When the Economy Accelerated Income Inequality

 

When the Economy Accelerated Income Inequality

Ronald Reagan and Milton Friedman, Strange Bedfellows

"Mr. Gorbachev, tear down this wall!" 

Speech from President Ronald Reagan June 12, 1987

Ronald Reagan is remembered fondly by most Americans as the symbol of the success of America and the failure of the Soviet system of communism. As the Berlin wall fell in November in 1989, Reagan was the leader of the United States… the Cold War seemed over, and the USSR split apart, the Soviet states went their separate war, and hope was rampant. Three plus decades later, the world, even the United States, doesn’t look as rosy as we all had hoped it might. Reagan’s failures, though not generally understood, were equally stunning, resonating for decades later, redefining so much of our country.

Reagan did not believe in the efficacy of institutional treatment of most forms of mental illness. Psychiatric hospitals were closed or converted to other uses. Instead, the housing (and non-treatment) of mental illness was significantly shifted to our prison system with horrific results. But today’s blog is about the most significant failure of Reagan’s presidency, based upon his powerful belief in market determined capitalism. Accordingly, Reagan reconfigured our monetary and fiscal policies, shifted the focus of our tax code, all on the premise that jobs fell from the top, rich people creating opportunities. Government regulation and taxing rich people, he believed, were restraining economic growth.

Economists called Reagan’s approach “supply side” economics. It has become an immutable part of Republican doctrine, though it has never ever delivered on its “a rising tide floats all boats” trickledown theory of growth and job creation. Ever! My rewrite of that phrase is “a rising tide only floats all yachts.” Deficit hawks – a description that even stalks the new MAGA populist substitute for the old and traditional GOP – still cling religiously to that theory… because even though it has always failed, it sounds so good. If we really taxed wealth fairly, there wouldn’t be such massive income inequality, by far the worst in our history, and we wouldn’t even have a federal budget deficit except in time of war. Writing for the New York Times (The Morning, November 16th), columnist David Leonhardt looks back on how Reagan cemented that trickle down legacy into the Republican Party, and how more modern economists believe that older approach needs to go (and under Biden, it is definitely being phased out):

“[An obscure] think tank named the Roosevelt Institute released a report in 2015 that called for a new approach to economic policy. It was unabashedly progressive, befitting the history of the institute, which was created by trusts honoring Franklin and Eleanor Roosevelt… The report called for higher taxes on the rich, a higher minimum wage, more regulation of Wall Street, more support for labor unions, more aggressive antitrust enforcement and more government investment in economic growth. National news outlets covered the report while also noting how much of a break it represented with decades of economic policy by both the Democratic and Republican Parties. There was ample reason to be skeptical that much would change. But much has changed in the past eight years.

“President Biden has enacted the biggest government investment programs in decades, two of which — in infrastructure and semiconductor development — received bipartisan support. Both the Biden and Trump administrations showed more interest in antitrust policy than their predecessors. Many states, blue and red, have increased their minimum wages. American workers have become more interested in unionizing, and labor unions in both the auto industry and Hollywood have recently won big victories. Even some Republican politicians speak positively about unions… ‘It’s very surprising this all happened,’ Felicia Wong, the longtime president of the Roosevelt Institute, told me. ‘For a long time, those of us who have been arguing for it were on the outside looking in.’…

“The simplest explanation for the shift is that the old economic approach hasn’t worked very well for most Americans. Starting in the 1980s, the U.S. moved toward an economic policy that’s variously described as laissez-faire, neoliberal or market-friendly. It involved much lower taxes for the wealthy, less regulation of business, an expansion of global trade, a crackdown on labor unions and an acceptance of very large corporations… The people selling this policy — like Milton Friedman, a Nobel laureate in economics — promised that it would bring prosperity for all. It has not.

“Incomes for the bottom 90 percent of workers, as ranked by their earnings, have trailed economic growth, and wealth inequality has soared. For years, Americans have told pollsters that they were unhappy with the country’s direction. Perhaps most starkly, the U.S. now has the lowest life expectancy of any affluent country; in 1980, American life expectancy was typical… And after decades of unmet promises about the benefits of a neoliberal economy, more people have grown skeptical of it recently.

“Donald Trump also played a crucial role. He won the Republican nomination in 2016 while defending Social Security and Medicare and criticizing free trade and high immigration, two pillars of neoliberalism. By doing so, he proved that even many Republican voters had drifted from the views of Ronald Reagan and Paul Ryan. As president, Trump often contradicted his own populist rhetoric. (His one big piece of legislation was a tax cut that mostly benefited the rich.) But he shattered so many basic norms of governance that Democrats came to think they too could discard long-held beliefs. As Neera Tanden, who is now Biden’s top domestic policy adviser, said to me in 2018, ‘Donald Trump has widened the aperture for policy discussions in the United States.’…

“Conventional wisdom rarely changes quickly. Friedman and his fellow laissez-faire intellectuals spent decades on the fringes, before the 1970s oil crisis and other economic problems caused many Americans to embrace their approach. But conventional wisdom can change eventually. And after decades of unmet promises about the benefits of a neoliberal economy, more people have grown skeptical of it recently.” Will the voting public see this sea change as an obvious necessity, a benefit for most of us? Or will the embedded economic fallacies, still represented by the House Freedom Caucus, supported by benefit slorping Supreme Court justices, continue to hand power to the mega-rich to have their way with their malign view of the United States and an economy that should benefit us all… but definitely isn’t?

I’m Peter Dekom, and where people simply refuse to change their minds or do not really have the capacity to understand most basic economic realities, seeing and implementing the obvious can be wildly frustrating and dramatically polarizing.