The Too Dumb to Fail Party

 Financial FAQs

“In November 2021, (President Biden) signed a $1 trillion infrastructure bill. Then, in August 2022, he signed the CHIPS bill, which invests $280 billion in semiconductor manufacturing. Days later, he signed the Inflation Reduction Act, which invests $370 billion in clean energy and related infrastructure, along with provisions designed to reduce health care costs.” Washington Monthly

perseusbooks.com

How sad it is that the Republican Party, the party of Lincoln and the Emancipation Proclamation that abolished slavery, has become the party of a wannabe dictator Too Dumb to Fail in the words of author and journalist Matt Lewis, that imprisons immigrants of the wrong race and color.

It is a party that has enabled Donald Trump to rely on mostly illegal executive orders, including the tariffs, instead of working with congress as did President Biden to pass his very successful ‘New, New Deal’ legislation that is modernizing the American economy for many years to come.

Trump’s inability to negotiate with congress had as much to do with the Republican Party that had already become the party of the wealthy who owned or stewarded America’s biggest businesses.

“In the run-up to the 2016 election, Trump listed his top 10 legislative priorities as part of his “Contract with the American Voter”, continued the Washington Monthly, which included repeal of the Affordable Care Act, infrastructure investment, harsher prison sentences for immigration violations, and full funding of a border wall to be reimbursed by Mexico. None of that reached his desk.”

That is because the Republican Party learned early they could only hold power if they succeeded in dumbing down their electorate; even before Ronald Reagan’s ‘trickle-down” economic schemes in 1980 that cut the taxes of the wealthiest and social benefits for the rest of Americans to pay for the budget deficits incurred by his tax cuts.

Journalist Matt Lewis said it in his 2016 best-seller, Too Dumb to Fail: “Somewhere between Ronald Reagan’s “A Time for Choosing” speech in support of Barry Goldwater in 1964 and the most recent government shutdown, the conservative movement became neither conservative nor a movement. Hijacked by the divisive and the dumb, it now finds itself hostage to emotions and irrational thinking.

“It became more personal and less principled — more flippant and less thoughtful. It became mean. It became lazy. It became its own worst enemy. Where once the movement drew strength from its desire to win the philosophical argument over its adversaries, it now wears its lost causes as badges of honor — expected, like Coriolanus, to show these battle scars as a means of vote mongering.”

I said in a 2015 Huffington Post blog that the result of one political party’s choice to replace scientific facts with conspiracy theories had begun to permeate the American educational system as well.

According to the National Research Council, only 28 percent of high school science teachers consistently follow the National Research Council guidelines on teaching evolution, and 13 percent of those teachers explicitly advocate creationism or “intelligent design,” said Psychology Today in a very damning 2014 article entitled, Anti-Intellectualism and the Dumbing Down of America:

“After leading the world for decades in 25-34 year olds with university degrees, the U.S. is now in 12th place,” said Psychology Today. “The World Economic Forum ranked the U.S. at 52nd among 139 nations in the quality of its university math and science instruction in 2010. Nearly 50 percent of all graduate students in the sciences in the U.S. are foreigners, most of whom are returning to their home countries.”

Even in 2015 Republican candidates were echoing the Republican platform that advocated the deportation of all illegal aliens, would abolish or cripple whole government agencies (including the Environmental Protection Agency and CDC), shut down the federal government over Planned Parenthood funding, and maintain that a fertilized egg is a viable human being that can’t be aborted.

Nothing has changed, in other words, except Republicans elected Donald Trump, a man who would be a king, who has suffered from what psychologists and psychiatrists have called a Narcissistic Personality Disorder his whole life, whose father had given him more than $400 million over the years to support his various business ventures, according to the NYTimes.

The results of his father’s wealth are well documented in the book titled, “Lucky Loser: How Donald Trump Squandered His Father’s Fortune and Created the Illusion of Success,” written by NYTimes reporters Susanne Craig and Russ Buettner. Such largesse resulted in a string of business failures and seven bankruptcies.

Now Donald Trump and the Republican Party that supports him have taken the dumbing down of Americans to a whole new level by firing the best and brightest public officials and cutting their research budgets that protect Americans from future pestilences and environmental disasters.

History says the truth will out, eventually. A man and party that is too dumb to fail, that can only rule with lies and deception, must eventually fail. But when, and at what cost to Americans’ health and safety?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Trump's Big Beautiful Bill?

 Answering Kennedy’s Call

“The House has now passed what must surely be the worst piece of legislation in modern U.S. history. Millions of Americans are about to see crucial government support snatched away. A significant number will die prematurely due to lack of adequate medical care or nutrition. Yet all this suffering won’t come close to offsetting the giant hole in the budget created by huge tax cuts for the rich. Long-term interest rates have already soared as America loses the last vestiges of its former reputation for fiscal responsibility.” Paul Krugman-Substack

 Graph: Last Tech Age

Budget analysts have been saying (almost unanimously) that it will increase our federal debt by as much as $4trillion and raise the federal debt level to as much as 130 percent of GDP, further endangering the “full faith and credit” of the U.S. Government.

In passing their ‘Big Beautiful Bill’ (BBB) by just one vote, Republicans will worsen the income inequality and partisan divide that has picked ordinary Americans’ pocketbooks since the 1980s and President Reagan’s ‘trickle down’ economic policies.

The BBB will essentially renew the Trump administrations first term Tax Cut and Jobs Act (TCJB), that gave even more tax breaks to the wealthiest—to Trump and his oligarchs.

The U.S. Is already in 106th place of the 149 countries in income inequality as ranked by the CIA’s World Factbook, I said in 2017; with a Gini inequality index that ranks it with developing countries like Peru and Cameroon. Whereas Finland and the Scandinavian countries are at the top of equality rankings; Germany and France are ranked 12th and 20th, respectively. The higher the index, the greater the gap between wealthy and poor citizens of a country.

So how much worse can it get before MAGA followers realize Trump has never meant to fulfill the “Day 1” promises of lower inflation, more good paying jobs, and a Ukraine peace deal?

The nonpartisan Center on Budget and Policy Priorities gave the most digestible breakdown of the TCJA effects, if it passes the Senate as well:

· Giving the biggest benefits to the wealthy. Households with incomes in the top 5 percent, who have incomes over around $320,000, would receive roughly half of the benefits of extending the expiring tax cuts.

· Ballooning the deficit. Along with the 2001 and 2003 tax cuts enacted under President Bush, the 2017 law has severely eroded our nation’s revenue base. The House budget would compound the damage, adding hundreds of billions of dollars to deficits each year. Extending the 2017 tax cuts would cost $3.6 trillion through 2034.

· Failing to significantly boost economic growth, workers’ earnings, or other benefits for workers. The trickle-down benefits that proponents claimed the 2017 law would produce never materialized, and the law hasn’t come close to paying for itself. Yet the House budget claims that extending the tax cuts would generate trillions in revenue — far more than any independent estimate.

