I live in what is quite literally the edge of the Bible belt. For those of you unfamiliar with the term, the community where I live is dominantly conservative, protestant, and for lack of a better term; narrow minded. I often think of it as a literal belt cinched tightly around the general public’s windpipe to make sure that they don’t get any strange ideas about freedom of thought. Don’t get me wrong, I love living here and will always think of this as home. The climate, the mountains, the rivers and lakes, and the red clay itself are deeply attached to my very core. I have breathed this air and pulled nourishment from the earth itself since I was very small and it is so ingrained in me that I miss it when I am gone for very long. I feel it when I dig in the earth and smell it in the vegetables in my garden. There is a connection… deep, innate, and unbreakable. I love the generosity of the people, the kindness to strangers, and the general feeling of hospitality that is so much a part of people’s character here in the south. Unfortunately, all of this is offset by a dogmatic attachment to fundamental religion and cultural bias that is stark and ignorant at the same time. It takes a while to see it if you live here; it isn’t necessarily obvious or easy to detect. It is just below the surface and carefully out of sight, like an ugly wart carefully disguised or a rumor of a crazy brother that the family keeps hidden in the root cellar to avoid embarrassment.
I stumble on it every so often in conversations with locals who recognize me as an insider, a local product of this environment. There isn’t a secret handshake or any concrete methodology for this recognition. It is more of a nuance of dialect that the practiced ear can hear or a recognition of phrasing configured in just such a way in normal conversation but we locals usually recognize each other after a few moments of conversation. I dread those moments at times because the flash of open honesty that it often inspires uncovers the ugly ignorance that is at bottom of what I detest most about religion; the idea that there are unspoken truths in the world that we can never get past.
These are the truths of the inherited chosen people, the indelible imprint of an undeserved superiority complex based upon race, or sexual preference, and a dogmatic belief in a set of books written by a nomadic tribe thousands of years ago. These books tell us how it will all turn out in the end and how we are supposed to get from here to there. They are necessarily biased and based upon the ignorance of their authors so many years ago no matter how we try to dress them up and explain this away with convoluted justifications. They were the chosen people. Chosen by the greatest God as his favorites and the inheritors of his bounty provided they follow the rules he set down. We are their progeny, the rightful heirs to this same bounty and we KNOW this is true because the Bible tells us so. This is the ugly truth at bottom of our belief system here in the Bible belt. We don’t spread it around like cordial candy; it isn’t fit consumption for everyone else and will only cause discontent and problems. However, amongst the chosen people, comfortably ensconced with our own kind, it flows effortlessly and freely amongst us. Don’t throw pearls before the swine…. they will only get indigestion from trying to eat them. It is always there, always in the background guiding our path like a dog whistle that only we can hear or a light beam in a frequency spectrum that only we can see.
I can’t begin to describe how disgusting this point of view is to me. In point of fact it is only preserved by keeping it hidden. It can’t stand the light of open scrutiny or logical conversation so we keep it buried in the basement of our silence; a crippling mental deformity that we convince ourselves is a badge of honor. Our belief in it is inversely related to our understanding of the world around us; the less we know the tighter we hold to its tenets. The more we read and understand about the world around us the weaker its hold upon us. It has been this way since the first religion’s inception in human society and it will remain this way until we throw the idea behind it out like the rotting cancer that it is. Religion is a mortal enemy of human knowledge and understanding because its power over us is based upon and rooted in our own ignorance.
Suppose we woke up tomorrow and realized we are all one people, that there are no “chosen” ones. Suppose we understood we are not meant to all be the same; that it might be a good thing that we are all different. Suppose we understood there is no Armageddon coming; that the forces of “good” and “evil” are simply different aspects of our own personalities. Would the world be on the same path it is today? Is it possible that we could get past this exceedingly silly and simple minded notion that there is a God somewhere ready to destroy the earth over who lives in Jerusalem? Could we begin to understand that we are all the same? Occasionally, I have these thoughts. I think we might actually be able to overcome the biased ignorant notions of a wandering tribe thousands of years ago and then I wake up to reality and remember I am in Alabama.
