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Reducing Unemployment, Restoring our Economy, and Eliminating the Budget Deficit - Historic Perspective
In the 1950s and 60s we saw the rise of the middle class. Thanks to labor unions and collective bargaining, ordinary citizens working in factories could truly be "middle class". They could enjoy the fruits of their labor and send their children to college where they could acquire the skills that would help them do even better than their parents. The buying power of the general population fueled business and led to greater prosperity for the country.
When I went to Purdue as a freshman in 1961, tuition room and board totaled $1050 per year. I saved enough during high school to pay for the first year and could earn enough with summer factory jobs to pay for the successive years.
We weren't creating new millionaires very fast during those decades. The maximum income tax rate from 1951 to 1963 (applied to income over $400,000) was 91%. It was 70% (applied to income over $200,000) from 1965 to 1980. Republican calls for lower taxes (meaning, as always, lower taxes for the wealthy) saw fruition during the Reagan years when the maximum rate went to 28% (applied to income above $30,000). Contrary to Reagan assertions that tax breaks for the wealthy would pay for themselves, our yearly deficits and the debt rose and we then began to create millionaires by the thousands while the hundred million people in the middle class lost income. The gap between the rich and poor widened. College students began to face crushing debt on graduation. So fewer went to college. The great upward surge of productivity and national wealth ended.
The Reagan approach was called "supply side" economics. It was the same as what was known and rejected earlier as "trickle down". Working economists have never supported it in any numbers. In the early 1980s, at the height of Reaganomics, the American Economics Association had 18,000 working economists of all stripes, progressive to conservative. Only 12 supported "supply side". That is, 99.94% of them rejected "supply side"/ "trickle down" economics. Only conservative politicians have kept the idea afloat. See "The Rise of Supply Side Economics".
The Limbaughs, Hannitys, and Robertsons preached that greed was good. Corporate raiders dismantled corporations, and robbed pension funds for their personal gain. CEOs forgot about making their corporations successful and concentrated on enormous bonuses and golden parachutes for themselves. Markets for corporations declined as ordinary citizens, robbed of their pensions and working for lower wages, had less money to spend. The Republicans clamored for more tax breaks for the wealthy and George W Bush obliged.
The Glass Steagall Act of 1933, in addition to setting up the FDIC, prohibited banks from being investment houses and gambling with their depositor accounts. The frequent economic crises (including the crash of 1929) which occurred before 1933 became a thing of the past until the latter provision was repealed by the Gramm-Leach-Bliley Act of 1999. Banks again gambled, churned risky mortgages and traded worthless derivative financial instruments. The banks became insolvent and our nation stood on the brink of a collapse worse than the Great Depression of the 1930s.
So President Obama inherited a mess in January 2009. He was able to avoid the disaster that would have been by propping up the banks. What he did was not perfect. A better course would have been to take the banks and AIG through bankruptcy. The banks could have been broken up so that we would not have the "too big to let fail" problem. Enormous bonuses could have been a thing of the past. It still would have required massive taxpayer funding but the resulting system would have fixed the key problems which fueled the crisis.
We were losing jobs at 800,000 a month as President Obama took office. The stimulus funds have reduced the job loss rate to 20,000 per month. The stimulus program can be improved. It should concentrate as directly as possible on jobs, spreading the opportunities as widely as possible. The Republican clamoring for tax breaks (always concentrated on the wealthy) should be ignored. Tax breaks for the wealthy hurt the economy and don't produce jobs. Even when applied to the middle class, tax breaks are not efficient job producers.
As President Obama rightly pointed out, long term deficit elimination requires health care reform. We have the most expensive and least effective health care system of any industrialized nation and the costs are rising at economy breaking rates. Attempts to fix this crisis were mired down by health insurer and health provider lobbying and the Republican party of "NO" which served special interests and wanted to prevent President Obama from getting credit for solving this critical national problem.
At this point, we need to patch up the system to prevent future disasters. We need to reestablish the bank regulation which was removed in 1999. We need more job stimulus to get the economy building again. We need to pay for the stimulus programs by rescinding the tax breaks for the wealthy of both the Reagan and G.W. Bush administrations. We need to reduce the cost of health care by following the lead of all of the other industrialized nations who spend less than half of what we do while insuring everyone and producing much better health results than we have. Over the next five years, we can restore our economy, reduce unemployment to pre-crisis rates, and produce budget surpluses.
Then we need to recreate the economic balance we had in the 50s and 60s. Workers must have wages which will sustain families, and allow each generation to again do better than the last. Collective bargaining will be key to the long term redevelopment of our economy.