Our ranking of the worst income inequality among developed countries is bound to influence U.S. voters once the Trump’s higher import taxes take hold as well, and stagflation returns.

Even worse is the effect the BBB will have to our credit rating. Will it continue to decline? That is really what Paul Krugman is most worried about. It’s the worst kind of fiscal responsibility. Why such a blatant and foolish attempt to make the rich richer and working Americans poorer? Republicans aren’t even attempting to hide it anymore.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Will Drain the Swamp?

 ANSWERING KENNEDY’S CALL

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

NICHOLAS KAMM/AFP/Getty Images

Donald Trump will be President and could have control of both the House and Senate again. The same happened in 2017 when he last won on the campaign promise to Drain the Swamp of corruption in Washington.

He didn’t succeed in his first term, actually creating a deeper swamp with rampant corruption at almost all levels of government. Will he do better this time; might he and his Republicans learn from their past mistakes?

Republicans will want more tax cuts, for starters, as well as extend the tax cuts his administration engineered in 2017, The Tax Cuts and Jobs Act, that they passed with House and Senate majorities.

I wrote at the time, “The Republicans tax bill has passed, and it is the greatest theft of taxpayer monies in history; even greater than that of Presidents’ Reagan and Bush I and II that began the immense transfer of wealth to the wealthiest in 1980 with their tax cuts starving the government of much needed revenues that would keep the federal deficits under control.”

Why? It was written by the very lobbyists Republicans and the Trump administration had cultivated during his 2017 election.

More than 130 lobbyists were hired to work in his first administration, and 36 of them have blatant conflicts of interest, working on the same issues they were lobbying on, in violation of Trump’s ethics rules, according to MarketWatch economist Jeff Nutting.

“This is so bad. We have just gotten list of amendments to be included in bill NOT from our R colleagues, but from lobbyists downtown,” said Missouri Dem Senator Claire McCaskill. “None of us have seen this list, but lobbyists have it. Need I say more? Disgusting. And we probably will not even be given time to read them.”

The bill cut Medicare and Medicaid benefits by $1.5 trillion and could add $1.5 trillion to the federal deficit in 10 years according to the CBO. That’s $3 trillion taken from U.S. taxpayers for the biggest heist in history.

We know what happened when Republicans tried this taxpayer sleight of hand before. President Reagan and congress had to raise taxes 11 times to make up the deficits created by the first ‘trickle-down’ tax cuts in 1981. Two consecutive recessions in 1981 and 1982 followed as Fed Chairman Paul Volcker raised interest rates to record levels to choke off inflation at the same time.

Then GW Bush did the same in 2001-03, when he cut taxes again while paying for the wars on terror, resulting in the largest federal deficit in history at the time, as well as the Great Recession.

This did not generate enough tax revenue to pay for the additional debt, so foreign governments and individuals will become more reluctant to invest in U.S. debt, as the deficit continues to grow and interest rates rise.

It can happen again. It is suicidal economics. The U.S. won’t declare bankruptcy. But it will saddle future generations with an impossible debt load and prevent much needed public and private investment that would increase productivity and boost growth.

This happened in 2017, and the stench of lobbyists filling the swamp became so overwhelming in Donald Trump’s first term that it was the reason his Republican majority were voted out of office, as I said.

Is there any reason to doubt it will happen again?

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Harris Presidency

 ANSWERING KENNEDY’S CALL

What would it mean for Kamala Harris to be our first female President? It’s a historical turning point that affirms women have finally attained equal political rights to men, and American citizens s confirm they want greater personal rights—to expanded health care, abortion, and environment protection that has been held back by a dominant male culture until now.

Should Harris and the Democrats win it would also signal the end of the Second Gilded Age, an age characterized by record income inequality that began in earnest when President Ronald Reagan’s supply-side economic policies began to transfer massive amounts of wealth from working adults (small business and salaried) to the owners of wealth (capital assets) in the 1980s.

cbpp.org

It would give President-Elect Harris a mandate to begin to reverse the tax structures that were the major cause of the record inequality by raising corporate and personal tax rates back to Reagan-era levels, and thus begin to reduce the massive budget deficits that resulted.

President Reagan and Republicans cut the maximum personal tax rate for the wealthiest from 50 percent to 28 percent and reduced corporate taxes from 34 to 28 percent to initiate what economists call the Second Gilded Age, which resulted in our first massive deficit--$400 billion—by the end of his administration.

The massive deficits continued to grow under successive Republican administration tax cuts that resulted in curtailing our social safety net. GW Bush’s deficit grew to $1 trillion, and the Trump administration’s to more than $5 trillion.

A Harris Presidency could also mean an end to our ongoing civil war, a war originally between the industrial North vs. slave-holding South that never really ended with General Lee’s surrender at the Appomattox Courthouse in 1865.

Though slave-owning was banned with the Emancipation Proclamation and Abraham Lincoln’s north winning the civil war, southern states found ways to continue to impoverish former slaves by terrorizing them under Jim Crow laws that even the civil rights acts of the 1960s couldn’t completely eradicate.

Today’s manifestation of our civil war has morphed into a battle between red states controlled by Republicans with a white male/Oligarchic culture continuing to impoverish their own citizens vs. more prosperous blue states with a dominant female/minority majority.

Kamala Harris has promised in her platform and speeches that she would be a President for all Americans. That would mean policies benefiting red state citizens as well, such as raising the federal minimum wage from $7.25 that was last raised in 2009.

Currently 14 states haven’t raised their minimum wage since then, or at all. Five red states have not even adopted a state minimum wage: Alabama, Louisiana, Mississippi, South Carolina and Tennessee. Two states, Georgia and Wyoming, have a minimum wage below $7.25 per hour, so that in all seven of these states, the federal minimum wage guarantees at least a $7.25 per hour wage. New Hampshire and Pennsylvania are the only blue states still with the federal minimum wage.

There are other ways the red states have kept workers’ salaries lower that Harris should remedy: lobby to repeal so-called right-to-work laws in 26 states that say members of a union aren’t required to pay union dues even though they enjoy the benefits. The result is that membership in unions has declined, along with workers’ rights to bargain collectively. And those 26 states now have a Supreme Court majority to enforce those state laws.

Democratic majorities have always found ways to benefit more Americans since the New Deal. President Obama was able to pass Obamacare, or the Affordable Care Act, the first universal health insurance that meant insurance companies couldn’t ban clients with existing conditions.

Climate change has become a clear and present danger causing more hurricanes, floods, wildfires threatening Americans that Donald Trump has called a hoax, and would rather “Drill baby drill” for more fossil fuels.

