Newt and Rick Bring Back Jack

When Newt Gingrich and Rick Santorum have gotten attention for criticizing safety net programs for the poor, it has usually been because of the supposed racial undertone of their comments. But they’re saying something else too, something that recalls one of the most enthusiastic and influential proponents of supply-side fiscal policy: Jack Kemp.

Earlier this month, Newt Gingrich said “I think we want to replace the safety net with a trampoline. Policies that help the poor become middle class, help people get out of poverty.” And today at a Tea Party event in Michigan, Rick Santorum promised to “talk to minority communities not about giving them more food stamps and government dependency, but about creating jobs so that they can participate in the rise of this country.”

And while these remarks sound a bit goofy, they fit closely into the Kemp view of how tax cuts and other “pro-growth” policies will make everyone better off, especially the poor, thus finally allowing Republicans to make inroads to the minority vote. Here’s how Kemp put it in a 1990 Wall Street Journal op-ed:

It was this economy, triggered by President Reagan’s supply-side revolution of tax cuts in 1981 that generated 21.5 million new jobs, more than four million new businesses, relatively low inflation and higher standards of living for most people. This economy has created more jobs in the past decade than all of Europe, Canada and Japan combined. And according to the U.S. Treasury, federal income taxes paid by the top 1% of taxpayers has surged by more than 80% to $92 billion in 1987 from $51 billion in 1981.

There is another economy — a second economy that is similar in respects to the East European or Third World socialist economies. It functions in a fashion opposite to the mainstream capitalist economy. It predominates in the pockets of poverty throughout urban and rural America. This economy has barriers to productive human and social activity and a virtual absence of economic incentives and rewards. It denies black, Hispanic and other minority men and women entry into the mainstream. This economy works almost as effectively as did hiring notices 50 years ago that read “No Blacks — or Hispanics or Irish or whatever — Need Apply.”

But Kemp’s supply-side anti-poverty revolution didn’t amount to much, practically or politically, in the 1980s or 1990s, when he was most influential. That’s probably because poor and minority voters don’t view the estate tax or high-ish marginal rates on high earners as the root cause, or even a major contributor, to their condition. Furthermore, Kemp was positively evangelical in his belief of the efficacy of market-based and supply-side social policy, whereas Gingrich and Santorum make it seem like they’re only talking about the poor because liberals are forcing them to.

But more importantly, the “lift all boats” approach that Kemp pioneered has some serious empirical problems. It was not widely noticed at the time, but this Financial Times article reporting on new research by University of Arizona inequality scholar Lane Kenworthy raises serious problem for the view that economic growth is all that’s needed to raise the living standards of the poor:

The study looked not just at what happened to post-tax incomes during periods of faster and slower growth but also the effects of the transfer of a variety of benefits of cash or near-cash benefits.

All of the countries that saw living standards rise for lower income groups – the UK, Norway, Sweden, Finland and Denmark – had programmes in place when economic activity was strong that benefited low-earning households.

However, in countries that had few or no transfer programmes in place during high-growth periods – the US, Canada and Switzerland -low-earning households saw little benefit. This finding means “that as a general rule, growth has not trickled down to low income households through wages or employment”, the report concludes.
When government transfers haven’t grown, wages and employment haven’t stepped in to take their place. Instead, low income households have had little or no income growth,” it says.

Just something to remember next time Newt Gingrich talks about trampolines.