I recently heard a campaign commercial for one of our gubernatorial candidates wherein he was ridiculing the fact that the other candidate might have suggested that “there are parts of the Bible that aren’t true”. Imagine that if you will. It was a carefully targeted and accurate slam against the reasonableness of such a statement. Inherent in this commercial was the same knowing smile, the same flash of recognition that I was describing earlier. Obviously, anyone that could make such a statement can’t be “one of us” and can’t be fit to represent us in office. Some people don’t understand that this is a state wherein people born outside of the county they live in are considered foreigners. The ad was effective enough to draw a rebuttal from the candidate accused of making the statement. He recognized he was in danger of being cast out as a member and nothing is quite so important to the members as the ability to decide who doesn’t belong.
Thursday, September 16, 2010
Friday, September 10, 2010
Redistribution of Wealth Part II
One of the unintended or unforeseen circumstances of lowering the tax rates so drastically on the upper income levels was the astronomical increase in compensation that CEO’s of large corporations set aside for themselves. In 1980 the average CEO made some 1.4 million dollars a year. In 2008 that number was up some 743% to 11.8 million. Much of this increase was in the form of stock dividends that were not taxable so between that and the lower income tax rates virtually none of this increase showed up in governmental tax coffers. During this same time period the average worker’s income increased less than 5% and if adjusted for inflation it fell dramatically. Throughout the 1960’s and 1970’s the ratio between CEO and average median income of worker was some 44-1. In other words if the average worker made ten dollars an hour the average CEO made 440 dollars an hour or $17,600 a week. It is of course questionable if there is a 44-1 ratio in effectiveness as far as profit is concerned but we will leave that be for the time being. In 2001 the ratio was 525-1. Using the same math if the average worker makes 10 dollars an hour that means the average CEO makes 5250 dollars an hour or $210,000 a week. This is a difference of some $209,600 a week between what the average worker makes and what the CEO of the company makes. I would defy anyone to explain how this is cost effective. Judging from the number of corporate collapses we see all around the country today we might be better off to put the median average employee in charge of the corporations and triple his pay. We could immediately cut a huge amount of overhead while probably losing little in the way of expertise.
One of the reasons the rich are getting richer is our government’s overweening concern with the stock market and financial institutions. The recent bailout of the whole financial system with taxpayer and Federal Reserve money is a case in point. Many Americans are now invested in the stocks and bond markets through their 401 K policies which are most Americans sole source of savings outside of the equity in their homes. Therefore it seems reasonable that the government should be concerned with such problems as it affects a large number of citizens when collapses occur. It is worth looking at the actual numbers here in order to see if this is truly a widespread problem or not. The top 1% of wealthiest Americans own 46% of all the stocks and mutual funds in this country. The next 9% of wealthiest Americans own the next 33% of all the stocks and mutual funds in this country. In other words the top 10% of the wealthiest Americans own 79% of the stocks and mutual funds traded in this country. Think about that the next time we have a financial collapse that threatens our economy. Who is actually getting bailed out with massive injections of taxpayer money and unending Federal Reserve loans made with dollars created out of thin air?
Where are most American’s savings? Most Americans have the vast majority of their savings invested in their homes. 66% of Americans have virtually all of their savings in their principal residence. The top 1% wealthiest Americans have some 7% of their savings in their principal residence while the rest of the top 10% wealthiest Americans have around 17% of their savings in this same principal residence. This means that when housing prices drop some 20% as most have done in the last two years most Americans see 20% of their savings disappear while the richest Americans see theirs fall only about 1.4%. Bearing this in mind it is a little hard to explain why the government is bailing out financial institutions and letting homeowners not only eat the loss of equity but pay for the bailouts with their tax money. Most middle class Americans are caught in this squeeze and don’t even recognize its source. A recent study estimated that the total debt in this country is overwhelmingly absorbed in the middle class. The top 10% of wealthiest Americans owe some 29% of the total debt while the lower 90% owe 71% of it. If we break this down even further we see that the lower 35% of earners actually owe very little of this debt so what it really amounts to is that the middle 45% of earners in this country owe 70% of the debt. We have become a nation owned and controlled by bankers and corporations. It isn’t hard to see how they have managed to buy control of the government but it is amazing to me who they have managed to do it with the support of much of the same working class that is bearing the brunt of the loss of income and buying power. The same middle class that is losing their ability to exist and turning to higher ratios of debt to survive is the base of the Republican Party that has orchestrated this whole fiasco with their deregulation of financial institutions and worship of the almighty corporation.
