An Economics Lesson For The New York Times
By David Lewis Schaefer – October 10, 2023
A favorite device of writers for the New York Times when they wish to assert a preferred view on public policy while dismissing alternative opinions is to attribute the view to unnamed “experts,” or at most to one named expert with conspicuous ties to partisan liberal organizations – all without even acknowledging the existence of legitimate disagreement.
Nowadays, this happens most commonly in stories on climate, where major weather events like hurricanes and droughts (which have occurred throughout known history) are said to have been caused, or exacerbated, by “climate change” according to an alleged scientific consensus. In fact, considerable disagreement exists among well-qualified climate scientists about the extent, causes, and effects of such changes, and it is impossible to attribute any single such event to continuous alterations in the climate.
A recent Times story exemplifies this problem in a different realm: economics. Reporting on the British Conservative Party’s annual conference last week, which was attended by the current prime minister, Rishi Sunak, as well as Sunak’s immediate predecessor Liz Truss and Suella Braverman, two rivals for leadership of the Party should it lose in next year’s national election, Times reporters Mark Landler and Stephen Castle judged Truss’s anti-tax and pro-deregulation program critically.
According to “economists,” the Times maintains, Truss’s “emphasis on tax cuts misses the point of what has held back the British economy … a dearth of public and private investment.” Jonathan Portes, the only economist actually named, who teaches at King’s College is quoted as saying, “taxes need to go up, not down, to restore public services and meet demographic pressures.” (Portes never specified what those pressures are.)
While Portes agrees with Truss’s “point” that Britain “need[s] aggressive pro-growth policies in some areas,” the areas he cites – “housing, planning, infrastructure, skills” – are those in which he deems it the responsibility of the government to “deliver.” In other words, to promote economic growth, expand the size of the welfare state and government bureaucracy, raising taxes to finance it.
Reading Portes’s remarks, one must conclude that he has no recollection of how Margaret Thatcher’s cutbacks in government spending and regulation in the 1980s lifted the British economy out of the doldrums (just as Ronald Reagan’s parallel policies did to the United States). Under Reagan, who cut the top income tax rate from 70 percent to 28 percent and the corporate rate from 46 percent to 34 percent, the United States added 16.5 million jobs, a 16.6 percent increase.
Like Reagan, Thatcher brought down rampant inflation, which had risen to 25 percent in the UK. Under her administration, home ownership also grew substantially.
We might note here as well that following Donald Trump’s 2017 tax cuts, unemployment dropped during the next two years, with black unemployment hitting record lows, prior to the onset of the COVID-19 pandemic.
Dismissively, the Times story describes Truss’s proposed economic policy as “trickle-down” in nature. The Times suggests that Truss wrongly supposes that reducing taxes on corporations and on individuals in higher income brackets will somehow magically increase employment and income among lower-income earners.
But Truss is right, and the Times reporters (along with Portes) are wrong. Remember Ronald Reagan’s defense of his 1981 tax cuts against the charge that wealthier people would gain more from them (in absolute dollar terms) than poorer ones would: his citation of a blue-collar worker who observed, “I never got a job from a poor man.”
This is the truth of supply-side economics, captured by Reagan, Thatcher, and Truss: if you want to encourage productive business investment and therefore employment and incomes across the board, cut business taxes and reduce the progressivity of the income tax system (as well as reducing the overall level of income taxes).
But why does Portes not think that reducing corporate taxes (and those on the “investing” class) will encourage the supply of meaningful jobs and wages, while raising them will have the opposite effect?
Portes and like-minded left-leaning economists in the U.K. and the U.S. conflate private investment with “growth” in the public sector. This approach, however, ignores the fact that private investment, to be profitable, must normally provide goods and services that consumers actually want, at prices that they are willing to pay.
By contrast, raising taxes to promote “public services” and meet “demographic pressure” leaves the decision of what goods to produce, and at what price, entirely to public bureaucrats and their political superiors.
As every reasonably informed observer recognizes, bureaucrats and politicians also typically lack the same incentives towards efficiency and innovation that private businesses and public servants who aren’t part of the regular bureaucracy do. Consider, for instance, the way that “regular” public education in the United States is stymied by the teachers’ unions, in contrast to nonunionized charter schools and many Catholic schools.
No serious person denies the need for public investment in infrastructure (roads, bridges, dams, school buildings, and so on) in order for private businesses and the general population to prosper. Nor would most deny the need for properly managed public services to assist the genuinely needy and open opportunities for the underprivileged, along with providing medical services to those otherwise unable to afford them.
But Ms. Truss, speaking to Conservative Party members at what was dubbed the “Great British Growth” rally, urged the need for Britons “to acknowledge that the government is too big, that taxes are too high, and we [the government] are spending too much.”
While tax cuts on individuals have widespread appeal, at least to those who earn enough to have to pay a significant amount, it will always be harder to demonstrate to many people how reducing taxes on corporations and high earners will typically boost the economy, and hence everyone’s income, more than raising taxes and enlarging government’s scope.
As if to fortify the point, on the day after it ran the anti-Truss story, the Times reported on Joe Biden’s latest student-debt cancellation scheme costing $9 billion, this following the Supreme Court’s rejection of his previous “more ambitious” plan of $400 billion in “relief.” The Times justified the cancellation by observing that “many economists” – not one of whom it named – “have expressed concerns that the resumption of student loan payments … could cause a substantial drag on the economy at a crucial point” in its “recovery.”
Not a word, however, from the “many” economists who fear that the growing inflation resulting from the massive budget deficits that the administration has run, in turn engendering higher interest rates while also raising everybody’s cost of living, is a far greater threat. This threat can only be exacerbated by the administration’s latest giveaway to favored supporters, whose votes the president desperately needs in his reelection bid.
The lessons of supply-side economics need to be re-learned in every generation. Even if Times reporters never learned them, the canons of journalistic ethics would seem to dictate that instead of quoting only economists who agree with their own predispositions, they give the other side a hearing, rather than effectively deny their existence.
David Lewis Schaefer is a Professor of Political Science Emeritus at College of the Holy Cross.