Myths, And Why We Believe Them

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Myths, And Why We Believe Them

 

 

By Economist Dr. James Glenn

“The purpose of education is to replace an empty mind with
an open one.” Malcolm Forbes

Old myths die hard. Real hard. Some myths seem to
spontaneously generate, others have a lot of help being perpetuated, and still
others  take a war to repudiate. The myth of Aryan supremacy took a world
war and 60 million deaths to put to rest for example. The myth of white
supremacy took a Civil War and 620 thousand dead to quell, but hardly
obliterate, that myth. Some people believe in the Peter Pan and Santa Clause
myths, and many still believe the myth that tax cuts perpetuate a  sound
capitalist society, despite no empirical evidence demonstrating a statistically
significant correlation between tax cuts and rising living standards and
GDP’s….anywhere in the world. Let me repeat that. None.  Anywhere. Nada.
Zilch. Zippo! With the possible exception of the Heritage Foundation, and Fox
News.

Allow me to preface the following by saying that I have
absolutely no axe to grind with the wealthy. Poverty sucks, and I have spent
all my adult life trying to become a member of their club (the wealthy), and
breathe that rarified air. And I have succeeded for most of my white collar
career(s) to scale those heights (30+ years). I have toiled long and hard to be
in that top 5% of all income earners for the last 30 years. I am, as I write
this in the top 2% if you include the earnings from my domestic partner. I
have  worked hard all my life. Four degrees while working full time
friends, and many, many 16-18 hour days. I believe upward class mobility is
still possible for those willing to pay the price, but that it is getting
harder and harder to move up the economic  food chain, and that the
playing field is increasingly skewed towards the wealthy. I also believe that
we live in one of the most remarkable countries on earth, a pluralistic melting
pot, and a grand experiment. I believe in meritocracy, not plutocracy. I
believe the latter is in the ascendant in our country, and is corroding the
foundation upon which our great Democracy is built, primarily due to corporate
money, and the central bank and its minions, unduly influencing our political
system. Several great articles you should read corroborating this can be found
at:

http://www.thenation.com/article/dismantling-temple

http://www.lewrockwell.com/orig10/taibbi7.1.1.html

I also believe, and I think anyway, that I exemplify hard
work, personal accountability and responsibility, persistence, creativity,
diligence, and yes, ahem, intelligence….and did I mention humility and modesty?
I believe in social justice, and economic  fairness. Those virtues that
have made this country great! I am a moderate Progressive, but in many ways
more Republican than my Republican friends, who claim to embrace limited
government, balanced budgets, non intervention abroad unless absolutely
necessary, and truly free markets, not oligopoly which is what we have today. I
have religiously read the Wall Street Journal, Baron’s, Force’s and all of the
financial press, which mostly leans hard right in my opinion, longer than half
our population has been alive. I know all the right’s low tax arguments in my
sleep, and agree with some. I have CNBC on at home when I’m there. I now teach
everything from leadership and corporate finance to quantitative methods and
international business at the Doctoral, and MBA levels. No, my gripe is not
necessarily with the wealthy, business, or conservatives per se, it’s with
hypocrisy. All that being said, let’s get to the facts, shall we?

A quick review of a great article, Who Rules America?
points out the obvious. The rich have been getting vastly richer, the poor
poorer (surprise).

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

As Domhoff the author points out,

“Numerous studies show that the wealth distribution has been
extremely concentrated throughout American history, with the top 1% already
owning 40-50% in large port cities like Boston, New York, and Charleston in the
19th century. It was very stable over the course of the 20th century, although
there were small declines in the aftermath of the New Deal and World II, when
most people were working and could save a little money. There were progressive
income tax rates, too, which took some money from the rich to help with
government services.

Then there was a further decline, or flattening, in the
1970s, but this time in good part due to a fall in stock prices, meaning that
the rich lost some of the value in their stocks. By the late 1980s, however,
the wealth distribution was almost as concentrated as it had been in 1929, when
the top 1% had 44.2% of all wealth. It has continued to edge up since that
time, with a slight decline from 1998 to 2001, before the economy crashed in
the late 2000s and little people got pushed down again. Table 3 and Figure 4
present the details from 1922 through 2007.” Take a look at the article, “Who
Rules America?” above..

A Google search of “correlation between tax cuts and GDP
“ will give you pages and pages of studies that demonstrate no statistically
significant correlation between tax cuts and GDP. None.

