The Washington Post's Sebastian Mallaby is on a crusade to discredit pro-growth or supply-side economic policies. Today's column titled "The Return of Voodoo Economics" makes one wonder about what he doesn't like about 4% growth, under 5% unemployment, housing and the stock market higher, wealth being created and tax revenues at all time highs. I guess he pines for the pre-Voodoo Economics days of the 1970's when the highest marginal tax rate was 70% and the country had anemic growth, high unemployment and a Dow languishing below 1,000.He goes on to do some international comparisons, but they're so cherry-picked as to be useless (Communist China, the greatest, and most troubling, growth story of the last few decades, is absent from the list). But let's break this first graf down. McIntyre is making two claims here: first, that the combo of inflation and economic stagnation that afflicted American in the 70's was directly attributable to high marginal taxation rates, and second, that the current economy is grrrrreat, and Bush's tax cuts deserve the credit.
On stagflation, there's an economic consensus here. It was caused by the oil spike of the early 70's. Suddenly, goods and services cost much more, but wages had not grown commensurately. Hence, prices went up, but without any increase in demand, and thus no increase in production. Marginal tax rates had next to nothing to do with it.
As for the current economy, that's a more interesting question. There is growth, to be sure, but it's been curiously hollow. Wage growth, despite doing notably well in April, has been anemic throughout the expansion. In 2003 and 2004, median wages actually went up less than they did during the recession of 1990-91. Nevertheless, overall growth has been robust. It's just all going to the rich. Since the 1970's, the aftertax income of the top 5 percent has grown by 200 percent, while those in the middle saw a 15 percent increase, and those on the bottom a mere 9 percent. The Dow Jones may be doing well, but two-thirds of stocks are held by the top 5 percent. Productivity increases, too, no longer much help the average American. Between 1947 and 1973, wages grew commensurately with productivity. Ever since, wages have increased at about a third the rate of productivity. If we'd kept up the 1947-73 pace, the average household would now make around $60,000.
The bottom line is that inequality hasn't been this severe since the 1920's. As for alternative paths, the Clinton era, with higher marginal tax rates and less government spending, saw faster growth with fairer distribution. And that, at base, is the question. Do you believe growth should accumulate to the rich, or be shared across society? Jumping up and down about the 1970's is silliness, it's like blaming 9/11 on Rudy Giuliani. After all, the economy kicked ass under FDR and Lyndon Johnson, so theirs should hardly be a discredited economic vision. The question isn't about growth, or employment, or anything else (all those metrics do better under Democrats, by the way). This is about the distribution of growth, and about the level of acceptable inequality. I myself am not a big Gilded Age fan, but reasonable people disagree.
--Ezra Klein