In my recent reading of Adam Smith’s Wealth of Nations I found an interesting section concerning the relative interests of classes of people and how they correspond to government. We must remember that Smith’s book is the bible of free traders. It is often quoted and used extensively in support of the free market philosophy that Reagan supposedly espoused. Unfortunately, free markets in this country disappeared a long time ago and have been replaced with monopolies that pull the strings that run everything; but that is a discussion for a later post. Let me get back to what Smith wrote. At the end of Book I Smith is discussing the three basic classes of people who make up civilized societies. He breaks them down as follows; those who own land and make their money from rent, those who make their living off of wages, and those who make their money off of profit from investment. Smith goes on to explain that both of the first two classes interests are always tied directly to the interest of society as a whole; that what is good for these two classes of people is always good for society at large. He explains that laborers prosper most when demand for their labor is highest as in the economy is growing such that there is more demand than there is labor. He further explains that renters prosper most when there is demand for their property; as in the economy is growing and there is more demand than there is property. It is basic common sense really but both of these two classes of people have their interest intertwined with the common well being of the community at large. One can carry this analogy a little further and suggest that these two classes of people would make the best elected leaders as their interests are aligned with the interests of society at large. Looking back one can see that these two classes of people were always the source of our best leaders since the founding of this country, no doubt in large part because their personal interests were seldom divergent from the interest of the people at large.
Smith then goes on to warn against the influence of the third class of people; those who make their money from profit. Smith defines these people as Merchants and Master Manufacturers. In his day these were a very narrow and small class but extremely wealthy. I cannot imagine what he would think of their progeny in our world today. Corporate leaders who control the vast majority of income and wealth in this country and now control the government as well. However, let me get back to what Smith wrote about this class in his time:
Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of society, their judgment, even when given the greatest candor (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter. Their superiority over the country gentlemen is not so much in the knowledge of the public interest, as in their better knowledge of their own interest than he has of his. It is by superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest of that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Amazingly prescient was Mr. Smith. Of the three classes of people that make up civilized society there is one that has interests opposed to those of the public according to Mr. Smith. He warns that we should be exceedingly careful in dealing with this class of people for this very reason. I would suggest that he is exactly right. I would also suggest that we have ignored this advice to our peril. We now elect them to office and expect them to rule according to the interest of the public without recognizing it is against their very nature to do so. There is an old saying that you should never put a fox in charge of a henhouse. I would suggest that you also should not put anyone who works for a fox in charge of a henhouse. The next time you hear some Republican or conservative foaming at the mouth and warning against the dangers of the redistribution of wealth I hope you will remember that it has already happened in a clear cut and concise way. The best we can hope for now is a recognition of the fact and a slow, grinding effort to get back to equilibrium. Until that happens we will continue to see the destruction of our economy and the disappearance of the middle class while the class Mr. Smith warned us against continues to accumulate all the wealth and power in this country at our expense.
One of the reasons the rich are getting richer is our government’s overweening concern with the stock market and financial institutions. The recent bailout of the whole financial system with taxpayer and Federal Reserve money is a case in point. Many Americans are now invested in the stocks and bond markets through their 401 K policies which are most Americans sole source of savings outside of the equity in their homes. Therefore it seems reasonable that the government should be concerned with such problems as it affects a large number of citizens when collapses occur. It is worth looking at the actual numbers here in order to see if this is truly a widespread problem or not. The top 1% of wealthiest Americans own 46% of all the stocks and mutual funds in this country. The next 9% of wealthiest Americans own the next 33% of all the stocks and mutual funds in this country. In other words the top 10% of the wealthiest Americans own 79% of the stocks and mutual funds traded in this country. Think about that the next time we have a financial collapse that threatens our economy. Who is actually getting bailed out with massive injections of taxpayer money and unending Federal Reserve loans made with dollars created out of thin air?
Where are most American’s savings? Most Americans have the vast majority of their savings invested in their homes. 66% of Americans have virtually all of their savings in their principal residence. The top 1% wealthiest Americans have some 7% of their savings in their principal residence while the rest of the top 10% wealthiest Americans have around 17% of their savings in this same principal residence. This means that when housing prices drop some 20% as most have done in the last two years most Americans see 20% of their savings disappear while the richest Americans see theirs fall only about 1.4%. Bearing this in mind it is a little hard to explain why the government is bailing out financial institutions and letting homeowners not only eat the loss of equity but pay for the bailouts with their tax money. Most middle class Americans are caught in this squeeze and don’t even recognize its source. A recent study estimated that the total debt in this country is overwhelmingly absorbed in the middle class. The top 10% of wealthiest Americans owe some 29% of the total debt while the lower 90% owe 71% of it. If we break this down even further we see that the lower 35% of earners actually owe very little of this debt so what it really amounts to is that the middle 45% of earners in this country owe 70% of the debt. We have become a nation owned and controlled by bankers and corporations. It isn’t hard to see how they have managed to buy control of the government but it is amazing to me who they have managed to do it with the support of much of the same working class that is bearing the brunt of the loss of income and buying power. The same middle class that is losing their ability to exist and turning to higher ratios of debt to survive is the base of the Republican Party that has orchestrated this whole fiasco with their deregulation of financial institutions and worship of the almighty corporation.
