It's truly delicious when the outfit which calls itself the Essential Global News Network essentially admits that a certain economic theory which begins with a "K" has become such an undesirable word -- almost an epithet -- that it avoids its mention.
That was the case with a pathetic critique of GOP candidates' economic plans written up by the wire service's Charles Babington on Sunday. When I saw its headline ("Studies challenge wisdom of GOP candidates' plans"), I blew past the story because I expected the same-old, same-old. Then an emailer with a journalistic background informed me that it was even worse than usual. He's so right that I can't possibly pick it apart without writing a book; so I'll just concentrate on the paragraph containing the theory with no name and the one which immediately follows it:
Mainstream economic theory says governments can spur demand, at least somewhat, through stimulus spending. The Republican candidates, however, have labeled President Barack Obama's 2009 stimulus efforts a failure. Instead, most are calling for tax cuts that would primarily benefit high-income people, who are seen as the likeliest job creators.
"I don't care about that," Texas Gov. Rick Perry told The New York Times and CNBC, referring to tax breaks for the rich. "What I care about is them having the dollars to invest in their companies."
Geez Charles, doesn't this "mainstream economic theory" have a name? Why, it does: K-K-K-K ... Keynesianism. Accurately considering the last three fiscal years, the $4 trillion in nominal deficits created, the nearly $5 trillion increase in the national debt, the Troubled Asset Relief Program, and whatever additional shenanigans in which Federal Reserve Chairman Bernanke and Treasury Secretary Tim Geithner have engaged as one giant stimulus, there's a word to describe Keynesianism as it has been applied in the real world: discredited. It isn't that GOP candidates have "labeled" the past three years of Keynesianism a failure; it has actually been a failure by any objective standard, as illustrated visually in the following late-August graphic at Investor's Business Daily editorial:
If reported third-quarter growth holds up after all routine revisions and future comprehensive revisions, which is by no means certain, the current economy finally got back to where it was before the recession began nine quarters after it ended -- a time period which, as seen above, is three times longer than the recovery from any other post-World War II downturn. If that's not a failure of Keynesianism, I don't know what is.
Babington's second excerpted paragraph tries to make a lazy shopworn point which doesn't hold up, for two reasons. Most obviously, his reference to "the rich" is not interchangeable with the "high-income people" referenced in the previous paragraph.
But even more significant is the failure of analysts cited by Babington and others elsewhere to pick up on something Boston University economist Laurence Kotlikoff mentioned in two separate October columns at Bloomberg (here and here; Note: I have collaborated intermittently with Mr. Kotlikoff on financial projects during the past year).
Kotlikoff's insight: Herman Cain's 9-9-9 plan, by taxing consumption instead of income, will cause wealthy people with relatively low reportable incomes or who receive a large portion of their incomes in the form of tax-advantaged capital gains and dividends to in many cases pay far more in sales tax than they have been paying in income tax, and will in effect cause them to pay taxes out of their wealth.
It's debatable as to whether this would be a good thing; but we're never going to have that debate if the so-called experts who are dismissing Cain's plan as a giant sop to the rich fail to recognize Kotlikoff's huge point. Any media report which fails to mention that Cain's plan would in effect tax consumption out of wealth in certain cases should by definition be seen as suspect.
Cross-posted at BizzyBlog.com.
