I'm seeing the online debate heat up as the US economy stubbornly refuses to get revving. Most Americans are divided on their support of Keynes or Friedman(and Hayek) broadly on party lines. Republicans and Libertarians favor Friedman, and Democrats and left-wingers favor Keynes. I think that something which most people arguing this point don't get is the fact that we do not have a solid period of time when either of the economists' theories were actually put to the test sufficiently that relatively absolute conclusions could be extracted. Instead, it seems that elements of both theories were implemented based on the need to accelerate or decelerate the macro economy, or repair damage or provide room for expansion, lately not just of the US but of the global economy.
This is obviously my own thinking, obviously, but I feel that my opinion cannot be any worse than most of the dogmatic gibberish I find out there! So here's my opinion, and then I'll expand on that a bit: the US monetary policy is determined regardless of whether Republicans or Democrats control the Treasury or the Federal Reserve, while ordinary Americans are misled into this diversionary argument and made to believe that settling the Milton v Friedman debate is at the core of what is good for America. It is integral to the two-party system which divides Americans into easily-controlled "left" and "right" while still serving the purpose of necessary diversion. Economic policies are handled by a network of hoary and influential institutions whose members form "advisory groups" to each administration, but implement policy that is independent of governments and even countries. Increasingly, they are becoming advisers to "developing" countries as well, shaping their monetary policies too in what is rapidly becoming an integrated global financial system.
When you look at the various economic cycles, you find that the US prospered under both Democratic and Republican presidents, under policies of more government and less government, with high taxes and low taxes, with higher interest rates and lower interest rates, and it likewise suffered too. There were billionaires when the top nominal federal income tax rates were over 70%, and without the massive financial investment "instruments" of today. During the 1950s, with rates between 20%(for the lowest taxable bracket) and 91%(for the highest), the nation witnessed a historic economic expansion. The "job creators" weren't stuffing money in the mattress. As an interesting contrast, when the rates were very significantly reduced in 1925, it was followed by the greatest global economic depression we have witnessed. Cause and effect? I don't think so. You see, the wealthy(and not necessarily only those at the very top, but those who have substantially more income than their expenses or lifestyles demand) have avenues to protect their income from taxes, which is why the income tax rates are called "nominal", unlike other taxes such as sales tax. That is why you find the anomaly, despite the progressive tax rates, of wealthy people often paying at a lower rate than middle-class people, and occasionally less than poor people. I believe the Great Depression was foreseen a long way off, and even anticipated at the time the income taxes were lowered. Game theory, I strongly believe, existed and was used much prior to John von Neumann formalizing it.
So if nominal tax rates don't necessarily affect economic growth and expansion, why is there such heated debate on tax policy, especially on the very wealthy(like the top 1% who have unadjusted income averaging $2 million)? I believe it is a policy of diverting peoples' attention from what is actually taking place, like a very sophisticated game of three-card monte. While the plebeians are led to argue among themselves on what is a "fair" tax on the rich, the rich themselves are huddling with their accountants, lobbyists, investment advisers and government policy wonks to figure out the best way of not only sheltering their income, but how to make even more. I have nothing against people making money, even undreamed of riches, but they do need- and this is again my personal opinion- to have a social conscience, and not pursue riches regardless of the cost to ordinary people. In this context, I am reminded of how Walmart, for example, tried to prevent workers in Bangladesh from receiving a few more pennies an hour, literally. There are millionaire shipbreakers in western India who discard their dead and dying workers, instead of providing them with the proper work tools and medical care in the first place. Freemarket capitalism at its finest? You betcha, as Sarah Palin would say!
And what exactly am I going on about? In a nutshell, we the people are furiously arguing the pros and cons of the macro effect on the economy of top marginal tax rates, and about "job creators", while after every boom and bust cycle, you will find that the gulf between rich(the real rich, mind you, not those making mere 6-figure incomes) and the poor is ever widening. The top tax rates simply don't matter, you could put it at 100%, and the wealthy would privately just shrug even as they urge the plebes to argue even more furiously. If you really want to do something to stimulate the economy and create American jobs, stop sending your discretionary money to Germany, Italy, Japan, Korea and China. Start buying American, even if it costs a bit more or you have to buy less. Talk to your Senators and Congressmen about removing the unfair trade advantages that America's major trading partners have, which effectively block American exports(or put them at substantial disadvantage) while permitting unfettered access to the American consumer. In short, be proactive. Arguing about Friedman and Keynes, and left and right, isn't going to do diddly squat.
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