What Is A Pro-Growth Strategy?

Economist Dean Baker is up with a good post on the mainstream media’s current desire to separate “pro-growth” and “income equality” strategies. The notion many seem to cling to, is that you can either be in favor of income equality (the 99%), or you can be pro-business. This is, of course, a load of hogwash. Supply and demand work together in the economy, and business does not thrive when consumers don’t have money to spend on their goods. The Great Recession was just the latest in a long line of proofs that demand cannot be ignored; the bursting of the asset bubble drained an estimated $500 billion in consumer wealth from the economy. That loss of wealth, in a nation with savings rates near zero, translated directly into a loss of spending.

This isn’t a complicated chain of events, but conservative ideology wants to make it so. The conservative ideological response to financial crisis, from day one, was to bail out the guarantors of risky debt (the banks and Wall Street idiots), and provide income tax breaks to upper income individuals and business. It shouldn’t take a rocket scientist to understand that tax cuts for businesses without customers and workers without jobs mean nothing; a lower tax rate on zero income means zero benefit. Despite the simplicity of the math, and despite the overwhelming historical evidence, conservative ideologues cling to the fantasy of a low tax business paradise. Pro-growth must, in their minds, mean tax reductions.

It doesn’t. Saint Ronnie the Gipper slashed taxes in the 80’s, and the result was lower growth than in the 70’s. W. slashed taxes in the first decade of this century, and the result was the lowest growth since the 1930’s. The greatest growth happened in the second half of the 30’s (under FDR’s New Deal), in the 40’s (during the War Effort), and in the 50’s. Those three stretches are characterized by growing income equality; the 21st Century version of America is characterized by growing income inequality. In business terms, income inequality means consumers have less money to spend on business products and service. Less consumer spending means more competition on price. More competition on price means downward pressure on operating margins and lower profits. More money in working class pockets, via good wages and fair competition in utility markets is always good for business.

Liberalism and income equality are pro-business and pro-growth.


The Rational Middle is listening…