In my recent reading of Adam Smith’s Wealth of Nations I found an interesting section concerning the relative interests of classes of people and how they correspond to government. We must remember that Smith’s book is the bible of free traders. It is often quoted and used extensively in support of the free market philosophy that Reagan supposedly espoused. Unfortunately, free markets in this country disappeared a long time ago and have been replaced with monopolies that pull the strings that run everything; but that is a discussion for a later post. Let me get back to what Smith wrote. At the end of Book I Smith is discussing the three basic classes of people who make up civilized societies. He breaks them down as follows; those who own land and make their money from rent, those who make their living off of wages, and those who make their money off of profit from investment. Smith goes on to explain that both of the first two classes interests are always tied directly to the interest of society as a whole; that what is good for these two classes of people is always good for society at large. He explains that laborers prosper most when demand for their labor is highest as in the economy is growing such that there is more demand than there is labor. He further explains that renters prosper most when there is demand for their property; as in the economy is growing and there is more demand than there is property. It is basic common sense really but both of these two classes of people have their interest intertwined with the common well being of the community at large. One can carry this analogy a little further and suggest that these two classes of people would make the best elected leaders as their interests are aligned with the interests of society at large. Looking back one can see that these two classes of people were always the source of our best leaders since the founding of this country, no doubt in large part because their personal interests were seldom divergent from the interest of the people at large.
Smith then goes on to warn against the influence of the third class of people; those who make their money from profit. Smith defines these people as Merchants and Master Manufacturers. In his day these were a very narrow and small class but extremely wealthy. I cannot imagine what he would think of their progeny in our world today. Corporate leaders who control the vast majority of income and wealth in this country and now control the government as well. However, let me get back to what Smith wrote about this class in his time:
Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of society, their judgment, even when given the greatest candor (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects than with regard to the latter. Their superiority over the country gentlemen is not so much in the knowledge of the public interest, as in their better knowledge of their own interest than he has of his. It is by superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest of that of the public, from a very simple but honest conviction that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Amazingly prescient was Mr. Smith. Of the three classes of people that make up civilized society there is one that has interests opposed to those of the public according to Mr. Smith. He warns that we should be exceedingly careful in dealing with this class of people for this very reason. I would suggest that he is exactly right. I would also suggest that we have ignored this advice to our peril. We now elect them to office and expect them to rule according to the interest of the public without recognizing it is against their very nature to do so. There is an old saying that you should never put a fox in charge of a henhouse. I would suggest that you also should not put anyone who works for a fox in charge of a henhouse. The next time you hear some Republican or conservative foaming at the mouth and warning against the dangers of the redistribution of wealth I hope you will remember that it has already happened in a clear cut and concise way. The best we can hope for now is a recognition of the fact and a slow, grinding effort to get back to equilibrium. Until that happens we will continue to see the destruction of our economy and the disappearance of the middle class while the class Mr. Smith warned us against continues to accumulate all the wealth and power in this country at our expense.
Thursday, September 9, 2010
Redistribution of Wealth Part 1
As a somewhat reluctant follower of the talk radio I have noticed this phrase getting a lot more usage in the last couple of years. It is usually tied to some sort of diabolical socialist plot to take money out of the working man’s pocket and give it to a lazy, shiftless group of people who do not work. Supposedly, there is a vast group of people in this country standing around with their hands out waiting on the Democratic Party to send them a check. I suppose this can be traced all the way back to Reagan’s fanciful “welfare queen” that he created from whole cloth as a sort of symbol of encroaching ruin for the country. Even though the people that Reagan spun parables about did not actually exist, they were a caricature that he was able to make stick. Reagan, like all demagogic types, understood that people didn’t want to hear about real problems that might be associated with their own actions. People understood there was a problem. They could see it all around them in unemployment, high interest rates, and a stagnant general economy and Reagan simply gave them a straw man to blame it on. Big government was robbing them to pay people who didn’t want to work. Reagan suggested that cutting taxes would allow people to reinvest their own money in the economy rather than give it to the government who would inevitably waste it. Reaganomics was an idea born of the idea that the American public is basically ignorant of economics in general. Since it was such a successful propaganda tool for Reagan it has since come to be the mantra of the right wing conservatives everywhere in one form or the other. Maybe we should take time to look at how it actually worked out now that we have about 30 years of experience with this philosophy.
