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The seven biggest economic lies

Robert Reich, professor of public policy | October 14, 2011

The President’s Jobs Bill doesn’t have a chance in Congress — and the Occupiers on Wall Street and elsewhere can’t become a national movement for a more equitable society – unless more Americans know the truth about the economy.

Here’s a short (2 minute 30 second) effort to rebut the seven biggest whoppers now being told by those who want to take America backwards. Its major points:

1. Tax cuts for the rich trickle down to everyone else. Baloney. Ronald Reagan and George W. Bush both sliced taxes on the rich and what happened? Most Americans’ wages (measured by the real median wage) began flattening under Reagan and have dropped since George W. Bush. Trickle-down economics is a cruel joke.

2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)

3. Shrinking government generates more jobs. Wrong again. It means fewer government workers – everyone from teachers, fire fighters, police officers, and social workers at the state and local levels to safety inspectors and military personnel at the federal. And fewer government contractors, who would employ fewer private-sector workers. According to Moody’s economist Mark Zandi (a campaign advisor to John McCain), the $61 billion in spending cuts proposed by the House GOP will cost the economy 700,000 jobs this year and next.

4. Cutting the budget deficit now is more important than boosting the economy. Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.

5. Medicare and Medicaid are the major drivers of budget deficits. Wrong. Medicare and Medicaid spending is rising quickly, to be sure. But that’s because the nation’s health-care costs are rising so fast. One of the best ways of slowing these costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to reduce costs, and to move from a fee-for-service system to a fee-for-healthy outcomes system. And since Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone.

6. Social Security is a Ponzi scheme. Don’t believe it. Social Security is solvent for the next 26 years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. That ceiling is now $106,800.
7. It’s unfair that lower-income Americans don’t pay income tax. Wrong. There’s nothing unfair about it. Lower-income Americans pay out a larger share of their paychecks in payroll taxes, sales taxes, user fees, and tolls than everyone else.

Demagogues through history have known that big lies, repeated often enough,  start being believed — unless they’re rebutted. These seven economic whoppers are just plain wrong. Make sure you know the truth – and spread it on.

Cross-posted from Robert Reich’s blog.

Comments to “The seven biggest economic lies

  1. Interesting comments , I was enlightened by the insight ! Does anyone know where my assistant might get a sample AO 442 version to fill out ?

  2. In his blog, Dr Reich offered some prescriptions for encouraging economic recovery, including no reduction of spending until the unemployment rate is 5%, an increase in spending – larger than the $400-odd billion the president has proposed, raise taxes on the super-rich, cut spending on military operations (wars) and subsidies for business.

    On spending, during FY 2011, something like half (43%-52%, depending on source) of all spending was from either borrowing or money creation by the Fed, disguised as borrowing. The President proposes to increase that. Through all this, the unemployment rate has been in excess of 9% (or more, depending on what constitutes being unemployed). Is it that spending of borrowed or created money is not stimulative unless it is so designated?

    On increasing taxes, does Dr Reich think that anyone in office, of whatever party, is really going to pass higher taxes on the people who give them the money they need to be re-elected? Both parties are bought and paid for, whatever their public protestations. The sources of campaign money of both major parties in 2008 give the lie to that:
    for Barack Obama
    for John McCain

  3. Seven lies of the leftists at Cal, about 99.98% of all ( i.e. wacko haters of U.S.A. while robbing it blind with high salaries, like RR’s!)
    Great post, without a doubt subject to much discurção. <

  4. I am not an expert in economics and I don’t live in the US, but flying by the seat of my pants I feel like agreeing with most of it EXCEPT the point about light government. I speak for knowing, living, as I do, in a country with one of the heaviest and extravangant governments in the world. Our respective political cultures are very different, but I would not say that advocating for a ‘light’ government (especially in the US) means to reduce helpful services like fire brigades, law enforcement agencies, schools and universities, or public contractors.

    Quite on the contrary, the more a state (a government) sheds, the more work is contracted out to the private sector. Anyway having a lean government means first of all 1)eliminating all those purely bureaucratic, parasitic positions that are simply wage-machines without adding any value to the public service 2) reducing the costs of the political apparatus (senators, members of parliament, and their bevvies of aides and collaborators), 3) eliminating privileges and advantages for political figures (reductions, free rides etc…), 4) shedding onerous and expensive state-run services that create spending without much quality of service (why shouldn’t the rubbish collection be contracted out to a private operator, or why must a railway transport service be state-owned, etc… ?).

    Perhaps in the US you don’t know what a really heavy state means (like us, 5 million civil servants… adjusted for the population, imagine 30 million in the States). We do need to slim down governments, I think.

  5. When they who stand to gain manipulate the truth with lies its hard for those of small minds to distinguish between whats the truth and whats a repetitive lie. If only we had some semblance of equity in this divide to bring equality and prosperity to our lives.

  6. Prof. Reich, Thank You for your reality checks.

    We must find a better way to inform the general public. News media and campaign literature are not getting the job done.

    How do we make these facts known loud and clear to the electorate so we will use them for reference when deciding on candidates to vote for in 2012?

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