It's the Demand Side, Stupid

Republicans' response to Obama's deficit-reduction plan -- which calls on millionaires and large corporations to pay higher taxes -- predictably consisted of two terms: "job creators" and "class warfare." Who are these job creators, anyway? They want you to think it's small businesses, but Obama's proposal to raise taxes on millionaires wouldn't affect 98 percent of small businesses. In reality, it would affect millionaires who, despite their wealth, haven't been creating jobs for some time.

Republicans represent a view of the world in which our economic well-being depends on the few at the top helping everyone below them. As The New Republic's Timothy Noah put it yesterday, "Sometime while I wasn't paying attention trickle-down economics got respectable." Sure, tax cuts can encourage businesses to hire, and Obama's jobs plan includes employer-side payroll tax cuts for this reason, though their impact is assumed to be limited. If trickle-down economics worked, then we wouldn't see record corporate profits and ballooning incomes for those in top tax brackets yet and 9.1 percent unemployment.

The problem with Republicans' obsession with incentivizing businesses to hire is that we are in a demand-side recession. Business won't hire again until they need to hire to meet demand, and you increase demand by putting more money into the pockets of working and middle-class Americans. As former president of Obama's Council of Economic Advisors Christina Romer wrote in The New York Times this spring, "Our high unemployment is still the consequence of low demand. ... Companies are unwilling or unable to invest because customers are few and credit is still tight." But in Republican fairyland, the only way to improve the economy is to give more to the wealthy.

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