The basic philosophy of Reaganomics is that a rising tide floats all boats. In other words, the investment dollars of the rich go directly into creating jobs instead of going to the federal government in the form of taxes. This is underlined with the oft repeated “proofs” that the government will just waste your money anyway; usually with the insinuation that this waste will be in the form of giveaways to people who are basically too lazy to work. Reagan made an art form out of this description and repeated it so often and so persuasively that people began to believe it. It is now accepted fact in almost all right wing conservative movements; the basic core that most of their system is built around. In Reaganomics the cutting of taxes for the rich allows them to invest in the economy and create jobs. As more jobs are created everyone benefits; hence the rising tide analogy. It sounds like basic common sense which is exactly why it is so widely believed.
When Reagan ran for President in 1980 against Jimmy Carter there could hardly have been a wider divergence in their relative beliefs about the American system. Carter was suggesting that Americans should tighten their belts, cut down their thermostats, and be responsible for helping the country pull itself out of the recession that we were all in together. Reagan suggested that the recession and most of our other problems were the direct result of big government. In other words, it wasn’t our fault so why should we suffer for it? He needed a scapegoat of course and he found it in the “welfare queens” who were draining all of our hard earned tax money out of the economy. Everyone could see there was a problem with such systems wherein several generations of families were living off the government dole but Reagan took it to new heights. It was a fitting symbol of the disaster that was the government according to Ronald Reagan. His solution was to cut government spending while at the same time cutting taxes to increase investment.
Reagan won the election and immediately set about implementing his program. The interesting thing about Reagan was that he was a pragmatist first, a conservative second. In other words, he had no problem saying one thing and doing another, it had been his mode of operations for as long as he had been in politics. He did initially cut taxes but raised them numerous times afterwards. The first tax cuts were not very successful at stimulating the economy as unemployment went up after they were enacted. What did stimulate the economy was a massive increase in federal spending through the military and the industrial complex that Eisenhower has warned the country about as he left office. In other words, Reagan’s “miraculous” economic recovery was simply a matter of pouring federal money into defense programs; money that we didn’t have to spend. The national debt when Reagan took office was a little less than 2 trillion dollars. It had been at roughly this same rate since 1945 when adjusted for inflation. By the time Reagan left office in 1988 it was a little over 4 trillion. Reagan more than doubled the national debt in 8 years when it had remained virtually the same for the previous 35 years. The massive buildup for World War II cost a little over a trillion dollars to our national debt yet Reagan and his economic plan cost 2 trillion and we were not fighting a war. Reagan coined the phrase that “government is not the solution; government is the problem” during his run for governor of California in the last sixties. He sold Americans on the idea that he would cut the government but he actually more than doubled the cost of government in just 8 years.
Unfortunately, Reagan proved to politicians everywhere that the truth doesn’t matter; what really matters is how you spin it and what you make people believe. He started a massive upward spiral in government spending that hasn’t stopped yet. In the ensuing 17 years after he left office the federal deficit grew to an astonishing 9 trillion dollars as politicians spent like drunken sailors while espousing the same principals. The key to getting elected it seems is to guarantee the economy is booming and politicians from Bush Sr. to Bush Jr. learned this lesson well. There was a brief downturn in federal spending under Clinton but it was quickly curtailed when the economy started to droop again. Vice President Cheney in a moment of rare clarity pointed out that “Reagan proved that deficits don’t matter” when questioned about it during Bush Junior‘s last term in office. It is a little ironic that the man who was elected on the promise of reducing government actually started a trend in government spending that led directly to a five-fold increase in government deficits over the next 25 years and led directly to the economic collapse the we are experiencing today but I will go into that in a later post. For the moment I would like to concentrate on what the other result of Reaganomics wound up being; the drastic redistribution of wealth in this country from the middle class to the very wealthiest amongst Americans.
