Voodoo Economics

According to Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, John Maynard Keynes is the true originator of Voodoo Economics.

You remember Joe. During a campaign stop in the 2008 presidential election, Samuel Joseph Wurzelbacher asked Obama whether higher taxes would punish his business. Obama answered in part, “I think when you spread the wealth around, it’s good for everybody.”

Obama’s words captured Democrats’ ideology: outside of fairy tales, only government can play Robin Hood, taking money from the rich and giving it to the poor.

The problem, of course, is that high tax rates inevitably cause economic harm. Such a link is at the core of economics. If you reduce the reward for an activity, you get less of it. Democrats and the economists who serve them deny that harm so they can spread the wealth around.

The Tax Alternative

If the economy is in deep trouble, there are two economic policy steps that one could take in order to create a positive stimulus: reduce tax rates, or spend more money. (The so-called tax cuts in the 2009 stimulus had little effect because they were primarily credits and deductions, rather than reductions in marginal rates.)

But notice the problem for the Robin Hooders: If you cut tax rates in a recession in order to stimulate the economy, then you are conceding that lower tax rates can be a good thing. And if that’s true, then higher tax rates will be harmful -- something the left has always denied.

So the Obama economic team was left to rely totally on spending in its response to the recession.

So, how's that stimulus working?  Well, here we are in August after 18 months of a stimulating Obama administration, and the jobless claims for the week ending August 14th hit 500,000, which is  the worst it's been since November 2009.  Where do we go from here?

As the economic data again head south, it will be much harder to devise successful economic policies because of the budgetary hole that the Keynesians have dug for us.

In all likelihood, the data will soon be so convincingly bad that we’ll again debate the need for an economic stimulus. Let’s hope that when that begins, all will finally concede that the ideas of John Maynard Keynes are as dead as the man himself, and that Keynesianism is the real voodoo economics.

Paul Krugman, opinion writer for the New York Times, is OK with that.  A staunch adherent to Voodoo Economics, he reassures us that Obama stands firm.

So far, the Obama administration is standing firm against this outrage. Let’s hope that it prevails in its fight. Otherwise, it will be hard not to lose all faith in America’s future.

Krugman thinks extending the Bush tax cuts won't help the economy because rich people already have too much money to spend. 

...it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

Is it me, or is this just plain stupid?  If the windfall is unlikely to be spent, the most probable alternative is that it will be invested.  And the funny thing about investments is that somewhere along the line somebody has got to take that invested cash and turn it into something that provides a return for the investor.  In other words, it is almost guaranteed to promote economic growth, which generally translate into jobs down the line.

Krugman has long since nailed his flag to the mast.  There is no way he can admit that lower marginal tax rates can help the economy.  For Krugman, it would seem, it's better that next week's jobless claims hit 1,000,000 than to have high income tax payers get a tax break.  And if the Obama administration continues to follow the kind of advice Krugman has to offer, we may just see it.

Update:  Via Instapundit and The Anchoress, we find evidence of the true effect of the Bush Tax Cuts.  My emphasis below.

Surprising Jump in Tax Revenues Is Curbing Deficit

By EDMUND L. ANDREWS
Published: July 9, 2006

WASHINGTON, July 8 — An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

Such a paradox.  Cut taxes for on the rich, the rich pay more taxes, and government receipts rise dramatically.  Dim bulbs on the left, including Krugman and Obama, have painted themselves into a corner, though.  By demonizing the rich they don't get to take advantage of the boom in tax receipts that comes when the rich make more money and pay more taxes on it.  The economy belongs solely to Obama, now. 

Comments

[CaptDMO]

Meanwhile, Atlas Shrugged.
John Galt is reported to have moved all his business interests
"off shore".

[Tom Bowler]

In May of 2008 I visited the Philippines. Passing through the airport at Guangzhou, China on my return trip I struck up a conversation with the American owner of a small manufacturing company. At that time the presidential nominees had not yet been decided, but on the Democratic side it was coming down to a race between Hillary and Obama. My friend told me he was prepared for whichever of them would become president. He had just completed moving his company to Hong Kong in anticipation of the tax increases that an Obama or Clinton presidency would inevitably impose.

Unfortunately, our conversation was cut short before I could get any details. Never got his name, nor the name of his company.