Economic Summary

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EXECUTIVE SUMMARY

(April 2011)

1. The federal economic policies started in the Reagan Administration (the so-called “Reagan Revolution”) cut the top income tax rate (70%) in half, discontinued anti-trust law enforcement and minimized business regulation.  As a result, income and wealth inequality has grown substantially, to the point existing in 1929 before the Great Depression.  These policies resulted in the 2008 crash and recession, and without a course change will lead to another depression. Keynesian Economics,  Stable Income Inequality, Appropriate Taxation for Stable Reasonable Inequality;
2. Today, income and wealth are concentrated in the high echelons of the wealthiest top 1% and top .1% at unimaginable levels, and nearly all economic growth is accruing to the top 1%.   The 30-Year Growth of Income Inequality,  Growth in Inequality of Wealth: 1979-2007, Growth in Inequality of Wealth: After 2007 ;
3. The historically proven optimal marginal income tax that produces sustained growth and prosperity throughout the economy is 70%.  Thus, income and wealth inequality keeps getting worse even as politicians continue to argue about whether to increase the rate from 35% back up to 40%, or reduce it further to 25%.  Other policies (e.g., capital gains taxes) must be treated consistently.  Stable Income Inequality, Appropriate Taxation for Stable Reasonable Inequality, Fixing the Broken Tax System;
4. Over the 30 years up to 2007, about $8.8 trillion of wealth was transferred from the bottom 99% to the top 1% via the policies of the Reagan Revolution.  The incomes of middle class Americans lost ground in the last 30 years, and their wealth dwindled as they went from net savers to net borrowers. Growth in Inequality of Wealth: 1979-2007;
5. The continuation of these policies has produced an additional transfer of at least $1.2 trillion since 2007.  Thus, at least $10 trillion of wealth has been transferred to the top 1% since 1980.  In addition, more wealth has been lost to the bottom 99% through the loss of homes and residential real estate values after the 2008 Crash. We estimate that loss to exceed $5 trillion.  Growth in Inequality of Wealth: After 2007;
6. The total wealth of the lower 99% is no more than 2/3 of what it would have been without the policies begun in the Reagan Revolution.  New growth today is mostly captured by the top 1%.  Growth in Inequality of Wealth: After 2007;
7. Republican administrations are wholly responsible for all of the federal debt incurred since 1980, constituting more than $12 trillion of the current total of more than $14 trillion.  Guess Who Ran Up the Federal Debt;
8. The Republican debt essentially financed the tax cuts for the rich and the excessive growth of their wealth and incomes.  Simply put, the wealthy elite have used the credit of our government to borrow more wealth for themselves, and they are making it abundantly clear they do not intend to repay the loan.  Guess Who Ran Up the Federal Debt;
9. The huge national debt now threatens the viability of government and the economy.  Only two things can help now: (a) slashing wasteful military spending and non-productive military expenditures (inefficiency, excess profits, and warfare), and (b) increasing taxes on the rich and corporations;
10. Any cuts in social programs must be avoided, because such cuts reduce economic activity and continue depress the economy.  Dismantling the self-funding Social Security program, as intended, would add more financial profiteering and further increase the transfer of wealth to the top 1% and depress the economy;
11. Republican policies at both the federal and State level continue to move in exactly the wrong direction, accelerating economic decline.  Critically, the Republican refusal to consider the one thing that is most needed, higher taxes for the rich, is devastating.  The country needs better health care reform and improved social spending (job creation, unemployment insurance, etc.) all of which stimulate the economy;
12. Taking advantage of the crisis they created, the wealthy and their corporations are not only continuing to insist on destructive budget policies, but they are moving swiftly to privatize state and local governments in the service of business interests (e.g., Benton Harbor, MI) and to suppress political opposition to their economic program (e.g., union busting in Wisconsin, Ohio and elsewhere, and voter registration control in Kansas, Arizona, and elsewhere);
13. These brazen and open attacks on the American people and the American way of life suggest that the radical billionaires behind them, with their control of the media and huge financial advantage in the election process, now believe they are unstoppable;
14. Americans, who are mostly unaware of the high level of inequality that has developed over the last 30 years, are only now becoming aware of the serious impacts of these current trends on the future of their economy and their democracy.  America will have to come to its senses quickly, because the 2012 Presidential election will decide America’s fate.

