The supply-side gospel is dead — profoundly, utterly debunked by empirical reality — but refuses to shut up. Not only are the wealthiest Americans hoarding trillions of dollars rather than investing,

Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms’ coffers. […] A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of these executives don’t expect to bring their employment back to pre-recession levels until 2012, or later — even though they’re projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year. When asked why companies are holding back so much, many economists cite broader uncertainty that goes well beyond anything happening in Washington. Firms aren’t sure whether the economy can sustain a strong recovery. And as long as consumer spending remains low, there’s not much incentive for companies to ramp up. (WaPo)

Let’s take a moment to recap ECON 101. The economy is measured in (GDP) Gross Domestic Product, which is the sum of four things: (C) Consumer spending, (I) Investment spending, (E) Exports, (G) Government spending. The equation looks like this:

GDP = C + I + E + G

Consumer spending is down because we’re scared of the economy. Investors — both human and corporate — refuse to invest as long as consumer spending is down. But that won’t come down until the economy improves.

This dilemma leaves us with just the (E) and the (G). Sure, Obama wants to increase American exports; but that takes years of consistent policy and it’s not guaranteed to work. Which leaves you with (G) — big, bad, awful, terrible GOVERNMENT SPENDING — as the last option for lifting the economy to restore consumer and investor confidence.

Your supply-side strategy doesn’t work. Cut the taxes of these wealth-hoarders and all they will do is hoard more. Arthur Laffer, whose imaginary curve forms the basis of conservative economics, thinks the solution is to do away with taxes altogether:

No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?

The Laffer curve is magic. It makes government revenue grow by cutting taxes — except that it doesn’t — so Laffer is just reaching his logical conclusion when he suggests that deficits will disappear (magic!) when government has no revenue. One imagines the investor-class would hoard their cash even then.