RSS FeedDo Conservative Fiscal Policies Fulfill Their Promise?
It’s not quite topical or typical of what we normally post at Law is Cool, but an article appearing in the New York Times yesterday was so interesting to me that I thought it worth mentioning. Given that we are on the cusp of the most exciting American elections in my lifetime, I’m going to allow myself to delve into U.S. politics for a moment (before I get back to writing OCI application cover letters).
I have often wondered about the relative effectiveness of conservative versus liberal economic policies. During my relatively short lifetime, my suspicion has been that although the Republicans typically bill themselves as the “fiscally responsible” party, the United States has seen better economic growth under Democratic leadership. Were my suspicions accurate?
The Republican Plan
The classical Republican strategy involves granting tax cuts to the wealthy and to big corporations. The theory is that these tax cuts put money directly into the coffers of businesses, which can be used for expansion. The expansion creates jobs and the increased business spending stimulates the economy. All this prosperity somehow trickles down to the poorest members of society. Voila, happiness abounds.
With a tip of my hat to South Park, the strategy can be summarized as follows:
- Phase 1: cut taxes for the rich.
- Phase 2: ???
- Phase 3: profit.
The Democratic Plan
In contrast, the Democratic strategy typically involves implementing social programs coupled with tax cuts that are either aimed at the poor, or distributed more evenly among families regardless of the tax bracket they fall into.
The theory here is that social programs and safety nets reduce income disparity and also mean that people don’t have to maintain significant savings to prepare for unforseen crises like loss of a job or a serious illness. At the same time, the tax cuts put money into the pockets of consumers who can be comfortable going and spending their new-found wealth as they please. Consumer spending at all income levels pumps money up the chain to businesses, and the economy grows like a tree being watered.
The basic difference between the Democrats and the Republicans comes down to the question of who drives the economy. The Democrats believe that it is the average American consumer, while the Republicans think it is the rich and the corporations that really fuel America’s economic engine.
Both theories sound pretty promising, but who’s right?
