Hello and welcome to the twelfth post of Talking Points! The conventional Republican Party platform is to reduce taxes, lower regulations, and decrease public spending. These actions, it is argued, will stimulate economic growth and make all Americans wealthier. Although President Trump has changed the Republican party platform to speak more of a populist message, these ideas are still influential within the Republican party. Therefore, understanding them becomes critical. In this post, we will examine the roots of these ideas, the ideas themselves, and their effects. In doing so, I hope to demonstrate that these ideas are flawed, and present a better path toward economic growth.

Before we begin to analyze these ideas, I think it is important to understand to what these ideas originated in response to. The work of economist John Maynard Keynes, to grossly simplify, indicated that economic growth can be facilitated through the stimulation of demand, including through government spending during economic downturns. Effectively, Keynesian argues, by increasing its role in the economy, the government can boost the economy, which will stimulate the demand for goods and services, increasing production of those goods and services. The United States Government has used these ideas extensively, beginning in the 1930s, with President Roosevelt’s New Deal, a set of economic reforms and programs. These ideas were the primary economic doctrine of the United States for 40 years.

However, Keynesian did not prove to be able to resolve every economic problem. During the 1970s, the United States experienced stagflation, an economic condition of stagnant growth paired with higher inflation. Effectively, people had the same amount of money despite the fact that they were paying more. Keynesian interventions were unable to alleviate this problem, so beginning in the 1980s, economic doctrine shifted to the idea that government intervention in the economy should be reduced, an idea which both helped to stimulate the economy and justified the aforementioned Republican economic ideas. These ideas, as formulated by Milton Friedman, among others, were centered on the tenet that private entities, individuals and corporations, not the government, are most efficient at allocating economic resources.

We can see this tenet at work with the idea that taxes, by taking money away from producers, disincentivize the production that the money may have otherwise used for, and in turn prevent the economic growth that the production might have stimulated. However, the idea that lower taxes incentivizes production only works if the reason for the lower production is the higher taxes. Thus, if this were to be the case, any reduction in taxes would lead to that money contributing to expanding the business. In fact when businesses have had their taxes lowered, like the Tax Cuts and Jobs Act of 2017, passed under President Trump, it has not been met with large-scale investment in American business. Rather, the extra money was used for actions that benefit shareholders, like stock buybacks. Indeed, the purpose of a business is to maximum profit, not to produce as much as it can, and increased profit may not result from increased production. If tax revenue falls because of such tax cuts, this is particularly concerning, as they limit the amount of money governments have to spend on vital services.

One vital service that governments provide is regulation, controls on how private entities perform their activities. According to the conventional Republican platform, regulations should be lowered, because they are frequently unnecessary burdens on businesses, which limit how they can work. While it may be the case that removing a regulation provides a benefit to the businesses that the regulation is on, this fails to consider that the purpose of regulations is to reduce the harm that business activities can harm. For example, the purpose of regulating who and how lenders can loan money to, is to ensure that borrowers who cannot pay back their loans, are not lended to. We see this in regards to the 2008 Financial Crisis, where one major contributing factor was the deregulation of the financial sector. In particular, the repeal of Glass-Steagall regulations in 1999, which until that point had heavily regulated banking activities, was seen as a major cause. Although the 2008 Financial Crisis did immense harm to financial institutions, it did great damage to other businesses, investors, and consumers as well. Thus, regulations are not only vital to protect the regulated businesses, but those who would be affected by a failure in that business.

Regulating businesses for the protection of businesses, investors, and consumers is not the only service government provides. Indeed the government provides a wide range of public services, ranging from infrastructure, to healthcare, to social safety nets, and education etc. The conventional Republican platform states that as businesses are inherently more efficient than government, businesses can provide many of these services to the public, with a greater level of service and at a lower cost to the taxpayer. However, this fails to consider that the government and businesses have inherently separate abilities. It is not necessary for the government to receive the same amount of money from a service that it costs to provide the service, in the same way that a business must receive at least as much money from the service as it costs to run the service. Thus, for many services, private ownership would mean worse service at higher costs for the individual. For example, while a public hospital can provide free treatment to those unable to afford it, a private hospital needs to provide treatment that costs at least the same, if not significantly more, as it took to provide.

Each of these ideas, lower taxes on businesses, deregulation, and privatization of public services, benefit the wealthy more than the average consumer. This is justified on the basis that the economic growth provided by these ideas are going to increase the wealth everyone has and improve their living standards. However, as these ideas have become policy, we have seen wages stagnate, accounting for inflation, as the cost of services has increased. For example, from June 1981 to April 1990, the federal minimum wage was $3.35, worth about $9.96 in today’s money. However, the current federal minimum wage is $7.25, which means that the minimum income one is guaranteed now is lower than one was guaranteed in the 1980s. Not only has the minimum income declined since the 1980s, but the cost of services has increased proportional to income. For example, throughout the 1980s, the average annual college tuition, increased from $1513 to $3800, about $5840 and $8969 in today’s money. However, currently the annual tuition for students at an public four-year college where they are residents, is $11610. It is therefore clear that in at least two main regards, these economic policies have not made most Americans wealthier.

The problem, I think is that these policies prioritize economic growth above all, at the risk of reducing the tax revenue available to public services, of increasing the likelihood of catastrophe due to deregulation, and of worsening public services. However, businesses rely on the public services that tax revenue funds. The interstate system is not just vital for the transport of consumers, it is critical for the transport of goods within the country. Businesses are equally reliant on regulations. The 2008 Financial Crisis triggered a global recession which negatively impacted every business. In being reliant on public services, a business would be negatively impacted by a private highway, one which requires high tolls or other income to pay for its construction, maintenance, and the profit of its owners. Fundamentally, I would argue that these policies fail to understand that the business of government is providing services that benefit all entities, rather than just acting as an engine of economic growth.

Of course, facilitating economic growth is a major role of government. High taxes and excessive regulation can injure businesses, while there are services that businesses can provide to consumers, that the government does. The point is that these policies; lower taxes, deregulation, and privatization are not silver bullets that will work in all circumstances. If a business can demonstrate that they will be able to increase production with lower taxes, let them petition for and receive tax exemptions. If a business can demonstrate that regulations are causing a burden, and that it can act safely without the regulations, let them petition for and receive exemptions from the regulations. If a business can provide the same services that the government provides, perhaps the business could perform that service for the government on a temporary contract. These are ideas which I hope can stimulate economic growth, while ensuring that the benefits of economic growth are experienced by all Americans, not just the wealthiest ones.