Voodoo Economics Redux

Five Destructive Delusions that Just Won’t Die

Despite gains made in the 2012 election, the US is in many ways running its economy using an operating manual written by madmen. Here's list of five deadly delusions that are still seen as conventional wisdom inside the beltway.

Cutting Taxes Grows the Economy and Increases Revenue. This, of course, is the mother load - the original delusion that launched the conservative drift into irrationality, and our national drift into record debt. There is not an iota of support for this assertion, and lots of evidence against it.

But then, it never was a serious idea. It was cornerstone of the Republican's destructive starve the beast strategy, designed to eviscerate government, not enable it.

Government Regulations Hurt the Economy and Get in the Way of Entrepreneurs. Every president since Ronnie, "Government-is-the-Problem" Reagan has repeated this bromide, including Bill "The-Era-of-Big-Government-Is-Over" Clinton and Barack "Grand-Bargain" Obama. And most of the people agree.

The fact is, this bit of wisdom is wrong. As Harvard Business School's Michael Porter pointed out, government regulation can make business more profitable (PDF). And four decades of data show that environmental regulations save society money.

Moreover, it's patently obvious that a well-regulated, level, and transparent market creates value. There's a reason US securities attract more investment at 2% than Russian or Indian securities do at near 9% -- and that reason is the rule of law-- i.e. regulation.

The facts are clear: regulations may impose costs on a few fat-cat players within the market, but overall, they create or preserve value, lower societal costs and save lives.

Government Is Inefficient and Wasteful; the Private Sector is Efficient and Productive.

This bit of conservative dogma has more staying power than a zombie vampire on steroids. It just can't be killed, facts notwithstanding.

For example, Social Security, Medicare, and Medicaid, with overheads of 4% or less, are more than twice as cost-effective as their nearest private sector equivalents. And they get better results and higher satisfaction rates.

Or take student loans. Before legislation modified the federal student loan program, two options - one a direct loan from treasury, the other a highly subsidized private sector loan - were available to students. Guess which one cost the nation and students less? Hint: not the subsidized private sector one. In fact, CRS studies showed that eliminating the private sector program would save government over $94 billion in a decade.

Conservatives ask: can we afford these public sector programs? The real question is: can we afford to abandon them? Make no mistake - we will go into more debt sooner if we revert to the private sector to get these services. What we ought to be doing is implement the small changes needed to fix the effective and efficient public programs, not deciding who will hold our much larger IOUs in the private sector.

But of course, that's the point, isn't it? To turn programs that benefit society at large into businesses that allow a few fat cats to profit at our collective expense.

Big Gubmin't Cain't Create No Jobs; The 1%ers Do That. Or, trickle down redux.

This idea should be deader than dirt.

The stimulus created or saved some 3.5 million jobs even though nearly 40% of it was squandered on tax cuts, mostly for the rich - one of the least effective stimulus measures evaluated by the CBO. Yet conservative politicians and pundits continue to declare it a failure.

But government isn't simply the most effective source of economic stimulus in bad times. It is a primary source of technical innovation. And since Schumpeter, it has been recognized that innovation is the prime mover for economic growth. The Internet, GPS, the miniaturization and chip design that made computers possible, most fundamental drug breakthroughs, the aerospace industry, the agricultural revolution, most energy innovations (including development of the drill bit that makes directional drilling for oil and gas possible) - all came from government-funded programs.

Countries that recognize this prosper. Since 2008, China and Germany have preserved and created jobs better than any major economy. Both have governments which actively intervene in the economy. Germany has long sponsored collaboration between industry and government through their Fraunoffer Society. China, faced with the recession, simply instituted a massive stimulus program. It worked.

But inside the Beltway, government is still treated as if it were a toxic job killer that needed to be starved into submission.

Austerity Will Save the Economy. Arrghhh. When will this hoary-headed monster die? Double and even triple dip recessions in Great Britain and Europe where it has been tried and retried won't do it. The singular success of countries which ignored the austerity fascists - such as Iceland - won't do it.

The fact that the recent fourth quarter slow-down in government spending contributed to the first negative growth in GDP we've seen since the 2008 Recession won't do it.

Nope. In the face of all this evidence, conservatives still advocate a deadly brew of tax cuts, smaller government, austerity and regulatory cutbacks.

And while Democrats - seemingly by default more than conviction - came down against the stupidest manifestations of voodoo economics in the recent election, they have yet to espouse an activist role for government. It's one thing to say, "Let's not be so stupid," quite another to say, "Let's be smart."

And until someone does, these ideas will stalk the halls of government in our cities, states and nation.

And we'll drift further toward the third world status of a country that has abandoned reason in favor of ideology, so that a few fat cats can enrich themselves while impoverishing the country.

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