Kevin Hassett, chairman of the Trump administration’s Council of Economic Advisers, argues that, contrary to public opinion, the Trump tax cuts have already been a rousing success. Hassett’s argument, laid out in a Wall Street Journal op-ed, is that anything that increases the profitability of business by definition helps workers. If you think otherwise, you are some kind of commie.
“Opponents [of the Trump tax cut], echoing leftists from Marx to Piketty, describe those provisions as giveaways to the wealthy at the expense of the working class. They’re wrong,” he says, because, “When profits go up, capital investment goes up, and wages follow.”
There is large amount of data, supported by a deepening field of theory, that suggests something very different. The current economic recovery has seen corporations accumulate large stocks of capital that they have failed to invest. Profits have grown, but — contrary to Hassett’s simple tautology — wages have not followed. There has been a large and persistent increase in the share of national income going to corporate profits:
Economists more curious than Hassett have studied this conundrum and tried to develop some explanations. One school of thought suggests that the economy has become less competitive. Businesses have been able to capture a larger share of economic growth through profit because workers have diminished leverage to bargain for higher wages.
Hassett’s response to these challenges is to assume they cannot be true because it would be an indictment of capitalism. “The tax bill delivered a much-needed boost to capital-starved American workers,” he asserted. Are American businesses, sitting on massive reserves of cash, actually “capital-starved”? Hassett assumes they must be.
“Perhaps it is a time to put aside the archaic notion that the conflict between capital and labor is the central story of our society,” he concludes. “In a modern competitive economy, workers do well when their employers do.” The whole objection, of course, is that the economy might not be optimally competitive, as evidenced by the fact that workers have not done well even when their employers have.
Republicans often object when Democrats describe their economic agenda as giving more money to the wealthy and assuming the benefit will “trickle down.” But Hassett’s arguments makes it perfectly clear this is exactly what they believe.