The Biden administration has already begun work on reducing global warming with the Inflation Reduction Act subsidizing alternative energy sources that don’t increase global warming but that the Republican Party vociferously opposes to protect its fossil fuel constituents.

We have lived through a Gilded Age before. The first Gilded Age came in the late 1800s, when the Industrial Revolution made Robber Barons such as railroad titan Cornelius Vanderbilt, banking titan JP Morgan, and Standard Oil’s John D Rockefeller the richest men in their time.

It ended with the death of President William McKinley in 1901, and revelations of rampant corruption followed by Teddy Roosevelt’s Progressive Party and Franklin Roosevelt’s New Deal that created government institutions such as the Federal Reserve to regulate banking and social security, as well as empowering labor unions to level the playing field for workers.

If elected, Kamala Harris and Democrats should be able to continue the new New Deal legislation that President Biden’s Bidenomics’ policies have initiated with more than $5 trillion invested in keeping America great and creating 16 million jobs that have benefited all of our citizens, not just Oligarchs such an Elon Musk.

Musk warned, after all, what would happen if he became the efficiency czar Trump says he wants him to be and cuts $2 trillion from the $6.75 trillion federal budget. There would be no money left for social programs, the military, and drastic cuts in social security and Medicare benefits, say economists such as Nobel Laureate Paul Krugman.

It would also mean Husband Doug Emhoff would become the first, First Gentleman, which wouldn’t diminish the historical record of great First Ladies. Men should take heart that women have equaled men in all ways, not just in intelligence and courage, but have shown a heart large enough to create a United States, not a Divided States of America, when Kamala Harris becomes our new President.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Nations Fail

 Popular Economics Weekly

Amazon

The Nobel memorial prize in economics was awarded Monday to Daron Acemoglu, Simon Johnson and James A. Robinson for research that explains why societies with poor rule of law and exploitative institutions do not generate sustainable growth, as with some U.S. states as well.

Whereas the peoples of more democratic countries with institutions answerable to their citizens are more prosperous than those with weak democratic institutions, such as North Korea, Mexico, Russia, and even China, say the authors of Why Nations Fail, Daron Acemoglu and James Robinson, two of the new Suth Nobel Laureates.

“Reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this,” said Jakob Svensson, chair of the Committee for the Prize in Economic Sciences.

The authors use the example of the twin cities of Nogales, Texas and Nogales, Sonora, Mexico. Anyone driving across the border can see the difference. Nogales, Texas has three times the income level, better roads, schools, and better law enforcement to protect its citizens than Nogales, Sonora that has been ruled by drug cartels.

The contrast between North and South Korea is even greater—a prosperous South Korean government elected by its citizens vs. a North Korean dictatorship that has literally starved its people to keep one family in power.

It’s also a devastating analysis of why we have a partisan divide between red vs. blue states that Republican Parties have been able to capitalize on by falsely rationalizing the reason for their differences; especially economic rationalizations.

It is a case of the exploiters—wealthy individuals who don’t like to share their wealth—blaming a Washington elite that has dominated most government institutions since World War Two.

The truth is Republican Party economic programs have performed badly; causing massive deficits from tax cuts without concomitant growth that would pay for the tax cuts that have made the red states they govern poorer; because Republicans have adopted policies designed to weaken governmental institutions that are protected by the rule of law.

Republicans began to actually break laws with President Nixon’s Watergate break-in, President Reagan’s secret Iran-contra weapon shipment to Khomeini’s Iran, and GW Bush’s fabrications about Sadam Hussein’s weapons of mass destruction that justified the invasion of Iraq.

It has culminated with Donald Trump and the Republican Party’s outright contempt of laws and even the constitution in not accepting its loss to Democrats and Joe Biden in 2020.

This is born out in the major thesis of this year’s Nobel Prize-winners: that so-called illiberal democracies with central governments only answerable to a powerful minority rather than a majority of its citizens have performed poorly.

Georgetown Public Policy Review

A Georgetown Public Review measured the different median household incomes of red and blue states in the U.S.--$74,000 in blue states vs. $60,000 in red states. It’s in part because most red states have lower minimum wages, and fewer social services such as healthcare for their citizens. And even those social services are mostly subsidized by the federal government.

It is why democracies work best when they follow economic rules that serve the majority, and most in danger when attempts are made to weaken or discredit their institutions. The choice for Americans in the upcoming Presidential election should be clear—belong to a party and vote for a country that works for all of its citizens.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Let's Make America More Equal Again!-Part 2

 Answering Kennedy’s Call

Piketty-Saez

Why did our record income inequality begin to worsen in 1980, as can be seen from the above graph? The Arab-OPEC oil embargo of 1973 was the first indication that Big Business under the newly created Business Roundtable of corporate executives wanted more of the national income pie.

No one liked the long gas station lines and fears America could run out of oil, so it was relatively easy for fear mongers to push through economic changes that lessened the incomes of working folk and increased the incomes of Big Business.

The fossil fuel industry needed more money to find new oil sources, and create new technologies such as fracking, so they wanted a larger income share of the national income, which was achieved by suppressing wages and cutting taxes without cutting spending. and it became a national security priority with the ongoing cold war and arms race that followed.

The Reagan administration ran up the first $400 billion federal budget deficit during his eight years in part because tax rates for the wealthiest were slashed. The highest personal income tax rate was first reduced from 70 to 50 percent in 1981, then down to a 28 percent maximum personal tax rate in 1986 when he was re-elected.

Because most of the income gain went to the top 10 percent, the Reagan tax cuts became known as ‘trickle-down” economics. It could also be called “stealth economics,” because Wikipedia cites at the time, “people weren't substantially informed about the tax cuts, as an ABC News Poll in September 1986 showed that 63% of Americans didn't know enough about the Tax Reform Act of 1986 to say if it was good or bad.”

Republicans sold it to the public with an unproven theory. A Doctoral student named Arthur Laffer in the 1970s had convinced conservative Republicans with a diagram on a napkin (the so-called Laffer Curve) that lower taxes gave people the incentive to work harder and earn more, whereas higher taxes discouraged work.

It's hard to believe such a theory today because the federal budget deficit only grew under the Republicans’ trickle-down theory. GW Bush created the first $1 trillion deficit, and Donald Trump’s added another $5 trillion to the federal budget deficit with his tax cuts. That’s as good proof as any that lower taxation rates didn’t increase tax revenues enough to pay down the extra debt as promised.

Perhaps the most shameful result of the redistribution of Americans’ wealth, the richest country in the world, was we now had the worst income inequality of developed countries, as measured by the CIA’s authoritative World Factbook.

It measures the income inequality of countries with what is called the Gini Index coefficient of families that calculated the percentage of wealth held by a country’s different socio-economic brackets. A higher percentage means a larger share of a nation’s income is held by the wealthier segment of its population.

