous tragedy of WWI. Part of the motivation was how to create a more stable world so we would never suffer so horribly again. It would be interesting to see if their was some germ or beginning in the countries of origin that led to these two competing theories.
    Anyways I am facing a job hearing today because one of my customer’s seat belt came undone. No accident or injury, quickly resolved except for the legal process. Had to invoke my weingarden rights ( an interesting story in itself from decades past).

  2. Dan, you bring up two things I’ve been thinking about a lot lately.

    The first is how much, in practice, this particular economic theory winds up being exactly the same as Keynesianism. I decided not to get into it here, but in the past I’ve gone after the same “cut taxes, but not spending” routine as Keynesianism – and I do think they are very much the same thing.

    The second point is how very much the world changed not just in WWI but immediately after – and how little any of us understand of this turbulent time. The influenza, the rise of the religious right and prohibition, and the simultaneous success of woman’s suffrage are all not well understood by anyone I know. You are right to add a series of economic and social theories which came from this time that we accept as just part of our body of thought – but we have very little idea what really created these theories or what they mean. Weird stuff.

    Good luck with your hearing!

  3. I do not get how people fall for these theories. There are so many things you have to believe for this one to work starting with the idea that people make economic decisions rationally and totally neglecting any short term – long term issues. I just do not get it at all. This theory is obvious really limited at best.

  4. Thanks for your lengthy reply. I would like to see you write about influenza (or some other infectious disease) and about feminism tho me thinks you probably already have.
    By the way things went as well as I could expect (2 day supension already seved, 2 hour training) I am so relieved.

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  6. I agree Emmer sounds remarkably Austrian School/Libertarian, even for a Republican. I haven’t heard Emmer invoke the name of Ronald Reagan, but his rhetoric sounds very supply-side, pseudo-Laffer-curve Reaganesque. Emmer has pulled out a few nuggets of nonsense on where tax dollars are going (sidewalk art in St. Paul), and greatly exaggerated the role of upper tax bracket income earners in the state’s economy. As you correctly pointed out, the state does a better and necessary job of spending on large projects than individuals or corporations could (e.g. K-12 education, the University and state university system).

    I hope Dayton is able to pull off an effective criticism of Emmer’s nonsense. Unfortunately his narrative, “We need to raise revenue by increasing taxes” isn’t too compelling a war cry. I fear Emmer will win votes by convincing people that he will lower their taxes, but he will merely continue his predecessor’s dismantling of the good in the state.

  7. Bruce, as usual I think we agree completely. I honestly do think that there are ways to reduce the amount of government we have – or, at least, redirect what we have to be more effective. But I do not think we’ll ever get there as long as one side is so incredibly dogmatic and refuses to engage in the debate in any way. Our system requires us to be engaged in order to get anything done. These guys aren’t up to that challenge, and it saddens me. I might be a DFLer, but I value good competition – without that, we get lazy and useless.

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