Newsletter Numéro 48 6 January 2012
How We Got Here With the Economy and How to Get Out
by Robert Freeman*
It’s easy to get fixated with small-bore issues on the economy, even if they don’t seem so small-bore at the time. Stimulus packages. Bailouts. Debt ceilings. Deficit commissions. Payroll tax-cut extensions. They seem like life and death issues while they’re being fought out.
But, in fact, they are distractions from the one real question that dominates all others, which is this: for whom should the economy be run? Should it be operated “to promote the general welfare” of 297 million people, the 99 percent? Or should it be run to benefit 3 million, the one percent?
Right now, the answer is that the economy is a machine, with the government as its operator, for transferring two hundred years of accumulated national wealth to those who are already the most wealthy, the one percent. And we should be clear about two things: this is a choice; and it’s working. The rich are getting much richer while everyone else is being stripped of their incomes, their assets, their retirement security, and all the elements of the social safety net enacted since the Great Depression.
Until we confront the fact that the collective impoverishment of the many for the selective enrichment of the few is a choice — the consequence of an explicit policy regime going back 30 years — nothing will change. But if we can muster the maturity to confront this fact, that we are here by choice, and find the courage to act on it, we might yet be able to save the country. If we do not, then we are surely lost.
To understand how we got here, we need to quickly review the economic history of the last sixty years. Then we can discuss what to do going forward.
At the end of World War II, the U.S. bestrode the world like a colossus. Its only industrial rival, Europe, had blown its brains out 30 years before, in World War I. And it did it again, in World War II, with Japan joining in. In the history of the world, there has never been such asymmetry in power between one country and all the rest.
It was U.S. capital that rebuilt its allies’ economies, through the Marshall Plan in Europe, and through military spending in Asia. U.S. factories boomed, to service not only its own vast and ravenous market, but those of all the rest of the world. All the equipment (and much of the food) to rebuild the industrial world came from America.
It was truly the Golden Age. There was enough wealth so that capital, labor, and government could all drink deeply from the seemingly inexhaustible spring of capitalism.
But by the 1960s something began to go wrong. Our allies’ economies had by then been rebuilt, and with the newest equipment and technologies. Theirs were more efficient than ours. The Volkswagens and Toyotas that would later become a tsunami began to trickle in. Same with the Sonys and Panasonics in consumer electronics. Shipbuilding, steel, machine tools, industrial electronics and other major industries began to migrate out of the U.S. and into the hands of foreign companies.
At the same time, the then-99% began to place serious claims on national resources, and to insist on being a player in major national decisions.
Johnson launched the Great Society program withthe goal of eradicating poverty. The women’s rights movement, the civil rights movement, the anti-Vietnam War movement, and the environmental movement all proved dramatically effective in redirecting national priorities and resources away from those favored by the wealthy elites and toward those of the rest of the people.
In other words, at exactly the time the profits of corporations were under assault by growing international competition, the people began to claim a greater share of society’s fruits. It couldn’t square. There was not enough output from the faltering economy to both satisfy people’s expectations of middle class affluence and economic security and capital’s demands for higher and higher returns. Something had to give.
Equally, the elites who had run the country for decades were indignant at the presumption of a mangy mob of un-bathed, pot-smoking, long-haired, bra-less, draft card-burning, tree-hugging hooligans who didn’t even have a job but wanted a seat at the table of national decision-making (sound familiar?). They were certainly never again going to allow such a scabrous cabal to decide that the country should not fight a major war (Vietnam) that was so enriching to the elites who had lied the country into it.
So the elites decided to take “their” country back.
The election of 1980 was the real watershed in modern American history. Ronald Reagan ran for president promising to cut taxes, increase military spending, and balance the budget — all at the same time. He called it “supply side economics.” His rival for the Republican nomination, George H.W. Bush, called it “voodoo economics” which, of course, it was. But people bought it and Reagan proceeded to rearrange economic power more substantially than at any time since Roosevelt enacted the New Deal.
Reagan cut marginal tax rates on the wealthy from 75% to 35%. At the same time, he dramatically increased military spending. The result was entirely predictable: with less money coming in but more going out, the government began to run massive deficits. Where Jimmy Carter’s worst deficit was $79 billion, Reagan was soon running deficits of $150 billion a year, year after year and increasing.
By 1992, the end of George H.W. Bush’s presidency, the annual deficit had reached $292 billion. In only 12 years, the supply side “revolution” had quadrupled the nation’s debt, from $1 trillion to $4 trillion. And this, in a time of peace and prosperity.
*Robert Freeman teaches history and economics at a public high school in northern California. He is the founder of One Dollar For Life, a national non-profit that helps American schools build schools in the developing world with donations of one dollar. He can be reached at email@example.com.