Monday, August 10, 2009

The cost of Reaganomics

As my previous (1st) posting explains, my analysis of IRS data shows a huge shift of earning capacity from the bottom to the top of the earning scale, between 1981 and 2006 (last year for which data is published). That was a simple number crunching exercise focusing on the results of 25 years of Reaganomics.

Clearly, my interpretation has a point of view: we'd be better off if the fruits of growth were more evenly distributed. That seems to me a balanced point of view, given that 1981 was chosen simply because it was the year when Reagan started the sea change that followed, not because we were coming out of some highly equalized socialistic era of forced redistribution. In fact, we were quite far from Eisenhower policies that today might be considered downright communistic by the conservative talking heads, with a top tax rate of 91%. So much for these talking heads' consistency! While on one hand they clamor against any effort to revert to Clinton era rates (39.5%), where we had record breaking years of uninterrupted growth and job creation, on the other hand they claim JFK as a supply sider (, because he cut rates to 65%. With that impressive intellectual elasticity it must be hard to hold on to a more down to earth following, hence the well known proclivities of the GOP base, which I won't go into here.

Attempting to stay away from technical economics arguments, that have no scientific consensus but seem to embolden many who claim to understand them, I just want to draw attention to the obvious, that the numbers demonstrate: As the economy grew by 116%, the top 1% of taxpayers saw an income growth of 331%, and the bottom 50% saw virtually no progress.
Is this good, bad, or indifferent? Conservatives will have us believe that it is inevitable. If that is so, then there is no recourse against a progression towards social chaos and eventually revolution. Of course, that implication is not so palatable and they prefer to ignore it.
I believe that it is bad; that the state has to interfere to regulate the concentration of wealth that denies the middle class the means to invest, innovate, and be entrepreneurial. Contrary to popular reading of Reaganomics, the wealthiest Americans who benefited from this wealth transfer are not the ones who create the most jobs, the newest innovations, and the dynamism of a democratic capitalist system. Instead it is the middle class that generates creativity driven by the aspiration for a better life (when you are the untouchable what ambition will drive you to abandon your sweet opulence for a life of effort? Such nonsensical view of history can't seriously be argued). Rather than promoting economic growth in the long run the massive wealth transfer that denies the average American the margin to overcome a subsistence mode, reverts us to a feudal model where wealthy people are in a permanent leisure class that has a birth right to opulence and no need for any social contribution, much like the monarchy that the American Revolution overthrew.
It is very hard for someone that makes millions off lending to the Treasury to aspire to an easier life style, not accounting for the thrill of gambling that is likely to consume a fair proportion of those who look for an escape from boredom. But the differences are so huge that there is broad margin to absorb the proverbial black sheep without threatening the continuity of the big fortunes (one million dollars provides more safe income than an average American earns working full time - now multiply that by 100 or 1000 and that is the realm of the leisurely opulent).

My observation, for what it is worth, is that we are well on the road to a feudal model. What I hear from underclass right-wingers (funny concept huh?) is that "if we increase the taxes of the rich who will give us jobs?" Where is the self-reliant streak that defined the American spirit forever? As an answer I don't think we need to look for refuge in any economic ideology; all we have to do is calibrate our political action in function of real economic results. In that sense the visible results of Reaganomics warrant very strong political action. I believe that is what drove the Obama victory and the Democratic majorities in Congress. But the level of frustration with those in power is clearly less visible once they lose the position of formal political control (GOP government). They still control the media, the Supreme Court, and the economy, which gives them much leverage to peel off the outer layers of the historically congealed majority.
So it is important to drive home the simple matter of fact truth: that this is all about economics, not about economic ideology. Almost everybody knows how to balance a checkbook. There is not much more to it, with all due respect to the intellectual debaters.

The formula should be easy to detect. While taxes for the rich were cut, they were raised for the middle class (social security taxes) under the false pretense that it was to secure the future of Social Security; while instead, the bloated deficit has been blamed on entitlements rather than the tax cuts. Compounding the scenario we have skyrocketing executive compensation, financial bailouts to pay millionaire bonuses, health care costs growing 2.5 times faster than GDP, stratospheric education costs in the top schools, everything to indicate that we arrived at a true economic oligarchy, sometimes described as the two Americas: leisure and power for some, and servitude for the rest of us. No more land of the Free here.

Most don't recall the days when socialism was born from a similar class system, but they were not good times for anybody. Are we slipping back to that? Rather than malign socialism, as right-wingers are so inclined to do today, they need to know that the real malignancy is found in the conditions that drive us to seek refuge in socialism. How about learning the lessons of History?

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