Reagan’s basic premise was that by reducing taxes on the wealthy they would invest that money in the economy which would lead to more jobs; thus the infamous “trickle down” theory that one still hears bandied about by those with no understanding of economics. By cutting taxes on the very rich Reagan did two things; he increased the deficit by cutting the amount of money the government took in and he increased the wealth of the wealthiest Americans drastically. You might ask yourself how this happened but it was really a very simple two pronged approach. First, cutting taxes on the wealthy was not simply a matter of cutting income tax it included Estate taxes, and all manner of taxes on accumulated wealth. All the tax cuts since the 1980’s have favored the wealthiest American’s and corporations. Second, the massive federal spending into military and defense corporations wound up stimulating the stock market into frenzy and as I will show a little later, it is overwhelmingly the richest Americans who own stocks and bonds.
Let’s start with income taxes on the richest Americans. Reaganomics says that dropping these taxes increases economic activity. The truth is that in a period from 1940 to 1970 during which the United States saw the greatest increase in economic power ever seen on this planet the income tax rate on the top earners in the United States stayed steady at 70%. During a period of unprecedented growth and economic prosperity that has not been equaled before or since, a period that saw massive growth of infrastructure, schools, electrical grids, highway systems, and nearly every other indices of governmental performance the income tax rate for the highest earners was always above 70%. This was also a period during which dividends from stocks and bonds were taxed at the same rate as all other income, unlike today when it is not taxed in many cases, yet we saw continuous and massive economic growth. In the period since Reagan taxes on the highest income brackets have fell to less than 30% and there are numerous loopholes that allow dividends to be ignored in this accounting. Most estimates of the actual income tax rate that winds up being paid into the system by the wealthiest Americans are now around 17%. Warren Buffet pointed this out in an interview with Tom Brokaw in 2007 when he admitted that he paid tax on only some $97,000 of his 66 million dollar income. Buffet contrasted this with the average member of his staff how paid some 39% of their total income on combined taxes that same year. If Reagan was right we should be in the midst of the greatest economic boom in history. Unfortunately, what we are actually seeing is a wasting away of the infrastructure that was built in this country from 1940- 1970. Electrical grids, schools, roads, and almost every system that the government supports are in a state of collapse these days. The only government sponsored activity that seems to be doing well is the military industrial complex but I guess a 6 trillion dollar increase in the deficit would be nearly impossible to blow without having something to show for it.
Obviously, the cuts in taxes should be stimulating the economy and increasing productivity if Reagan was right. This should have “trickled down” to all of us by now but it seems there is a flaw in the plan. The rich are definitely getting richer but for some reason it doesn’t seem to be trickling down. Between 1947 and 1973 both worker productivity and worker median income doubled. From 1980 to 2005 worker productivity increased some 70% while worker median income increased 19%. This seems impossible until one finds that during this same period from 1980 to 2005 the top 1% of wealthiest Americans increased their percentage of the total income produced in this country from 8.2% to 17.4%. Favorable tax rates on both income and wealth and the massive fluctuations in the stock markets are the simplest explanations. The top 1% of wealthiest Americans owned some 23% of the total wealth in this country in 1979. Today they own around 43% of the total wealth in the country. This isn’t the whole story unfortunately. Not only have income taxes for the very rich dropped but estate taxes and capital gains taxes have fallen drastically as well. As a matter of fact the federal tax burden has shifted dramatically since 1980 with the percentage of tax revenues actually being collected shifting dramatically towards payroll taxes. Since 1980 the payroll tax burden has risen 25% as a share of total tax income. During this same period the percentage of tax revenue generated by capital gains tax on investments has fallen 31% and the percentage of tax revenue generated by estate taxes has fallen 46%. There has been a massive redistribution of wealth in the last 30 years but it isn’t going from tax payers to the indigent; it is going from taxpayers to the wealthiest Americans. Instead of “trickle down” economics what we actually have is “sucking up” economics. It is as if there is a giant vacuum at the top pulling everything that way.
The truth of the matter is that Reagan as president was the same thing he had been before; an unemployed actor who worked as a shill for corporate America. According to studies by the World Institute for Development Economics Research what we have actually seen in the last 30 years is a massive concentration of wealth and earning power in large corporations. Over 40% of the GNP of the United States comes from 500 largest conglomerates in the country. According to studies recently released by this group these companies control over two thirds of total American business sources, employ two thirds of the industrial workers in this country, account for 60% of total sales and collect over 70% of total profits. In 1955 corporate tax income paid some 33% of the total taxes taken in by the Federal Government. In 2007 this number had decreased to 14%. In other words, entities that gobble up 70% of the total profits made in this country pay in 14% of the taxes. No wonder corporate America deifies Ronald Reagan. One can hardly imagine a more favorable climate for corporate growth than such a system yet we are still on the verge of economic collapse in this country.