“The more nearly equal a country's income distribution, the lower its Gini index, e.g., a Scandinavian country with an index of 25,” says the World Factbook. “The more unequal a country's income distribution, the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality the index would be zero; if income were distributed with perfect inequality, the index would be 100.”

The latest US Gini index Coefficient of family income was 39.8 percent, which is even higher than Russia’s, and close to that of African and South American Third World countries, whereas the European Union averaged 30.8 percent in its most up-to-date report.

That is why two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54 percent of Republicans, according to a Gallup poll, I said last week.

It is also why much of that inequality is in the Midwestern rust belt states that lost blue-collar manufacturing jobs during the globalization and multi-nationalization of US corporations that President Trump promised to bring back again.

It is also why an election-denier even won one term as President and can endanger our Democracy with a Supreme Court majority now giving him a helping hand.

The most efficient way to right the inequality is to bring back tax rates that prevailed during Americans’ most prosperous times, the 1950s to 1970s when the maximum personal tax rate was 70 percent, or even higher.

The maximum tax rate was 92 percent during President Eisenhower’s administration because we were building the nation’s post-WWII infrastructure and modern technologies, as well as going to the moon.

President Eisenhower was reputed to have said, “Because high corporate tax rates create incentives for big business to spend on things like new locations, new hires, new equipment and product research and development which are deducted from taxable earnings, in other words, it’s better to spend a majority of earnings on expansion than to horde it and pay Uncle Sam 90% of it.”

No one likes higher taxes, of course. And much of the middle class bought into Reagan’s myth of trickle-down economics that brought on its demise and poverty levels we have today. But if Americans won’t pay the bill for modernizing the US economy, rather than put off payment with more borrowing, America’s record income inequality will not improve.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Don't Blame the Workers

Popular Economics Weekly

FREDavghourlywages

What are we to make of Senator Elizabeth Warren’s reaction to Fed Chair Powell’s recent remarks on inflation?

“He’s pushing hard to get more people fired because he thinks that is one way to help bring down inflation,” Sen. Elizabeth Warren (D-Mass.) told HuffPost on Wednesday. “But it’s sure painful for the families who lose their jobs.”

But that is not the only way to bring down inflation, because a tight labor market is not even the major cause of current inflation.

Powell had said in his press conference after last Wednesday’s FOMC meeting, “Really there’s an imbalance in the labor market between supply and demand so that part of it, which is the biggest part, is likely to take a substantial period to get down.”

The Fed Governors didn’t like the November unemployment report that 263,000 nonfarm payroll jobs were created, and average hourly wages are still rising 5.1 percent annually. Jobs were created in every job category except retail/trade and transportation/warehousing.

In other words, the Fed Governors have been saying they won’t know if inflation has been conquered without higher unemployment, which means the unemployment rate rising to 5 or 6 percent from its current 3.7 percent.

Why? Because they believe rising wages are a major cause of inflation since wages and salaries make up two-thirds of product costs. But that doesn’t mean they make up two-thirds of the current inflationary surge.

The Fed has made workers’ wages the culprit of high inflation since the wage-price spiral of the 1970s, when an overly accommodative Federal Reserve kept the credit spigot open to combat soaring oil prices. Unions had bargaining power then and it resulted in wages keeping up with inflation.

So top business leaders formed the Business Roundtable and began spending Big Bucks on lobbying and campaign contributions to weaken labor unions and introduce legislation that cut taxes, resulting in ‘trickle-down’ economic policies that lowered taxes for the wealthiest while asserting that some of their wealth would trickle down to workers.

It was the beginning of an economic counter-revolution, instituted to counter the influence of Keynesian, New Deal, economics that had prevailed since the Great Depression.

But we know that not much trickled down, in part because newly enacted laws not only restricted unions’ bargaining power but cut social programs as well.

We also know that prices have been rising even faster than production costs since the pandemic in various studies, including one such I reported by Nobel Laureate  Joe Stiglitz that showed corporate profit margins are the highest since 1950, and as a percentage of Gross Domestic Product.

This is while the current 5.1 percent average hourly wage rise of employees doesn’t even match the current annual inflation rate of 7.1 percent. Wages after inflation have been falling 1.9 percent annually since the pandemic, so they now make up a smaller portion of costs.

Wages and household incomes haven’t kept up with inflation since the 1970s. So Big Business did its job of suppressing the incomes of salaried workers during all those years of trickle-down economics.

It was also the beginning of record budget deficits, since Big Business justified the tax cuts by invoking President Reagan’s famous assertion that “deficits don’t matter”.

But deficits matter now because of record spending needed to vanquish COVID and assist the Ukraine in its war with Russia. So this is the wrong time to be penalizing workers and shrinking the American economy into a probable recession.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Where are the Truck Drivers?

 Financial FAQs

@PaulKrugman

If one picture can save 1,000 words, then maybe Nobel Laureate Paul Krugman’s citing of the huge decline in average hourly wages of Production and Non-supervisory Employees in Transportation and Warehousing since the 1970s goes a long way to explaining the current supply-chain bottleneck and concurrent inflation surge.

It explains even more—why so many Americans are refusing to return to their workplaces. The COVID pandemic has exposed the consequences of the overall decline in working Americans’ wages and standard of living that has shrunk the middle class and endangered our democracy.

Of course, the coincidence of declining wages and truck-driver shortages doesn’t necessarily spell causation, but at a time of soaring demand by consumers and producers for the products they deliver, they have one of the most demanding 24/7 jobs for less than college-educated workers.

And there is much anecdotal evidence from independent truckers that confirms the existing pay scale is not worth it. In October, the American Trucking Association said the U.S. needed 80,000 more truck drivers.

Shauntai Robinson, an owner operator out of the ports in South Carolina, in a post on Medium cited by Yahoo News, said that after 16 years in the industry, she was beginning to question the viability of a career as a truck driver.

"There are thousands of valid class A CDL holders, across the United States, who have elected to not drive a truck anymore," Robinson wrote. "These people have not relinquished their credentials. Instead, these valuable people have been forced to seek alternative forms of employment in order to be able to provide for their families."

On average, truck drivers working full time, year-round, earn about $43,252 annually, lower than the median for all full-time workers ($47,016), but exceed those of other blue-collar jobs, says the US Census Bureau.

FREDwages

The huge decline in transportation and warehousing wages actually mirrors the sharp decline in average hourly wages of all production and non-supervisory workers that began in 1980, as can be seen from the above FRED graph (gray bars are recessions).

That was when Big Business began its lobbying campaign to influence economic policies—morphing into what came to be known as trickle-down economic policies with the election of President Ronald Reagan in 1980.

Reaganomics accelerated the deregulation of whole industries that began in the 1970s, with directly suppressing the collective bargaining rights of workers to such an extent that there are now 26 so-called right-to-work (red) states that say a worker can work in a company employing unionized workers, and enjoying its benefits, without having to pay union dues!

