Beset by inflation and rising taxes, people look for simplistic formulas—”Proposition 13,” the Kemp-Roth 30-percent income-tax cut. Another such “magic” formula has been successfully peddled by business economists and quickly picked up by the media: supply-side economics (SSE). This cruel hoax deserves a look.
It starts with three assumptions: (1) that steady economic growth is essential to the smooth functioning of a democratic society; (2) that our economy is prevented from growing because of unfilled investment needs that are caused by insufficient capital formation; (3) that this insufficiency could and should be remedied by tax cuts designed to stimulate saving over spending, complemented by both a speedup of depreciation and a slowdown of such social costs as environmental protection and safety regulations. These measures are assumed to work as incentives to capital investment, new R & D (research and development), and general economic growth, with a direct stimulative effect on production, and a trickle-down effect on employment and demand. How do all these assumptions stand up in reality?
Let us accept the first assumption regarding the importance of steady economic growth, provided we learn to include qualitative growth (improvement of the environment, safety at work and in public places) in our overall concept of growth....
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