On April 30, 2012, Edward Conard, a former partner for the financial
management company Bain Capital and a multimillionaire who retired at
age 51, sat across from Jon Stewart, host of “The Daily Show,” to
promote his new book. Conard smiled and stared intently through his
black-rimmed glasses as Jon Stewart, the liberal host of the comedy
show, held up his book and described its contents. Conard’s book argued
that America’s economy would be stronger if people like Conard were even
richer and the country had even higher levels of economic inequality.
Stewart was puzzled by Conard’s argument and joked that it didn’t seem
right because inequality in the United States was approaching the level
in countries with “kidnapping-based economies,” generating laughter in
the audience.
Tax cuts for the
rich and less regulation of business supposedly provide incentives for
the wealthy to invest and work more. Enabling “job creators” to get
richer helps us all, the theory goes.
Conard’s former boss at
Bain, Mitt Romney, the 2012 Republican Party nominee for president, ran
on a platform of supply-side policies, as have virtually all Republicans
since Ronald Reagan was elected president.
Fortunately, these flawed ideas are beginning to be challenged.
Academics have begun to rethink their views about the decline of the
middle class and progressive politicians are finally starting to openly
contest the logic underlying supply side after years of failing to do
so. It is about time because our economy is suffering deeply from a
financial crash caused in large part by high levels of inequality. And
though we may not have a kidnapping-based economy, as Stewart joked, the
American middle class is so weakened that we are experiencing the kinds
of problems that plague less-developed countries, including high levels
of societal distrust that make it hard to do business, governmental
favors for privileged elites that distort the economy, and fewer
opportunities for children of the middle class and the poor to get
ahead, wasting vast quantities of human potential.
A strong middle class is not merely the result of a strong economy—as
was previously thought—but rather a source of America’s economic growth.
Rebuilding the middle class would provide the stable base of consumer
demand necessary to increase business investment and job creation. It
would also enable the country to fully develop the human capital of its
people, increase the social trust that makes transactions possible, and
balance political power to produce a government that works for the whole
country, not just those at the top.
The United States was founded as a middle-class country. On the eve of
the American Revolution, America’s carpenters, shopkeepers, and farmers
enjoyed a higher standard of living than workers in other parts of the
world. Further, economic inequality was lower in the United States than
any place else. In an era of kings and peasants, America’s middle class
stood apart.
The strength of America’s middle class ebbed and flowed over time,
especially as industrialization took hold. But after World War II,
America returned to its roots and built a mass middle class that was the
envy of the world, with rapidly rising incomes and decreasing
inequality.
Yet, over the past three to four decades, middle-class America has
come undone. The American middle class was already hurting when the
Great Recession struck and is now in deep trouble. While there’s no
official definition of the middle class, it’s not hard to see that it is
in decline. By most every measure, most Americans are struggling.
First,
there is the basic level of income earned by the typical American.
Median household income—meaning half make more and half make less—was
lower in 2013 than it was in 1989. This means that middle-class
households now earn less than they did two decades ago.
The miniscule gains that households have made have largely come because
women have increasingly entered the workforce—meaning families are
working longer hours, as they run faster and faster to stay in place.
Indeed, the hourly wage earned by a typical man is less than it was in
1973.
Median incomes for male workers now in their thirties are about 12
percent lower than the income was for their fathers’ generation at the
same age.
While incomes have been stagnant for most Americans, the cost of
middle-class basics like healthcare and gas have risen much faster than
inflation, and some basics like housing and college have risen at double
the rate of inflation over the past four decades. It costs a lot more
to maintain a middle-class lifestyle, but no matter their efforts most
families have not been able to earn much more income. Not surprisingly,
debt levels have jumped sharply—the average debt of middle-class
families has nearly doubled since 1983.
In contrast to the middle
class and the poor, incomes of the rich, especially the very rich, have
grown by astronomical amounts over the past three decades: in 2007, the
year the Great Recession started, the top 0.01 percent, the richest one
in ten thousand, earned in today’s dollars the equivalent of about $38.8
million, compared to $6.4 million per year in 1979.
The rich now make so much more than the middle class because they
captured the vast majority of the economy’s gains over recent decades.
The share of the nation’s income going to the top 1 percent has
approximately doubled over the past three decades, while the share of
income going to the middle 60 percent of income earners has fallen
precipitously and is now stagnating near the lowest level ever recorded
since the government began keeping track of the statistic.
After 30 years of political dominance, it is obvious that supply-side
economics has failed in a number of ways and is thus vulnerable to a
challenge from middle out. Supply side helped fuel the Great Recession
of 2007–2009 by destabilizing consumer demand and encouraging the
deregulation of Wall Street—costing the United States 8.7 million jobs
and trillions of dollars in reduced economic growth.
[G]rowth was weaker after President George W. Bush cut taxes for higher
earners than it was after President Bill Clinton raised taxes on the
rich.
Moreover, trickle-down’s supposed growth mechanisms haven’t
occurred the way the theory predicted. Savings, investment, employment,
and productivity didn’t increase after trickle-down policies were
enacted, as a host of studies have shown. And budget deficits
skyrocketed when tax cuts didn’t pay for themselves, contrary to the
claims of trickle-down proponents.
There's considerably more to the article that deserves a full read. The take away? That voodoo economics theories need to have a wooden stack driven through their heart. And through the heart of the GOP.