The millions of workers holding back from reentering the workforce because of the worst pandemic in 100 years has perhaps awakened more than truck drivers to the need to hold out for a better economic system that has impoverished them since the 1980s, when conservative economic policies took away workers’ rights as well as drastically reduced their incomes.

President Biden’s $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) was passed just in time to make a difference for working families by providing jobs that can support families.

“The bill is a significant down payment on the $2.5 trillion infrastructure investment gap that was identified in the 2021 Report Card and will benefit American businesses and families for years to come,” according to the American Society of Civil Engineers (ASCE), as I reported last week.

The COVID pandemic is bringing about a wholesale transformation of American capitalism, including an opportunity for American workers to have a voice in transforming it.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Q4 GDP Growth Weakens

 Popular Economics Weekly

Calculated Risk

This Real Gross Domestic Product graph dating from 1959 shows that the US economy in 2020 had its worst contraction since the end of World War II. No surprise given we have the worst COVID-19 infection rates and death totals in the world.

But that doesn’t dim predictions of economists for a ‘Roaring '20's’ recovery this year that matches the recovery from the Spanish flu pandemic of 1918-19, if we get the economic aid that harks back to a more progressive, New Deal, era when government was the solution.

It has taken the coronavirus pandemic to end 40 years of trickledown economics, a Gilded Age that benefited corporate owners rather than their workers. Raising the minimum wage, childcare payments, and aid to state and local governments will benefit those lower-paid, essential workers that are not in the surging stock and bond markets.

The advance estimate of real fourth quarter GDP was 4 percent when adjusted for inflation after the record Q3 jump of 33 percent. But overall GDP still shrank by 3.5 percent last year due to the pandemic shutdowns, which gives an inkling of the task ahead for President Biden in crafting a recovery plan from the worst pandemic in 100 years.

Economist James K. Galbraith said recently in Project-Syndicate, “Biden has correctly billed his plan an “American Rescue Plan,” rather than as a “recovery” or “stimulus” program. If successful, the package will stem the pandemic, stave off a variety of social calamities, and prevent the collapse of state and local government services. Economic reconstruction is important; but it is a separate objective that can be advanced in a second package.”

Biden is asking for $1.9 trillion just to rescue the American economy. If Democrats can pass it without too many cuts, as well as an infrastructure bill that will create millions of new jobs, economic forecasters are predicting even higher GDP growth this year—upwards of 5 to 6 percent.

The New York Fed’s Nowcast predicts a 6.5 percent jump in 2021 Q1 growth. Most of it the prediction comes from an increase in manufacturers’ production and inventories of durable goods, which have been building as nondefense capital goods orders are on a tear, reports the US Census Bureau.

FREDdurablegoods

Businesses are ramping up investments in capital goods that will ensure future growth. Business orders for durable goods such as tools, appliances and new cars rose in December for the eighth month in a row, which should mean a stronger U.S. economic rebound this year.

Why the optimism when Republicans resisted new spending on anything but tax cuts, border walls and defense over the past four years? The COVID-19 pandemic has brought this Gilded Age to a crashing halt, as I said.

The party of Roosevelt won the election with the massive support of younger generations that want what citizens of the other developed countries enjoy—universal health care, a higher minimum wage, better social services, public education, paid vacations—the list goes on and on.

It might even reduce the social unrest and red vs. blue state polarization that has endangered American democracy!

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Happened to Main Street—Part II?

Popular Economics Weekly

FRED

Corporate responsibility is back in the air with a vengeance; not only from Senators Elizabeth Warren and Bernie Sanders who constantly remind us on the campaign trail that corporate misbehavior has tilted the “playing field” of economic benefits too much in corporations’ favor.

Now Jamie Gamble, a former corporate attorney, has touched the third rail of corporate behavior—business ethics. He has written an as yet unpublished essay that asserts corporate executives “are legally obligated to act like sociopaths,” according to Andrew Sorkin of the New York Times.

“The corporate entity is obligated to care only about itself and to define what is good as what makes it more money,” Gamble is quoted as saying in his essay. “Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.”

I call it the third rail because it’s a topic that comes up for discussion only when a crisis is brewing, or an election, though economic futurists like Hazel Henderson have been writing about the need to train business executives on higher business ethics for decades in books like, Building a Win-Win World, (Berrett-Koehler, 1996).

“When I published “Should Business Solve Societies' Problems? In the Harvard Business Review in 1968,” said Henderson, “there were few MBA courses on business ethics. By 1995 such courses were standard and often compulsory.”

Ethical behavior leads to what she calls “win-win” corporate behavior, defined as cooperative outcomes that benefit not just corporate executives and their shareholders as happened with the recent Republican tax cuts.

Simply put, such sociopathic behavior benefits just the few with its pre-occupation with maximizing quarterly profits, rather than benefiting the employees and market customers it also services, while adding to the ‘hidden’ public costs of maintaining a clean environment and public infrastructure that it depends on.

These are what are termed the social costs of doing business that Senator Elizabeth Warren intoned in her first campaign to become a Massachusetts Senator:

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

 “Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

In fact, Jamie Gamble has formulated a list of ethical rules he wants corporation executives and shareholders to adopt, and be liable for if they are not adhered to.  They should include:

· Their “relationship with their employees.”
· With “their communities in which they produce and sell.”
· Their “relationships with customers.”
· Their “effects on the environment.”
· And “effects on future generations.”

It is not surprising that Gamble’s ethical rules also meet the definition of sustainable economic growth, which is growth for the long term that benefits more than the few, because it is the “win-win” path that maintains stronger, lasting economic growth with fewer down cycles and economic crises that have wreaked so much economic and social damage in recent decades.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

In Search of a Moral Economy

Financial FAQs

vox.com

Vermont Senator Bernie Sanders defined a moral economy in a recent Duke University dialogue with the Reverend William Barber II: “A moral economy is one that says, ‘In the wealthiest country in the history of the world, all our people should be able to live with dignity and security.’”

We don’t have to quote the very progressive U.S. Senator to know what a moral economy should look like. One has only to study the history of income and wealth redistribution since 1980 when demand-side economic theory—the Keynesian economics of English Lord John Maynard Keynes that guided Roosevelt’s New Deal—was replaced by so-called supply-side policies—under the conservative but never validated premise that enhancing the wealth of holders of capital with lower taxes and regulations would maximize production, while suppressing the rights and wages of their workers.

History since then has borne out the immorality of what came to be called trickle-down economics—record income inequality in the American workforce. Its rationale came from a diagram on a napkin that then White House Chief of Staff Dick Cheney took to heart as the mantra that guides conservative Republicans even today.

