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There were two reality-challenged economies theories presented at last night’s presidential debate. Donald Trump reiterated his theory that the US has been on the skids for 40 years and trade agreements are to blame. It’s more likely most Americans are far better off than they were in the 1970s, and trade is one reason why.
Hillary Clinton had an economic theory of her own. Talking about Trump’s tax cut plan, Clinton said, “Trickle-down did not work. It got us into the mess we were in, in 2008 and 2009. Slashing taxes on the wealthy hasn’t worked.”
This is not a new argument from Clinton, one she mentioned in her presidential announcement speech last year:
We’re still working our way back from a crisis that happened because time-tested values were replaced by false promises. Instead of an economy built by every American, for every American, we were told that if we let those at the top pay lower taxes and bend the rules, their success would trickle down to everyone else. What happened? Well, instead of a balanced budget with surpluses that could have eventually paid off our national debt, the Republicans twice cut taxes for the wealthiest, borrowed money from other countries to pay for two wars, and family incomes dropped. You know where we ended up.
But wouldn’t the George W. Bush tax cuts — most of which President Obama extended — have stimulated demand and/or improved supply-side incentives to work, save, and invest? And a 2012 study, “Does Inequality Lead to a Financial Crisis,” found “strong evidence linking credit booms to banking crises, but no evidence that rising income concentration was a significant determinant of credit booms.” Also, the official Financial Crisis Inquiry Commission report assigned blame to banks, regulators, government agencies, and credit raters — not the 2001 and 2003 Bush tax cuts.
That being said, it is not surprising Clinton is making this argument. It is, in effect, “Trump wants to replay the same policies that almost destroyed the US economy, but more so.” Fewer and fewer people remember the Reagan boom or how better supply-side policy contributed to economic growth during Bill Clinton’s presidency. Any Republican who ever proposes tax cuts for the wealthy and business is likely to see some version of Clinton’s argument. Trump didn’t have much of a response other than to asset his tax cut “will create tremendous numbers of new jobs.”