Beware! These zombies devour brains as well as economies
Scarier than movie zombies, economic zombies are real.
Editor’s note: This is first of three blogs that kicks off CFI’s “Zombie Economics” week. Stay tuned for our blogs about the zombies at our borders and the zombies in our state capitol.
By Chris Stiffler
In scary movies a zombie is a corpse that comes back to life. Even scarier in the real world is “Zombie Economics”: dangerous doctrines repeatedly slain by the truth but still walking among us.
The reanimation of these refuted theories occurs because they often serve a political purpose by appealing to people’s preconceptions. The notion that cutting taxes on the rich will create additional tax revenue by promoting increased growth is a classic example of Zombie Economics (a term coined by economist John Quiggin). Tax cuts inevitably lead to less revenue not more, but the idea lingers on because it is such an attractive sell for politicians.
Perhaps the most resilient economic zombie is “trickle-down” or “supply-side economics” — the notion that lowering taxes, particularly for the wealthiest, will free up money for investment and that this will help the rest of us.
The supply-side theory incorrectly argues that if producers pay lower taxes they will make more things, and hire more people. This happens to be the opposite of how the world really works. Common sense tells you it doesn’t matter how low taxes are on your business; if you don’t have customers you won’t have a successful business, and you won’t expand. Yet “trickle-down theory” still lives on because to many people think it sounds just plausible enough as a justification for tax cuts. Just like a scary movie, the more you want to believe it the more real it seems.
Fortunately there are numbers to illustrate the real failure of trickle-down.
From 1947 to 1979, before trickle down took hold, American workers from the richest to the poorest saw their earnings double. In contrast, income growth from 1979 to 2007 (during the period of trickle-down policy) was far less equal. The richest 20 percent of Americans enjoyed a 71 percent increase, compared to just 7 percent for the bottom 20 percent.
The bottom line is that more and more money is flowing to the wealthiest in the form of growing profits while the share of income going to workers’ wages is declining. Sixty-six percent of the nation’s economic output went to labor in 1973; by 2012 it was down to 58 percent.
The stagnating incomes of working men and women are bad for everyone because consumer spending is so important to our economy. Less disposable income in the pockets of people means less economic benefit for all businesses. And lower tax revenue means fewer dollars to investment in what really builds the economy, long term: schools, transportation, safe communities, and more.
The zombies in the movies can’t hurt us, but “zombie economics” can and does.