It’s an absurd equation. President Reagan at the time believed that lower taxes would motivate workers to work harder and produce more. The problem was reducing everyone’s taxes would stymie government programs that helped to level the opportunity table. It was the wealthiest that benefited most with reduced personal tax rates that were as high at 92 percent in the Eisenhower administration, which financed the federal highway system, sent us to the moon, and instigated many of the public programs that have made America so productive.

It’s hard to know where this thought process came from. History shows that people work just as hard—sometimes even harder—when they receive a smaller share of their paycheck; especially when a portion goes to insure future benefits like workman’s compensation insurance, social security, Medicare and Medicaid.

But conservatives latched onto several Austrian economists who hated almost any form of authority; so much so that they advocated limiting the powers of democratically elected governments to care for their own citizens. Such was the fear of centralized authority by economists like Fredrick Hayek in his book, The Road to Serfdom, called any regulations to tame capitalism a form of enslavement without recognizing that raw, unregulated capitalism meant serfdom and exploitation of those workers.

Graph: metroscan.com

We do now have a better understanding of how capitalism—the worst economic system, except for all of the others (to paraphrase Churchill)—works for Main Street as well as Wall Street.

It means in part returning to the much more progressive personal tax rates of earlier U.S. administrations—before President Reagan made the immoral tax cuts that even underfunded the military at the time, and initiated the massive federal debt burden we carry today.

All the public programs funded by governments enhance prosperity and productivity in some way—whether it’s to upgrade our infrastructure, fund new health discoveries, strengthen the public insurance and pension programs; and protect the environment, without which no Americans can prosper over the long term.

Then we can afford to protect those most in need. That is what a moral economy looks like.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Our New 'Drip-Down' Economy

Popular Economics Weekly

Graph: Marketwatch

The results are already in on the current administrations tax and economic policies. They are carrying Ronald Reagan’s trickle-down economy to an even lower level. Let’s call it the ‘Drip-Down Economy’, since none of the benefits will reach the bottom wage-earners. In fact, they will lose money and benefits with the latest economic policies enacted by the Trump administration and Republican congress.

This is when corporate America is expected to post its best quarter of profit growth in seven years, according to Marketwatch’s Ryan Vlastelica. Through 2016 “For the poorest American families, in the lowest fifth of wealth, their net worth shed 29 percent over that period (actually 2007-16). Drops of at least 20 percent were also seen in every income percentile for those in the 80-89.9 percentile, where the decline was a more modest 5 percent. The wealthiest decile, however, saw a jump of 27 percent, as seen in the above chart.”

Nobelist Paul Krugman has chimed in on the same growing inequality topic several times, since the recently passed record tax cuts that finally gave Republicans what they wanted—much lower corporate and small business tax cuts (including real estate LLCs like Trump’s) will further increase the record federal debt:

“Anything that increases the budget deficit should, other things being the same,” says Krugman, “lead to higher overall spending and a short-run bump in the economy (although there’s no indication of such a bump in the first-quarter numbers, which were underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.”

The main problem with the new tax bill is it allows an additional $1.5T added to the deficit over ten years, while cutting Medicare and Medicaid spending by almost as much. This is while most S&P 500 corporations have said it doesn’t change their overall spending plans (except for a few token raises).

To rub even more salt into the wounds of working adults, their incomes still aren’t rising above inflation, as has been mostly the case for the past 30 years.

“Average hourly earnings were expected to approach the 3 percent line two years ago when the unemployment rate first started to move below 5 percent, let alone the sub 4 percent rate where it is now,” says Econoday with the accompanying graph.

 Graph: Econoday

The tight labor market is especially evident in what’s often called the “real” unemployment rate. The so-called U6 rate includes people who can only find part-time work, and those who’ve gotten so discouraged stopped looking in the past 12 months. It fell to 7.8. percent in April to drop below 8 percent for the first time since 2006. The labor market almost back to normal, in other words, yet it hasn’t boosted the incomes of most working adults.

So why do we have even worse inequality today with nearly full employment, in which economic benefits are being taken away from not just the lowest income brackets with reduced health care and other benefits, but almost all of us?

All signs say we are nearing the end of the second-longest growth cycle since the Clinton era’s 10-year 1991-2001 boom years, as I said last week; and once again a huge amount of debt has accumulated that ultimately has to be paid for.

These are the conditions that ultimately led to both the Great Depression and Great Recession. Are we to have an even greater recession, or depression—God forbid?

Not unless something is done in the next congress to restore those benefits and rescind most of the tax cuts that are neither benefiting most of US, nor improving the record budget deficit.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Results of Record Income Inequality

Financial FAQs

We know the results of trickle-down economic theory that says lower taxes and government regulations are supposed to lift all boats, as epitomized in Republicans’ latest tax bill. After the ninth year of this recovery, just 10 percent of American household benefited at all from subsequent economic growth.

In spite of the huge stock market recovery that has the S&P 500 index of largest US corporations up more than 25 percent since 2009, only the top 10 percent of income earners increased their net worth.
The busted housing bubble was a culprit, but also labor practices that have literally either outlawed collective bargaining for many workers, or enacted so called right-to-work laws that enable union members not to pay dues, even if they have benefited from union bargaining.

The result is that 25 percent of American workers earn less than poverty-level wages of $24,000 for a family of four, and household incomes haven’t risen faster than inflation since the 1980s. The national minimum wage hasn’t risen above $7.25 per hour since 2009, either.

Princeton’s Nobel laureate Angus Deaton has studied poverty and its causes for most of his professional live.

He said in a recent Project Syndicate article, a progressive journal: “Making matters worse”, he said, “more than 20 percent of workers are now bound by non-compete clauses, which reduce workers’ bargaining power—and thus their wages. Similarly, 28 US states have now enacted “right-to-work” laws, which forbid collective-bargaining arrangements that would require workers either to join unions or pay union dues. As a result, disputes between businesses and consumers or workers are increasingly settled out of court through arbitration—a process that is overwhelmingly favorable to businesses.”

Graph: Marketwatch

This is while corporate America is expected to post its best quarter of profit growth in seven years, according to Marketwatch’s Ryan Vlastelica. “For the poorest American families, in the lowest fifth of wealth, their net worth shed 29 percent over that period. Drops of at least 20 percent were also seen in every income percentile except for those in the 80-89.9 percentile, where the decline was a more modest 5 percent. The wealthiest decile, however, saw a jump of 27 percent, as seen in the above chart.”

As I have covered in countless past columns, America actually ranks among the worst countries when it comes to income inequality, based on its Gini coefficient, a measure of the wealth distribution of a country’s residents. The coefficient for the U.S. is slightly less than 0.40, which puts it roughly even with Turkey and Botswana, and more unequal than nations as Israel, Greece, Spain, and Germany. Iceland, the most equal society measured by Deutsche Bank, has a coefficient below 0.25.

