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The Emperor Wears no Clothes in Theory: Theories Underlying Major US Policies are Problematic

By       Message David Model     Permalink
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In advanced democracies, economic, political and global policies are rooted in theories developed by scholars and intellectuals who imbue government decisions with legitimacy and credibility.   Given that not all scholars in a particular field agree with each other, government leaders will often choose those theories that are in accord with their own ideology and that of their advisors.   The norm in choosing advisors and secretaries of the various cabinet posts is to seek out people who are part of the corporate, cultural and intellectual elite whose worldviews are somewhat similar to that of the president and his top advisors.

For example, despite Obama's selection of mostly Wall Street executives to staff key economic positions and selection of Gates at defense and Clinton at State, progressive people in the Democratic Party still remained hopeful of progressive policies despite the lack of alternative points of view among advisors.

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When Colin Powell was appointed to Secretary of State in the Bush Administration, he was considered a moderate despite his career in the military.   Many of the other appointees, such as Cheney, Wolfowitz, Abrams, Pearle, Rumsfeld and Libby shared a very similar ideology, as might be expected given their membership in PNAC.    

Prevailing economic theories have changed over the years but since the 1980s, Milton Freidman's apotheosized monetarist theories have formed the backbone of economic and social policy.   Others who have contributed to current mainstream thought in economics include Alan Greenspan, Arthur Laffer and Friedrick Hayek.

In foreign policy, the concept that concrete interests or national interests can override legal and moral considerations prevails in foreign policy decisions.   Thus in Iraq, millions of people were killed, four million became refugees and in addition, Iraq's infrastructure was virtually destroyed, all of which was justified on the basis of the imperative to protect American national interests.   Invoking the invasion of Kuwait and later, weapons of mass destruction and ties to el Qaeda, as justifications were propaganda strategies essential for the construction of "necessary illusions" to render illegal polices palatable..

Specific examples of policies resulting from these theories include tax reduction to increase tax revenue, a balanced budget by reducing the social safety net, free markets, deregulation and privatization and humanitarian interventions.

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There are primarily three major problems with this approach to governance in a democratic state in which social justice, human rights and rule of law are highly respected.   Some of these theories are based on absurd, hidden or obscure assumptions that render the theories totally invalid or they function merely as propaganda pretexts or "necessary illusions" masking the true motives for decisions which are actually based on ideologies or motives that would not be acceptable to the public.    The other problem is that economics is treated as a quasi-science in which outcomes of economics' mathematical constructions are ascribed greater accuracy than is warranted.

Consider the paradoxical belief amongst many political leaders and elected representatives of the people that reducing taxes generates greater tax revenue.   Arthur Laffer developed the Laffer curve, popularized by Jude Wanniski in the 1970s, which defines government tax revenues as a function of all possible tax rates.   Except near the extremes of zero taxes and 100% taxes, lower taxes translate into greater tax revenues based on the premise that lower taxes   encourages people to invest and spend more, triggering more economic activity.   The taxes from the greater economic activity presumably offset the loss in tax revenues due to tax cuts.

Taxation systems are far too complex to construct such a simple correlation between tax rates and tax revenues.    Tax rates are a multiplicity of different rates such as personal income, corporate income, sales taxes, inheritance taxes, taxes on investments and payroll taxes just to mention a few.

For example, President Reagan reduced the top personal tax rate from 70% to 28% between 1982 and 1989, during which time federal receipts grew from $618 billion to $991 billion.   On the other hand, other taxes were increased during the same period such as FICA and payroll taxes.   FICA taxes increased a whopping 88.6%.   Reagan's budgets also resulted in large deficits which would have been lower without any tax cuts.

It's also important to note that his tax cuts greatly benefitted the rich at the expense of working people   suggesting that the cuts were more ideological than economically sound.

Although there may be an interaction between tax rates and tax revenues, the precise nature of the interaction is unknown given the labyrinthian set of parameters in any given economy and the difficulty in predicting the behaviour of human beings.   As a matter of fact, the Laffer Curve was not constructed through a mathematical deductive process but through crude empirical observations.

In general tax cuts have tended to benefit the wealthy and corporations, justified on the basis of the "trickle down" theory which doesn't hold water.   The most efficient method to increase consumption is to give tax breaks to those people who need it the most because they will spend it immediately on food, clothes and rent whereas the wealthy may spend it on foreign products, travel or investments.

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Free Markets are the underpinning of the U.S. economy, an unquestioned presupposition in mainstream discourse.    In theory, a free market economy is one in which all markets within it are unregulated by any parties other than those people in the market who are seeking to buy or sell their labour or products.   In particular, a free market can only exist in its pure form when the role of the state is limited to tax collection and enforcement off private ownerships and contracts.

A number of conditions must exist in order for a market to be free.   Prices must only be determined by the decisions of buyers and sellers en masse in the market.   Although perfect competition is not necessary for a market to operate freely, at least monopolistic competition must prevail.   There must be many competing producers, where no single or small number of producers can control the market price and where there are few barriers to entry to or exit from the market.

Virtually none of these conditions exist and, in fact, in some cases the extreme opposite is true.

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http://consuming-ourselves.blogspot/
I have been a professor of political science at Seneca College in Toronto. I have published five books the last of which "Selling Out: Consuming Ourselves to Death" was released in May/08. As well, I have been featured in CounterPunch, Z (more...)
 

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