In 2013 Kansas, under the guidance of Governor Sam Brownback embarked on a great experiment to test a particular economic theory. They slashed the state income tax.
The theory is the one derived from models developed by the Austrian School (go here for a detailed discussion) and honed in the 1970s by a conservative group of economists at the University of Chicago led by Milton Friedman.
While the theory gets very abstract one of the core hypotheses is that tax cuts will stimulate the economy. This argument is based on the assumption that people will spend the money saved and spending stimulates the economy. When people have more money they buy more things, someone has to manufacture and produce these goods which means that hiring will go up in those plants and manufacturing centers which will bring more money into the mix which people will use to buy more things, etc. This notion that increasing expendable cash will have a generally positive impact on growth is shared by Keynesian macroeconomics but the Keynesians understood some subtleties that the Austrians didn’t that Brownback and his conservative legislators either did not know or chose to ignore.
For one, the amount of money saved by each individual isn’t very much and does little to simulate the overall economy of the state. Second, the goods and services aren’t necessarily made or produced locally so whatever gains might occur won’t always have their impact on the local economy. In fact, they rarely do. Kansans may buy more bread and cheese but it likely won’t be made by local bakers or cheese mongers.
Third (and critically) the most immediate impact of the reduction in taxes is a reduction in tax revenue and all the services and support systems from health care to education to roads and street maintenance suddenly find themselves underfunded.
Fourth, agencies do anything they can to replace the lost revenue. Permitting fees go up. License fees go up. Property taxes are increased. Nuisance taxes are introduced. All these under-the-table taxes hit the working poor the hardest and any tiny gains from the income tax reductions are wiped out.
The quality of life drops precipitously and without the hoped for gains in jobs things begin looking bleak. Worse, the state is legally obligated to provide certain services (public hospitals, police, sanitation, justice, education) and these expenses drain the state coffers.
But, undaunted by these caveats Kansas embarked on their great experiment — and it was paraded loudly as just that. Brownback held several press conferences in which he said that the state was engaged in a final, practical test of the conservative model of economics which, he was certain, was going to work wonders.
What happened? Well, putting it as gently as possible, it was a f*cking disaster. In the first year Kansas actually saw its economy retract — while the rest of the country was undergoing an expansion (-.3% v. +1.9%). In 2014 things improved a bit but below what was going on elsewhere (+1.8% v +2.2%) and 2015 is even worse (+1.2% v +2.4% or barely half of the national average).
Has Kansas acknowledged the results? Has Brownback behaved like a good scientist should when the data are in and the analyses are unambiguous?
No, they acted like Benjamin Rush back in the late 1700s.
Rush was a remarkable chap, physician, politician, diplomat and signer of the Declaration of Independence. He is generally regarded as the founder of the field of psychiatry and his profile is on the seal of the American Psychiatric Association.
He was also a firm believer in blood-letting as a general cure for virtually all disorders. He became quite ill, from his descriptions it was likely an influenza. Since he was the best physician he knew he treated himself — by opening a vein. There was no improvement over the next several days so he bled himself again. Again, no improvement.
He then engaged in what he later described as “heroic” bloodletting for he was certain that it had to work — eventually.
And, miraculously, he recovered, slowly and painfully. But he recovered and concluded, of course, that he had found the ultimate cure for general bodily dysfunction.
If Brownback’s Kansas recovers it will be for the same reasons Rush returned to health. Other factors managed to finally overwhelm the unhelpful, even damaging, impact of the opening of (literal and metaphoric) veins.
My guess is that while Rush recovered because his own immune system finally defeated the virus, Kansas isn’t going to be made “all better” until someone with a grip on modern economic theory boots Brownback and the Republicans in the legislature out. I’m not holding my breath.