There are many remedies to this situation. One has but to look at past history. Our fastest growth period was during the 1950s and 1960s, when the top income-earners’ tax bracket was 92 percent, unions were strong, and corporate CEOs earned 25 times what their employees earned. This built both the physical and digital infrastructure that gave us the record prosperity of that era. We also developed the Internet, and landed on the Moon.That tax structure was a way of redistributing income where it would do the most public good. 

Today, corporate CEOs in the largest corporations earn on average 300 times what their employees earn. We enrich the already wealthy, in other words, and neglect to plant the seed corn that would create future prosperity.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Where Have All the Profits Gone?

Popular Economics Weekly

I first wrote about the reasons for the huge stock selloff in early February when the DOW plunged more than 1,000 points in one day. It seems to be repeating itself this week, with the DOW losing almost as much over the past 2 days when the economic news was good—GDP growth averaged 2.3 percent in 2017, and both the manufacturing and service sectors are booming. Then why the selloff with new tax cuts that will put more money into people’s (and corporate) pockets as well?

The short answer is investors fear inflation and higher interest rates will kick in later this year with continued growth and a very tight labor market. But the longer answer is that investors are looking at the wrong economic model, if they believe inflation is about to rise even when it isn’t. Nor are interest rates rising, which is another indicator of incipient inflation with the 10-year Treasury security yield declining of late and still below 3 percent.

Graph: Econoday

Core inflation with the PCE consumption index did rise 0.3 percent in January, but not enough to lift the year-on-year rate which holds at an as-expected 1.5 percent. Total prices, reflecting a rise in gas, rose 0.4 percent with this year-on-year rate also unchanged, at 1.7 percent. 

That is barely a hint of inflation, folks, and certainly no reason for the Fed to move up its interest rate forecast, even with the good economic news. Then why the inflation fears? It’s really the Fed Governors, which are usually bankers, which means they listen mostly to business economists.

Whereas, they should be listening to macroeconomists such as Nobelist Paul Krugman or the IMF’s Olivier Blanchard, that study what is behind the larger picture of national and international economic growth.

Macroeconomists look at aggregate demand to predict economic growth, which is the sum of activity in the private and public sectors. And they see weak demand, because average household incomes haven’t risen faster than inflation over the past 30 years.

In other words, average real household incomes have literally not grown at all when inflation is factored in. This has been happening since the 1980s when trickle-down economics came into vogue, which said that the owners of capital and industry should receive the lion’s share of national income (via lower taxes and regulations), and that would create more jobs and growth for everyone.

This is also when labor laws were weakened that has resulted in 25 red states having right to work laws that mean members of a union don’t have to pay union dues, if they don’t like their policies. Yet they enjoy the benefits. This has weakened the bargaining power of ordinary workers, needless to say. Several states like Wisconsin even ban most public service employees of the state from collective bargaining. So their salaries have actually declined, rather than grown.

Therefore, better-paying jobs and higher growth never materialized. This is something conservative economists don’t want to believe, because it means government regulations are needed to tame the greed of corporate and hedge fund managers who do little to boost aggregate demand, so that very little trickles down to the 80 percent of our workforce that earns wages and salaries. And that 80 percent are the drivers of real economic growth.

Shouldn’t the new Republican tax bill that repatriates overseas profits and lowers the corporate tax rate be helpful? Not really, because history shows most of those increased profits buy back stock to enrich their shareholders and corporate CEOs, rather than ‘trickle down’ to substantial pay raises.

The New York Times reported that historically, American companies had paid out profits with a quarterly check, known as a dividend. But after the S.E.C. changed its rule in 1982, companies started using more of their profits to buy their own shares, in the process giving their shareholders a bigger piece of the company.

“Buybacks soon soared,” reported the Times. “That was about 5 percent less than those companies spent on new plants, research and development and other investments. By contrast, 20 years ago, companies spent four times as much on such investments as they did on buybacks.”

And hedge fund managers are still taxed at the lower capital gains tax for carried trades on the 20 percent they earn from any profits their hedge funds earn, rather than at the higher personal income tax rate.

Unfortunately, this means the siphoning of profits to nonproductive uses will continue, and stagnation of household incomes will depress any potential for higher growth and wages.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Really Needs Tax Reform?

Financial FAQs

Firstly, we know this isn’t real tax reform when the respective Senate and House bills allow an additional $1.5 trillion in debt added to the existing $20 trillion of national debt. Why, when during prosperous times such as these with two consecutive quarters of 3 percent GDP growth, good economics tells us it is time to pay down the debt?

It gets worse. Some spending is cut—up to $1.5 trillion in Medicare and Medicaid benefits for the poorest and elderly. And the House bill proposes cutting out the exemptions for property taxes, state and local taxes, as wellas abolishing the estate tax.  The Senate bill cuts the $1 million mortgage interest deduction in half to make up for the loss in tax revenue.

So, instead of a tax cut, the middle and lower income earners actually have an income cut--both in benefits and loss of homeowners' tax deductions.  Real tax reform would mean higher taxes for the wealthiest and the close out of the tax loopholes that enable them to conceal their wealth overseas; rather than pay down the huge federal debt.

And all this is to be done without any input from Democrats. Why would Republicans even try to ram this through with only Republican votes in the first place? Instead of spending the increased tax revenues on reducing our national debt, they want to give it to their wealthiest donors and corporations—that are already making record profits.

It also happened in 2001, when President GW Bush and VP Dick Cheney blithely erased President Clinton’s preceding four years of actual federal budget surpluses with tax cuts for these same people. What was their rationale?

Their actions were based on the thesis of a then unknown economics graduate student, Arthur Laffer, who drew what came to be known as the Laffer Curve on a napkin in a 1974 meeting with Dick Cheney, then President Gerald Ford’s deputy chief of staff. It was a rationalization never confirmed or evidenced by either history or validated by economic theory.

“The conventional wisdom was: You want more revenue, you raise taxes,” Cheney recalled 30 years later, in a Bloomberg interview reenacting that landmark 1974 meeting. “What Art brought to the table with these curves is that if you wanted more revenue, you were better off if you lowered taxes, to stimulate economic growth and economic activity.”

But that didn’t happen. In 2013 the Center for Budget and Policy Priorities estimated that, when the associated interest costs are taken into account, the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018.  This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.

In other words, the Clinton surpluses were squandered, instead of bolstering the social security and Medicare funds. Brookings Institution economist William Gale and Dartmouth professor Andrew Samwick, former chief economist on George W. Bush’s Council of Economic Advisers, found that “a cursory look at growth between 2001 and 2007 (before the onset of the Great Recession) suggests that overall growth rate was … mediocre” and that “there is, in short, no first-order evidence in the aggregate data that these tax cuts generated growth.”

When will this foolishness stop, and rational economic thinking return to congress? New York Times’ Paul Krugman says: “..anyone who has paid attention to U.S. politics knows the answer. First, they will lie, unashamedly, about what their bill actually does. Second, they will try to distract working-class voters by stoking racial animosity. That didn’t work too well in Tuesday’s elections, but they’ll keep on trying.”

