WHERE’S THE MIDDLE-CLASS?

ECONOMIC BUBBLES ALWAYS BURST

I’m tired of political/economic ideology.  Let’s just do what’s practical and works — if that’s tax-cuts then let’s do tax-cuts, and if it’s more stimulus then let’s do more stimulus.  This country has to ditch the past ideology-wars and start to be pragmatic.  We’re in dire straits and continuing the Left vs. Right ideology-wars is not getting us anywhere.

To begin the process of deciding what works, we might want to look to history and see if there are any lessons to build on.  Les Leopold, the author of “The Looting of America,” makes the point that both the “Great Depression” of the 1930s and our current “Great Recession” have much in common.  The most interesting point of commonality is that they both followed a period of Great Income Inequality. 

Remember the Great Tycoons like John D. Rockefeller, Andrew Carnegie and J.P. Morgan? We’re at those levels of inequality again.  So … what worked before … and what did not?  Good starting place.

To get a perspective on Income Inequality we should take a look at historical stats. In 1970 the top CEOs were paid around $45 for every dollar earned by the average worker.  By 2008 it was $1,081 to one.  The top 1% of the excessively-wealthy people — once again, like the Great Tycoons — are making out like the bandits that they are.  

After the Great Depression our government put in place serious regulations on business, the federal government created jobs (literally), and stimulated the economy.

By the post World War II era, America’s distribution of income was relatively equitable.  Not coincidentally:  it was a time when our economy was robust.  And that robust economy occurred at a time when the wealthiest Americans paid up to 90% in marginal income tax-rates.  That progressive income-tax kept our nation from becoming a plutocracy, run by a wealthy ruling elite.  The more-equal distribution of wealth contributed mightily to the robust and growing economy.

The healthy middle-class had money to spend.  They bought goods, which in turn led to growth of businesses and the development of new businesses.  Everyone won in a growing economy.  The wealthy were still wealthy, but were not like the mega-wealthy of the 1930s and today. 

And then CHANGE came to the nation with the Conservative idea of cutting taxes on the upper class — which led to rapid growth in the deficits, and to the destruction of the middle-class. 

Oh, and by the way:  Reagan cut taxes on the wealthy from 69.13% to 50% — and isn’t it interesting that the Right is complaining now about raising the top marginal rates back to Clinton-era rates of 39.6%!?!  So, get this:  50% top marginal tax-rates by Reagan is Conservative, but Obama’s proposed 39.6% rate is Socialism!!!

Paul Krugman addresses the issue as well, “Basically, US postwar economic history falls into two parts:  an era of high taxes on the rich and extensive regulation, during which living standards experienced extraordinary growth; and an era of low taxes on the rich and deregulation, during which living standards for most Americans rose fitfully at best.”  (Emphasis is mine.)

The cause of the recent economic crisis is the same as it was in The Great Depression:  the unequal distribution of income, plus deregulation of the financial sector, which created a big economic bubble.  And the bubble did what bubbles do — it burst.  Our economy has fallen into a cycle of bubble and bust.  And there’s only one way to break that cycle:  we must address the fundamental cause — Income Inequality.

Money needs to move from the current concentration in the hands of the very wealthy, to the middle and lower income levels.  And Wall Street needs serious regulation and oversight.  The 400 wealthiest Americans have had their financial worth actually increase by $30 billion since the beginning of the current economic crisis, while the rest of the country stagnated or lost ground.  Hourly wages have flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

Together, these 400 wealthiest citizens own $1.57 trillion in wealth.  And they have accumulated much of that money through the Republican effort to CUT THEIR TAXES.  Again, let’s remember that in earlier times in our nation we actually had a very progressive income-tax rate:  During Eisenhower’s Presidency in the 1950s the top marginal rates hit 91%. 

Taxes were high then because it was generally understood that having some constraints on extremes of wealth would make our nation stronger and prevent another Great Depression.  And, a gentle reminder:  Eisenhower was a Republican; and our economy was robust and booming under those high marginal tax-rates of 91%.

What would our economy look like now if we’d kept those tax-rates in place, instead of going along with the Conservatives and cutting taxes for the rich?  Well, Leopold tells us that each of those 400 wealthiest might only be worth $100 million instead of  $3.9 billion each, leaving the rest available for the public good — about $1.53 trillion.

And, the sad thing is that the system Conservatives instituted is creating a country that the wealthy won’t really want to live in:  crumbling infrastructure; failing schools;  an unstable economy;  and an angry middle class.  We have 29 million unemployed and underemployed Americans; an environment in crisis; and a health care system that (despite the reform) is confusing, expensive, inefficient and doesn’t work well for most of the citizens.   

And we have the worst income distribution since 1929.

It wouldn’t kill entrepreneurial spirit or damage our economy if each of those 400 uber wealthy had to get by on only $100 million (instead of $3.9 billion).  In fact those historical stats, which we talked about earlier in this post, tell us that it would be a major boost to the economy if we had much smaller Income Inequality.  

The greater the gap between the rich and everyone else, the more dangerously unstable economies become.

Les Leopold suggests that a “wealth tax that kicks in when you become worth more than $100 million would be a good start. The Eisenhower tax-rate on adjustable gross income over $3 million a year would help as well.”

CHANGE is hard.  Wall Street and the business world have turned against the Democrats.  We came into power and saved their bacon, and now they thank us by joining those who call the President and the Dems “Socialists and Communists.”  They compare the issue of addressing Income Inequality to Socialism — completely forgetting that our nation operated quite nicely for decades (following the disaster of the 1930s burst-bubble) when there was a basic sense of fairness in our land.

How reasonable is it to call narrowing the inequality in income to Socialism — now that the entire financial sector is basically on welfare with over $13 trillion in subsidies and guarantees?   The “Wall Street Welfare” is actually 37% as large as welfare for the poor.

According to Leopold,”if narrowing the income/wealth gap isn’t Socialism, what is it? It’s the America that thrived in the 1950s and 1960s. It’s the America that created a middle-class and vowed never to let the financial gamblers return us to another Great Depression.  It’s an America that put its people to work and built an infrastructure that was the envy of the world.”

Where is the sense of shame from the Right?  They shrug their shoulders and have an attitude of,”my fault, oh no, not my fault.”  It is unbelievable that they’re actually calling for additional tax breaks and going back to deregulation — but they are!