The basic philosophy of Reaganomics is that a rising tide floats all boats. In other words, the investment dollars of the rich go directly into creating jobs instead of going to the federal government in the form of taxes. This is underlined with the oft repeated “proofs” that the government will just waste your money anyway; usually with the insinuation that this waste will be in the form of giveaways to people who are basically too lazy to work. Reagan made an art form out of this description and repeated it so often and so persuasively that people began to believe it. It is now accepted fact in almost all right wing conservative movements; the basic core that most of their system is built around. In Reaganomics the cutting of taxes for the rich allows them to invest in the economy and create jobs. As more jobs are created everyone benefits; hence the rising tide analogy. It sounds like basic common sense which is exactly why it is so widely believed.
When Reagan ran for President in 1980 against Jimmy Carter there could hardly have been a wider divergence in their relative beliefs about the American system. Carter was suggesting that Americans should tighten their belts, cut down their thermostats, and be responsible for helping the country pull itself out of the recession that we were all in together. Reagan suggested that the recession and most of our other problems were the direct result of big government. In other words, it wasn’t our fault so why should we suffer for it? He needed a scapegoat of course and he found it in the “welfare queens” who were draining all of our hard earned tax money out of the economy. Everyone could see there was a problem with such systems wherein several generations of families were living off the government dole but Reagan took it to new heights. It was a fitting symbol of the disaster that was the government according to Ronald Reagan. His solution was to cut government spending while at the same time cutting taxes to increase investment.
Reagan won the election and immediately set about implementing his program. The interesting thing about Reagan was that he was a pragmatist first, a conservative second. In other words, he had no problem saying one thing and doing another, it had been his mode of operations for as long as he had been in politics. He did initially cut taxes but raised them numerous times afterwards. The first tax cuts were not very successful at stimulating the economy as unemployment went up after they were enacted. What did stimulate the economy was a massive increase in federal spending through the military and the industrial complex that Eisenhower has warned the country about as he left office. In other words, Reagan’s “miraculous” economic recovery was simply a matter of pouring federal money into defense programs; money that we didn’t have to spend. The national debt when Reagan took office was a little less than 2 trillion dollars. It had been at roughly this same rate since 1945 when adjusted for inflation. By the time Reagan left office in 1988 it was a little over 4 trillion. Reagan more than doubled the national debt in 8 years when it had remained virtually the same for the previous 35 years. The massive buildup for World War II cost a little over a trillion dollars to our national debt yet Reagan and his economic plan cost 2 trillion and we were not fighting a war. Reagan coined the phrase that “government is not the solution; government is the problem” during his run for governor of California in the last sixties. He sold Americans on the idea that he would cut the government but he actually more than doubled the cost of government in just 8 years.
Unfortunately, Reagan proved to politicians everywhere that the truth doesn’t matter; what really matters is how you spin it and what you make people believe. He started a massive upward spiral in government spending that hasn’t stopped yet. In the ensuing 17 years after he left office the federal deficit grew to an astonishing 9 trillion dollars as politicians spent like drunken sailors while espousing the same principals. The key to getting elected it seems is to guarantee the economy is booming and politicians from Bush Sr. to Bush Jr. learned this lesson well. There was a brief downturn in federal spending under Clinton but it was quickly curtailed when the economy started to droop again. Vice President Cheney in a moment of rare clarity pointed out that “Reagan proved that deficits don’t matter” when questioned about it during Bush Junior‘s last term in office. It is a little ironic that the man who was elected on the promise of reducing government actually started a trend in government spending that led directly to a five-fold increase in government deficits over the next 25 years and led directly to the economic collapse the we are experiencing today but I will go into that in a later post. For the moment I would like to concentrate on what the other result of Reaganomics wound up being; the drastic redistribution of wealth in this country from the middle class to the very wealthiest amongst Americans.