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Enslavement of the Middle Class

Financial FAQs

It is becoming obvious that the American middle class (topic dujour among presidential candidates these days) has been enslaved by an ideology that only benefits the wealthiest among US. It is an ideology of austerity that has prevailed in the U.S. at least since the 1980s, and Paul Krugman says is putting Europe into its Second Great Depression.

It is really an economic ideology of the 18^th century first formulated by Adam Smith—of fewer government services and lower taxes that has made corporations all powerful with the greatest profits in their history, left American workers with little or no control over their livelihoods, and resulted in the greatest income inequality since the 1920s.

Such an insidious ideology has kept the poorest states poorer, caused declining investment in education (our seed corn for future entrepreneurs), is quickly degrading our public infrastructure, and even the ability to protect ourselves. President Obama’s State of the Economy report and latest speeches have made it obvious. The greatest income inequality since the 1920s is here to stay, unless there are major changes in economic policies.

That is why most Americans (at least the 90 percent) have become harried, 24/7 workers with little vacation time, poor health care options (in spite of Obamacare), too expensive educational opportunities, too few well-paying jobs, and little protection from the globalization that stronger labor laws would bring.

Those policies have been called supply-side economics, under the theory that giving more tax breaks to the wealthiest by reducing capital gains and maximum tax rates, while shrinking government investment and oversight, would induce the wealthiest to put their money into productive investments, thus creating more jobs.

But that never happened. When President Reagan cut the maximum income tax rate from 70 percent that prevailed in the 1970s to 50 percent, it and 2 recessions created the largest budget deficit of that era, which is why he instituted 11 tax hikes to bring the budget back into a semblance of balance. This was all catalogued by his budget director, David Stockmen in The Triumph of Politics.

Then we have GW Bush’s further tax cuts on both maximum income tax rates to 35 percent and capital gains to their lowest in modern history that so depleted tax revenues it created the largest budget deficits in history, and ultimately the Great Recession.

It’s no use sugar coating the truth any longer. Since the end of the Great Recession, the top 1 percent of income earners have garnered 96 percent of total income since 2009, after a brief dip. And Americans still have the greatest income inequality of the developed western world.

Why could such inequality be here to stay? In part because so much wealth has flowed to so few, and it is easy to buy influence in this country. The most obvious receivers of such largesse are the conservative members of Congress, mostly Republicans, who continue to block the economic reforms that would better the lives of those that live on Main Street.

Nobelist Paul Krugman said as much in his latest NYTimes Oped: “So what does it say about the current state of the G.O.P. that discussion of economic policy is now monopolized by people who have been wrong about everything, have learned nothing from the experience, and can’t even get their numbers straight?... Clearly, failure has only made them stronger, and now they are political kingmakers. Be very, very afraid.”

Graph: CEA Report

The White House just released their Council of Economic Advisors 2015 Report, chaired by Jason Furman. It said, “The second important factor influencing the dynamics of middle-class incomes is inequality. This, too, is a global issue. In the US, the top 1 percent has garnered a larger share of income than in any other G-7 country in each year since 1987 for which data are available, as shown in the above graph.”

It should be clear what must be done to remove the obstacles that hold back most Americans from a better life. Let us start by jettisoning the 18^th century myth which enslaves all economic classes, a myth that only holds us back in the 21st century. Indiscriminately lowering taxes while minimizing government services and oversight hasn’t improved the lives of anyone except the wealthiest among us.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fed Chairman Yellen Will Boost Economic Growth

Financial FAQs

If we need any more evidence that Janet Yellen should be the next Federal Reserve Chairperson, it was the decision by the Fed Governors to continue their easing at the conclusion of their September 18 FOMC meeting, just 3 days after Larry Summers withdrew his candidacy for Fed Chairman.  Their action was basically an endorsement of Yellen’s policies as the Fed’s current Vice Chairperson that confounded the pundits who were sure the Fed would begin it’s ‘taper’ of bond purchases in September. 

In a word, Dr. Yellen has always been pro-job creation, and that is the big change in economic policymaking that should make this economic recovery self-sustaining, as opposed to Republican Paul Ryan’s latest budget proposal that is in fact anti-jobs. Instead, he wants to focus on reducing the budget deficit by cutting entitlement benefits for the elderly in return for lifting some of the sequester (i.e., Budget Control Act) spending cuts. 

But that doesn’t reduce the current debt or boost hiring directly, although lifting spending cuts and ending the government shutdown will bring back all those furloughed workers.  Labor’s share of national income has been steadily falling, which reduces the buying power of consumers who power 70 percent of economic activity, and so the overall demand for goods and services.

Graph: Economix

           Economist Jared Bernstein said as much in a recent New York Times column, illustrated in the Economix graph from 1995 to Q3 2012:  “In fact, as many inequality watchers have noticed, profits as a share of income are at or near record highs while the compensation share is around a 50-year low.” And as Robert Samuelson also reported in the Washington Post, “…labor’s share has plunged in the past decade. In 2013, it’s 57 percent (vs. 63 percent in 2000). This shifts about $750 billion annually from labor to capital.” 

The so-called supply-side policies of smaller government and lower taxes that have favored producers over employees are out of touch with the real economic problems today.  It is mainly a lack of demand, rather than the supply of goods and services that has stunted this recovery.  We are in fact awash in cheap goods produced globally.

The best sign that we have a demand problem that no longer requires lowest taxes for the producers and corporations is almost no sign of inflation and record low worldwide interest rates.  These indicators signal the sluggish circulation of money and so reduced demand.  Most of it is being saved, or hoarded.  Banks have almost $1 trillion in excess reserves that would normally be loaned out or invested, while corporations have more than $2 trillion in cash and cash ready reserves not being invested.

Why?  Because labor has been left out of the recovery as almost everyone knows.  Thomas Piketty and Emmanuel Saez have documented that 95 percent of the wealth created since 2009 have gone to the top 1 percent, while household incomes have fallen.  That is why debt is even a problem.  Simply put, debt can’t be paid down unless tax revenues increase.  Paul Ryan and the Tea Party stalwarts have it all wrong.  Cutting back on government spending directly translates to fewer jobs and less tax revenues, as the current shutdown illustrates.

How to right the imbalance in order to boost growth?  Raise the minimum age for starters, as I’ve said in past columns, and raise some of the tax rates. Or, close those tax loopholes that have the wealthy such as Mitt Romney and Warren Buffet with lower tax rates than their employees. Our policymakers and politicians have enough choices, if they choose to act.

But until such happens, we have only the newly nominated Janet Yellen to rely on to keep interest rates low enough to create a sustainable recovery.

Harlan Green © 2013

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