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          For the past 30 years America has been declining economically, socially, and politically, and it has now reached a crisis situation.  The far-right political ideology that dominates most of the media and most of the news serves the interests of the wealthy elite, which as a practical matter we now can refer to as “the top 1%.”  The economy is faltering, and headed toward a depression, and the radical right continues strenuously to push the economy in that direction.

          For those of us who grew up in the 1950s and 1960s, discussions about America and its economic and social issues today have an unworldly, unseemly quality, with the right-wing politicians and public officials, in contrast to what we are accustomed to thinking of as “conservative,” adopting behavior and pursuing agendas that come off as cold, heartless, mendacious, and sometimes morally degenerate.  We don’t know how to explain this difference to young people today who never experienced the America we grew up in.  We can, however, explain what has happened over the past 30 years and discuss the implications for the class warfare that has emerged in this crisis.  Here is our economic overview, linked to more detailed discussions:

The Reagan Revolution

America’s precipitous decline began at the start of the Reagan Presidency, when the “Reagan Revolution” introduced policies that began a steady decline in America’s prosperity and economic growth.  We show how the three elements of Reaganomics – cutting taxes, deregulation, and cutting government spending – rejected the framework of the successful, prosperous political economy of the previous thirty-five years and greatly harmed America. Reaganomics is tailor-made to increase the wealth of America’s richest people, decrease America’s social commitment to everyone else, and unleash the unregulated forces of corporate monopoly power to maximize profits and govern the economy.  Abusive Reaganomics has seriously damaged and threatens to destroy the American economy.

We show that Reaganomics is a slick, self-serving ideology that is exactly the opposite of sound Keynesian economics: It claims that lowering taxes for the wealthy elite and corporations stimulates economic growth and prosperity, when it merely increases the wealth of the top 1% while depressing economy, and decreasing the incomes and economic growth of everyone else, a group we can now refer to as “the bottom 99%.”

Tax Cuts for the Rich

The first element of the Reaganomics agenda was a reduction of the top tax rate, the rate the wealthiest people pay on income over the highest bracket, from 70% down to 28% (It’s now at 35%.)  This has given rise to rapid and incredibly large increases in the inequality of income and wealth, with disastrous consequences for the economy.

As we explain:

After 1980, as part of the Reaganomics agenda, income taxes for the wealthiest Americans were greatly reduced, resulting over the last 30 years in a great increase in income inequality and, consequently wealth inequality.

Economic growth was suppressed, and real incomes stopped growing for all but the wealthiest few, which have seen enormous income growth.  Just before the American economy entered the Great Recession in 2007, the unequal distribution of incomes returned to the level it was at just before the Great Depression in 1928.

After 1980, the after-tax income of the top 1% continued to grow at about 7% per year, while incomes flattened out and the economy stagnated for everyone else, and real incomes (adjusted for inflation) in the lower-income groups actually declined;

This meant that nearly all economic growth accrued to the top 1%.  The top 1% thereby very successfully gained a larger slice of the pie. But there was a crucial cost: If lower-income groups had been allowed greater income and economic participation, the bottom 99% would have contributed substantially to growth, and the economy would have grown at a faster pace – there would have been a bigger pie!  We conclude that had there been an optimal tax structure and level of inequality the economy might have grown about 1.50% more per year over the past 30 years!

In other words, by not trying to get richer by reducing their taxes, and by accepting a lower percentage of total income, the top 1% might have seen their incomes grow at 8.50% annually rather than 7%, and everyone else could have seen similar growth in their incomes.  This would have happened if the multi-millionaires and billionaires at the top continued to pay the higher tax rates that prevailed during the period of America’s great prosperity.

