To Paul Krugman's Twinkie Manifesto: Meet The Reality Of The 1950's

Once again, Paul Krugman is using his certification as a Nobel Prize winner in economics to help support President Obama's push for tax increases on the rich. In his November 18th op-ed titled the 'The Twinkie Manifesto', this liberal economist harkens back to the days of prosperity of the 1950's when tax rates on the rich were as high as 91% and corporate taxes were double that of today's rates; thus proving that high taxes on the nation's wealthy and big businesses failed to hurt our economy.  In fact, in reading Krugman's piece, you almost feel as if he's arguing that high tax rates caused the economic boom of the 1950's. 

What Krugman fails to tell his readers is the "why" America was so prosperous during those years and why those high taxes failed to thwart that prosperity.

You see, unlike the rest of the industrialized world, America came out of World War II physically and economically unscathed.  We didn't have to rebuild our burned-out and bombed-out cities.  We didn't have to spend billions rebuilding our infrastructure; and, we didn't have to spend years clearing land mines and unexploded bombs.  In many cases, full recovery for those other countries wasn't reached until the 70's.  In fact, Germany was still rebuilding into the 1980's.  As a result, we became the manufacturer to the world; providing much of what the rest of the world was unable to make for themselves.  As a country, we accounted for more than 60% of the world's manufacturing in those years that Krugman calls the 'The Twinkie Era' (the 1950's).  America was, in fact, a net exporter with a very positive balance of trade.


Over time, those war-injured countries regained their manufacturing capabilities and our trade balances went negative as we began importing more and more foreign-made goods.  The importation of lower cost products forced our own manufacturers to compete with lower prices.  To achieve this, American companies sought wage concessions from the unions and from non-union labor.  If the concessions weren't achieved these companies had no other choice but to move their manufacturing operations offshore.  As a consequence, union membership fell from 36% of the labor force in the 1950's to about 12% today.  Over time, various U.S. Congresses and Presidents were forced to lower tax rates in order keep us cost competitive and create jobs; starting with JFK, a Democrat, in 1963 when he proposed and achieved a lowering of tax rates from the then-current 20-91% rates to rates of 14-65%. 

Lastly, there's something I like to call the Ross Perot Effect to counter Mr. Krugman's Twinkie Manifesto.   In 1962, Ross Perot started a computer software company known as EDS (Electronic Data Systems).  By 1984, that company had become so successful that General Motors paid Perot $2.5 billion to acquire it.  By 2008, EDS employed more than 139,000 taxable jobs and generated billions of dollars in taxable profits. In 1985, Perot then used his wealth to partner with Steve Jobs -- then on the outs from Apple -- to start another company called NeXT computer.  Thus creating more jobs and more tax revenues for our government.  Then, in 1988, he started another company, Perot Systems, which grew to employ another 23,000 highly-paid and tax-paying workers.  Additionally, over the lifetime of Perot Systems billions more in profits were taxed by our government.

The bottom line is that if we had the high tax rates of the 1950's, a guy like Ross Perot wouldn't have created as many taxable jobs and taxable profits in such a short amount of time.  In fact, if he was taxed 91% on his sale of EDS -- as Krugman seems to suggest -- NeXT Computer and Perot Systems may never have happened.  Ross Perot is just one of many wealthy who have been able to use their earned wealth to create more wealth; more jobs; and, ultimately, more taxes for the federal government.  In fact, many companies wouldn't have even gotten started if it hadn't been for wealthy, venture capitalists taking an initial investment in them.

Liberals, like Krugman, just don't seem to understand that old and simple axiom: It takes money to make money. Taking money away from the wealth creators is just plain stupid, and actually reduces tax revenues in the long run.

--- New York Times: The Twinkie Manifesto: http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?ref=opinion

--- JFK Presidential Library: JFK on the Economy and Taxes: http://www.jfklibrary.org/JFK/JFK-in-History/JFK-on-the-Economy-and-Taxes.aspx