Another great article also points out what should be obvious
to all of us by now, that tax cuts are not expansionary, and often have just
the opposite effect as touted! Don’t believe it? Read the article and decide
for yourself.

http://www.angrybearblog.com/2010/02/real-gdp-per-capita-and-tax-cuts-top.html

“Faster economic growth occurs in years when you have tax
hikes than tax cuts. Wait, that can’t be right. This graph is not showing the
Truth! So how do we salvage it? Well, maybe the problem is that it takes awhile
for the American public to react to a tax cut. After all, it has to be a huge surprise
when a person who has talked about the virtues of tax cuts for thirty years
actually (get this!) cuts taxes when he becomes President. I still remember the
shock we were all in back when GW cut taxes in 2003 – who could possibly have
expected tax cuts from a guy who had cut taxes in 01 and 02 and had been
promoting tax cuts as the solution to everything from gout to bad haircuts? So
maybe we have to assume that it can take a while for tax cuts to have their
glorious effect, allowing us to soar into growth nirvana.”

He goes on to say,

“Finally. Some evidence. All of this allows us to state that
“carefully selecting data allows one to show that that tax cuts are correlated
with rapid growth in the first and second year after the cut, but even that
degree of cherry picking indicates that the year of the tax cut, as well as 3
or more years out, growth is faster when taxes are hiked than when they are
cut.”

Let’s take another look and a few excerpts from another
study.

http://www.huppi.com/kangaroo/L-taxgrowth.htm

This study points out what every economist worth their salt
already knows, that tax cuts for the wealthy have nothing to do with economic
growth. The paper summary/abstract states, Summary

“There is no historical evidence that tax cuts spur economic
growth. The highest period of growth in U.S. history (1933-1973) also saw its
highest tax rates on the rich: 70 to 91 percent. During this period, the
general tax rate climbed as well, but it reached a plateau in 1969, and growth
slowed down five years later. Almost all rich nations have higher general taxes
than the U.S., and they are growing faster as well.”

Their concluding remarks:

“  What all this shows is that growth is not absolutely
correlated with taxes, and both liberals and conservatives have problems in
trying to make a case. Far more serious factors affect growth, although, in
truth, economists do not know exactly what they are. Nobel laureate Robert
Lucas, one of the world’s most famous conservative economists, has spent over a
decade looking for the secret to economic growth, and has not found it.
Nobel-bound Paul Krugman, one of the world’s most famous liberal economists,
admits that the mystery of growth is “deep and poorly understood.” People
who claim that tax rates affect growth are not serious economists; more often
they are journalists, radio-talk show hosts, politicians and other types of
snake oil salesmen with easy solutions to complex problems. You can dismiss
their bumper sticker slogans with perfect confidence.

 

Fortunately, there is a policy implication in all this. If taxes have such a
weak effect on growth, then we should consider tax cuts or hikes for their
other effects, like income distribution or alleviation of poverty. Conservatives
can no longer decry these programs on the basis that they will harm economic
growth, since these assertions are completely unfounded
.”

Larry Kudlow or Sean Hannity anyone? “Snake oil salesman”
might be too kind.

Being an academic, I also I went to numerous university
sites such as ABI inform and Proquest and did a peer reviewed economics and
finance journal search using the same search methodology. I’ll save you some
time. There is no empirical evidence demonstrating a statistically meaningful
relationship between tax cuts and growth at the .05 or .01 confidence level
(standard paramaters). None. There is however plenty of anecdotal evidence to
demonstrate the harm they do. Open your eyes. If tax cuts are so great for the
economy we should still be booming, shouldn’t we? Weren’t we told that those
Bush tax cuts would spur unbelievable economic growth? The only growth we ever
saw was in the worlds largest asset bubble thanks to an over accommodative
central bank, and corporate malfeasance unparalleled in our nations history. I
ask you? Is that evidence of a sound capitalist economy?

http://mpra.ub.uni-muenchen.de/348/

So, why does the myth of tax cuts spurring economic growth
persist? A great book I have used in Management and Leadership classes,
“Judgment In Managerial Decision Making”, (Bazerman & Moore, 2009) may be
of some use here. The book illustrates how a myriad of human biases affect our
decision making, and thought processes. These  biases, # 5, 6, 7, & 8
below are discussed briefly. Others, which are more obvious, i.e., #s 1, 2, 3,
& 4, I’ll talk about briefly first.

1.       The wealthy sleep
better knowing their tax cuts are benefiting us all??? (LOL)

2.       Economic opportunism

3.       Media bias

4.       Power and access

5.       Confirmation Bias

6.       Omissions Bias and
the status quo

7.       Bounded awareness

8.       Self serving
reasoning

To point one above. I know many well intentioned wealthy
people as defined by the article referenced above, that are social moderates,
but tout the Republican myth that their tax cuts are good for all of us. This
myth makes their selfishness, and dogged individualism, more palatable to them,
and quells the cognitive dissonance ringing in their ears when they walk past
the homeless, or read articles like this. Anecdotal evidence to the contrary is
all around them, and yet they persist in this belief because it allows them to
sleep at night.