By 2007, the percentage of total income earned by the top 1% had returned to 23.5%, near the level existing in 1928 at the start of the Great Depression.  The reduced percentage of total income of the bottom 99% has meant less economic activity and growth for them and for the underlying economy.  These trends make another depression virtually inevitable;

Wealthy people accumulated their after-tax savings as additional wealth. By 2007, the top 1% had increased the percentage of total wealth it held in 1976 by about 75%.  By 2007, the top 1% had gained additional wealth of about $8.8 trillion from the bottom 99%, as a direct result of the increased inequality of wealth brought about by Reaganomics tax policy;

The tax decreases for the wealthiest Americans were financed by federal debt.  At the beginning of the Reagan Administration, federal debt was a little over $900 billion, one-third of GDP.   Federal debt is now over $14 trillion, more than 2/3 GDP, a level that essentially bankrupts the United States.  More than $12 trillion of that is attributable to debt raised in the Reagan, George Bush and GW Bush Administrations, including accumulated interest. This federal debt has from the beginning mostly (if not entirely) was used to finance lower taxes for the wealthiest Americans (roughly the top 2.5%).  The wealth gained by the top 1% by 2011, we estimate, was about $10 trillion.  Thus, it is fair to regard the $12 trillion debt caused by the Reagan/Bush/Bush deficits as having predominantly financed tax cuts for the wealthy and, ultimately, transfers of wealth to the top.

Government Spending

          The fact that almost all of our more than $14 trillion of national debt was incurred by Republican administrations, intent on providing tax cuts for the wealthy, belies the persistent Republican claim that America’s financial problems and the national debt were caused by “big-spending Democrats.”

One ideological pillar of the Reagan Revolution insisted that big government and government spending are bad, but that was a selective concern.  The Reagan government was very big and very expensive, when it was spending taxpayer dollars to employ corporations for things like making weapons.  In practice, the concern about “spending” worked out to be opposition to government administered spending, like “welfare” programs for people.

Reagan had an ideological preference for private enterprise.  But at least he spoke from a high moral ground that today’s right-wing radicals make no effort to uphold.  Reagan made it clear that he supported “the American Dream” and freedom and opportunity for all Americans, not just the top 1%.  And he made it clear that he wanted America to prosper and to avoid another depression.

It appears Ronald Reagan was too idealistic about capitalism:  Those who are carrying his banner today are gleefully taking us exactly where he did not want to go, and they are doing it in the name of the “Reagan Revolution.”

Deregulation

Hoodwinked again!  Just as he had allowed himself to be persuaded that the singularly illogical “supply-side” ideology was real economics, and that he should manage his government by surrounding himself with the “best” people from the corporate world and let them do their thing, he evidently was convinced by these very same people who, if he would just set them free, they would do right by America.

Their “thing,” from day one, was to relieve themselves of regulations that would hamper their pursuit of profit.  They suspended enforcement of anti-trust laws immediately, and thirty years later, the results are demonstrably horrifying for the bottom 99%.

If he was truly sincere in his public utterances, Reagan simply lacked a realistic fear of the capitalist beast unchained.  Today we are learning just how insatiable that beast can be.  It will not rest, evidently, until it has final authority over life and death itself, for there are profit opportunities in both (e.g. – health care). And it will not rest until it has taken over all government functions as well, including the basic right of citizens to elect local governments and run their own communities (e.g. – Michigan’s Mackinac Foundation law).  Even government, it appears, can be profitable.

Looming Battles

As this is being written, the bottom 99% is facing serious challenges from the radical right.  At the state level, local government budgets are being decimated, with the gains from draconian budget cuts earmarked for corporations and the wealthy.  More transfers of wealth to the top 1%, and more deprivation and poverty of the bottom 99%.  More unemployment and more repression of the economy.  These battles have awakened the Midwest and people are fighting back, the beginning of America’s last chance.

At the national level, the GOP is digging in its heels, insisting on severe cuts in government spending for programs for people, exactly the opposite of what is required for economic recovery and salvation.  People-oriented Democrats are struggling in the House nad the Senate, and they need help from all of us now, especially help from all economists and experts who can show them, and the American people, what we’re trying to show here.

As of this writing, the President has proposed to raise taxes on the rich and cut out inefficiency and waste in government.  Republicans continue to argue for decreased taxes for the top 1% and reduced programs for the bottom 99%.  Last week a Republican 2012 budget plan was unveiled calling for continuing the transfer of wealth to the rich along these lines in the amount of $4 trillion over the next ten years.

In light what we have learned about the last 30 years of American economic history, what are the odds that the tenth anniversary of such destructive legislation would arrive before the American economy has, once and for all, crumbled into dust?

JMH – 4/6/11

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