Reagan’s basic premise was that by reducing taxes on the wealthy they would invest that money in the economy which would lead to more jobs; thus the infamous “trickle down” theory that one still hears bandied about by those with no understanding of economics. By cutting taxes on the very rich Reagan did two things; he increased the deficit by cutting the amount of money the government took in and he increased the wealth of the wealthiest Americans drastically. You might ask yourself how this happened but it was really a very simple two pronged approach. First, cutting taxes on the wealthy was not simply a matter of cutting income tax it included Estate taxes, and all manner of taxes on accumulated wealth. All the tax cuts since the 1980’s have favored the wealthiest American’s and corporations. Second, the massive federal spending into military and defense corporations wound up stimulating the stock market into frenzy and as I will show a little later, it is overwhelmingly the richest Americans who own stocks and bonds.
Let’s start with income taxes on the richest Americans. Reaganomics says that dropping these taxes increases economic activity. The truth is that in a period from 1940 to 1970 during which the United States saw the greatest increase in economic power ever seen on this planet the income tax rate on the top earners in the United States stayed steady at 70%. During a period of unprecedented growth and economic prosperity that has not been equaled before or since, a period that saw massive growth of infrastructure, schools, electrical grids, highway systems, and nearly every other indices of governmental performance the income tax rate for the highest earners was always above 70%. This was also a period during which dividends from stocks and bonds were taxed at the same rate as all other income, unlike today when it is not taxed in many cases, yet we saw continuous and massive economic growth. In the period since Reagan taxes on the highest income brackets have fell to less than 30% and there are numerous loopholes that allow dividends to be ignored in this accounting. Most estimates of the actual income tax rate that winds up being paid into the system by the wealthiest Americans are now around 17%. Warren Buffet pointed this out in an interview with Tom Brokaw in 2007 when he admitted that he paid tax on only some $97,000 of his 66 million dollar income. Buffet contrasted this with the average member of his staff how paid some 39% of their total income on combined taxes that same year. If Reagan was right we should be in the midst of the greatest economic boom in history. Unfortunately, what we are actually seeing is a wasting away of the infrastructure that was built in this country from 1940- 1970. Electrical grids, schools, roads, and almost every system that the government supports are in a state of collapse these days. The only government sponsored activity that seems to be doing well is the military industrial complex but I guess a 6 trillion dollar increase in the deficit would be nearly impossible to blow without having something to show for it.
Obviously, the cuts in taxes should be stimulating the economy and increasing productivity if Reagan was right. This should have “trickled down” to all of us by now but it seems there is a flaw in the plan. The rich are definitely getting richer but for some reason it doesn’t seem to be trickling down. Between 1947 and 1973 both worker productivity and worker median income doubled. From 1980 to 2005 worker productivity increased some 70% while worker median income increased 19%. This seems impossible until one finds that during this same period from 1980 to 2005 the top 1% of wealthiest Americans increased their percentage of the total income produced in this country from 8.2% to 17.4%. Favorable tax rates on both income and wealth and the massive fluctuations in the stock markets are the simplest explanations. The top 1% of wealthiest Americans owned some 23% of the total wealth in this country in 1979. Today they own around 43% of the total wealth in the country. This isn’t the whole story unfortunately. Not only have income taxes for the very rich dropped but estate taxes and capital gains taxes have fallen drastically as well. As a matter of fact the federal tax burden has shifted dramatically since 1980 with the percentage of tax revenues actually being collected shifting dramatically towards payroll taxes. Since 1980 the payroll tax burden has risen 25% as a share of total tax income. During this same period the percentage of tax revenue generated by capital gains tax on investments has fallen 31% and the percentage of tax revenue generated by estate taxes has fallen 46%. There has been a massive redistribution of wealth in the last 30 years but it isn’t going from tax payers to the indigent; it is going from taxpayers to the wealthiest Americans. Instead of “trickle down” economics what we actually have is “sucking up” economics. It is as if there is a giant vacuum at the top pulling everything that way.
The truth of the matter is that Reagan as president was the same thing he had been before; an unemployed actor who worked as a shill for corporate America. According to studies by the World Institute for Development Economics Research what we have actually seen in the last 30 years is a massive concentration of wealth and earning power in large corporations. Over 40% of the GNP of the United States comes from 500 largest conglomerates in the country. According to studies recently released by this group these companies control over two thirds of total American business sources, employ two thirds of the industrial workers in this country, account for 60% of total sales and collect over 70% of total profits. In 1955 corporate tax income paid some 33% of the total taxes taken in by the Federal Government. In 2007 this number had decreased to 14%. In other words, entities that gobble up 70% of the total profits made in this country pay in 14% of the taxes. No wonder corporate America deifies Ronald Reagan. One can hardly imagine a more favorable climate for corporate growth than such a system yet we are still on the verge of economic collapse in this country.
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