Lets face it friends, it pays to be a mouthpiece for the
corpotocracy, and right wing. Just look at the take home pay of Rush Limbaugh,
Sean Hannity, and Glenn Beck. They get paid millions not because they have a
clue about what they’re talking about, but because they throw red meat to their
rabid base night after night, ala Fox News. Call this enlightened self
interest, or as I prefer, blatant kow towing to Republican myths like the one
being discussed, because its lucrative. It just doesn’t pay to take the other
side. We don’t have that kind of money. Trust me. I know. Am I jealous? You
betcha!

http://www.opednews.com/hersh_062904_media_bias.htm

The right wing has long accused the media of a left wing
bias. If this isn’t a spectacular case of projection, I don’t know what is.
Turn on your AM dial and go through the channels sometime. Ninety percent of
them are either bible thumping evangelicals, or card carrying Republican
mouthpieces, falling right into line with whatever the party line is that day.
Turn on cable. Same situation. Print media too. Much of it hard right,
especially the financial media. This of course makes perfect sense when one
stops to consider that six corporations now control nearly 90% of all media
outlets. And of course, as we all know, Republicans are the party of big
business, isn’t it. So which party do you think the editors/CEOs, and Boards of
the majority of these corporations belong to? What do you think? I’d wager most
are in that top 2% discussed earlier. Read the articles below and decide for
yourself.

http://www.webpan.com/dsinclair/myths.html

http://www.fair.org/index.php?page=1067

http://www.politicususa.com/en/right-wing-media-bias

As any observer of the political and economic scene in DC
knows, we have a revolving door between Congress and K. Street, and the
Pentagon and the corpotocracy. Miltary routinely leave military service to
become “consultants” for defense contractors because they have spent decades on
the inside gaming the system. In like manner, Congressman routinely leave
government for lucrative careers as K. Street lobbyists. Who better to game the
system than those that have spent decades in the belly of the beast? The
military, as we all know, predictably leans hard right for obvious reasons.
Republicans traditionally, are the party of war, as they have demonstrated so
effectively under Bush II. There of course is huge money in war for the
Pentagon, defense contractors, and lobbyists’ and Congressman on the take. For
those seeking or solidifying power, war is great! And oh so profitable!
They of course, will support the myth of low taxes being good for the economy,
whether they believe it or not.

http://en.wikipedia.org/wiki/Revolving_door_(politics)

http://www.prwatch.org/node/8813

http://www.miller-mccune.com/politics/traffic-jam-in-d-c-s-revolving-door-17386/

Confirmation bias occurs when we select information (or
intelligence) that we know confirms our point of view, and disregard all
information to the contrary. We believe what we want to believe. As they note
in Bazerman & Moore (2009) “When we encounter information that is
consistent with our beliefs, we usually accept it with an open mind and glad
heart. Yet when we discover facts that force us to question our  beliefs
we ask, “must I believe it.” In other words we ask if we can dismiss the
troublesome tidbit. There are two reasons we fall prey to the confirmation
trap. The first has to do with the way the human mind is designed to retrieve
information from memory. The mere consideration of certain hypotheses makes
information that is consistent with these hypotheses selectively accessible
(Gilbert, 1991).  Indeed research shows that the human tendency to
entertain provisional hypotheses as true even makes it possible to implant
people with false memories.

We also succumb to the confirmation trap due to how we
search for information. Because there are limits to our attention and cognitive
processing, we must search for information selectively, searching first where
we are most likely to find the most useful information. One consequence is the
retirevability bias we discussed earlier. Another consequence is that people
search selectively for information or give special credence to information that
allows them to come to the conclusion they desire to reach (Kunda, 1990) The
biased search for and interpretation of evidence is particularly striking when
it comes to political partisanship. (surprise!) Those that were outraged by
President Clinton’s false statements about his affair with Monica Lewinsky,
were less outraged when it emerged that President Bush and his administration
had falsely led the nation to believe Saddam Hussein possessed weapons of mass
destruction.”(pp29-30)

http://en.wikipedia.org/wiki/Confirmation_bias

Likewise, self serving reasoning, practiced daily by the
aforementioned pundits, is another reason for perpetuation of the tax cuts are
good for us myth. As Bazerman opines,

“Perceptions and expectations are often biased in a self
serving manner (Babcock & Lowenstein, 1997; Dickmann, Samuels, Ross, &
Bazerman, 1997). When presented with identical information, individuals
perceive a situation in dramatically different ways, depending on their role in
the situation (Babcock, Lowenstein, Issacharoff, & Cramer, 1995).
Specifically, individuals first determine their preference for a certain
outcome on the basis of self interest, and then justify this preference on the
basis of fairness by changing the importance of attributes of what is fair
(Messik & Sentis, 1983). While people frequently have the goal of reaching
a fair solution their assessments of what is fair are often biased by self
interest. For example, it is common for all parties in a conflict (tax debate)
to suggest differing viable but self serving solutions, which each party justifies
based on abstract fairness criteria. Self serving reasoning allows people to
believe that it is honestly fair for them to have more of a given resource than
an independent advisor would judge. The problem lies not in the desire to be
unfair, but in our failure to interpret information in an unbiased manner
(Diekmann, Samuels, Ross, & Bazerman, 1997; Messik & Sentis,
1983).”(pp.94)

Leave it to academicians to state the obvious, but in these
studies we have empirical proof that we all act in our own economic self
interest, and believe what we need to believe. Whatever gets us through the
night as they say. Self serving pundits and politicians are hardly new, what’s
new is the tremendous amount of money thrown at these pundits like Limbaugh and
Kudlow to broadcast false paradigm(s), and falsify information. What is also
new is the concentration of media ownership in the hands of the few, as noted
above. In our brave new world money buys access, access buys broadcast time,
and broadcast time and number of channels controlled determine
legislative/political access, and also who gets the message. Clearly big
business, and the party of big business, have a huge advantage here. This is
why Republicans are hell bent on obscuring and obfuscating the sources of campaign
funding. If it were clear, their intentions would be all too clear. As would be
their basis of determining what they perceive to be fair (low or no taxes).
This of course is only fair to the top 5% of all wage earners, but heh, they
never promised us a rose garden, did they?

Finally, bounded awareness is a term used to describe the
reality that when people feel overwhelmed with information they often avoid
deciding at all, or engage in information filtering which precludes them from
seeing a solution to a problem (deficits for example). “People have bounded
awareness (Bazerman & Chugh, 2005) that prevent them from noticing, or
focusing on useful, observable, or relevant data.” (p42) Like the information
and references contained in this article which positively refutes the assertion
that tax cuts increase GDP.

What does this mean in English? Because of bounded awareness
there is a misalignment between the information needed for a good decision and
the information included in awareness which results in focusing failure. People
naturally create mental boundaries precluding them from seeing the obvious
solution. The solution for cutting deficits is simple, increase taxes on those
that can afford it the most, the top 2% and corporations.

I started this article by stating that my problem was not
with business, or conservatives per se, but hypocrisy. There is a battle royal
being waged right now  about whether or not to let the Bush tax cuts
expire. Many in the top 2%-5% would have you believe that if these cuts are not
extended the world as we know it will collapse. They are resorting to the same
fear mongering they always do when they cannot win an argument on its merits.
Neither the facts, as laid out in this paper, or the historical truth, are on
their side. Enter Larry Kudlow, Sean Hannity, Bill O’Reilly etc., etc., etc.
They will keep lying on national television for as long as the debate rages.
End the debate. IF you call yourself a “Patriot”, then be willing to pay the
taxes required to keep a civil society functioning, and stop trying to think of
disingenuous ways to obfuscate the issues. Those that created the bulk of the
deficit problem by ramming these tax cuts for the extreme wealthy  down
our throats in the first place, would now try and talk you into believing that
they must continue or the economy will collapse. This is nonsense, and bald
faced hypocrisy being disseminated by those that would like to exploit the
advantages of doing business in the greatest consumer market on earth, without
having to pay the freight (taxes) to do so. IF you are sincere about knowing
the truth, all you have to do is read. Open your eyes, and your mind. I’ve
provided all the evidence required.

The bald faced hypocrisy involved in feigning anything
remotely resembling social responsibility by those that actively seek to
undermine our government, and consequently our society as we know it, by not
paying taxes, is intellectually disingenuous, and repulsive, and emotionally
abhorrent to many of us. I say to my compatriots in the top 5%, IF you want to
screw your country, don’t call yourself a Patriot. You are not. You’re just a
hypocrite. Pay your taxes like the rest of us.  If you don’t want to pay
your fair share of taxes, at least have the cahonnes to admit it to the rest of
us, that yes, I’m selfish, and proud of it. Have some intellectual and
emotional honesty for God’s sake, instead of hiding behind totally discredited,
and esoteric economic theories. Your country needs you.

Good night friends,

Jim