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This is a conceptual summary of the major issues we address and the conclusions we reach. In another Economic Summary we set forth our substantive conclusions about the incredible economic damage done to America by the policies of the “Reagan Revolution” over the past 30 years. If you go there now, please return here for our conceptual overview:
Income and Wealth Inequality
The core economic and political problems in America today grow out of a wealth and income gap between the very rich and all other Americans that has drastically widened over the last 30 years:
- The percentage of the nation’s wealth in the hands of the top 1% has dramatically increased while the percentage held by the bottom 99% is nearly 1/5 less than it was 30 years ago;
- The top 1% today owns about 35% of all wealth (more than half of all financial wealth) and takes home over 23% of all income. Its share of wealth and income continues to grow;
- There is great inequality within the top 1% as well, with a small handful of multi-billionaires (roughly the “Forbes top 400”) possessing unimaginable wealth, roughly 500 times the average of the rest of the top 1%;
- The bottom 90% owns about 25% of the nation’s wealth, and the bottom 80% only about 7%. The bottom 40% has no wealth at all;
- This widely unequal distribution of wealth and income is comparable to that existing at the start of the Great Depression in 1929.
The State of the Economy
The bottom 99% of Americans are facing decline, and the bottom 80% are in serious trouble. The middle class is dwindling and poverty is rapidly rising. All but the top 1% is living in economic recession, and we are now headed towards a depression. Current trends, if gone unchecked, will result in severely limited prosperity and educational and employment opportunities for virtually all Americans, for many years.
Here are the major considerations:
- Starting with the Reagan Administration in 1980, middle class incomes and wealth flattened out, and they have not grown since, except for a brief period during the Clinton administration. Virtually all growth and much middle class wealth has since accrued to the top 1-2%;
- The Reagan Administration reduced the maximum tax rate from 70% to 28%, and in the process ran up roughly $1.7 trillion of federal debt;
- The federal government has not had budget surpluses, so interest has accrued on that debt;
- Early in the GW Bush Administration, income taxes were cut for the top 2.5%, at a continuously increasing total cost that exceeds $1 trillion so far. This tax cut was financed through federal debt, much of which assigned to the Social Security fund;
- The total federal debt accrued during the Reagan/Bush/Bush years, including interest accrued on all of that debt, is now over $12.1 trillion, most of the $14 trillion current total. This debt offset government revenue lost through tax reductions for the wealthiest;
- For a perspective on how enormous this problem really is, see How Much is Trillion Dollars? and A Thousand Times Worse.
- Unable to keep up with inflation, the middle class over the last 30 years and especially over the last 10 years lost real wealth, stopped saving, and ran up considerable debt;
- When the housing bubble burst in 2008 and Wall Street crashed, the Great Recession set in with the loss of about 13 million jobs, the loss of roughly $6-8 trillion in security investment values (at a huge cost to the middle class), and the loss of millions of homes through mortgage foreclosures;
- Although a depression was averted with stimulus funds in 2008 and 2009, those funds are running out. The normal fiscal approach to recovery requires government spending and job creation, and in this situation additional spending is needed to replace the lost stimulus;
- With a $1 trillion military budget (including wars) and over $400 billion/year in debt interest, trillion dollar budget deficits are unavoidable, making federal stimulus policies extremely impractical;
- In the 2010 elections, frustrated voters turned over the House of Representatives to Republicans and tea-baggers. Consequently, there have been no legislative programs for job creation and no proposals for raising tax revenues from the rich;
- The agenda of the right is focused on slashing programs for ordinary Americans by roughly enough to offset the renewal last December of the Bush tax cut for the wealthy. Those program cuts would depress the economy even further, while deficits continue and the federal debt grows;
- At the state level also, new Republican governors are slashing local education and government service budgets, while giving tax breaks to the wealthy and corporations. Thus, at the state level still more wealth is transferred from the middle class to the rich, with further economic depression, while budget issues are ignored;
- At a time when America needs job growth, the politicians beholden to the wealthy (who control the media and can spend unlimited amounts on elections) are in power. The policies of the wealthy will drastically decrease employment, and doom the economy to further decline.
The conclusion we reach, unavoidably we believe, is that only a reversal of these trends and substantial taxation of the rich and corporations can prevent further decline and a depression.
It seems pointless to speculate about what the wealthy elite have in mind for the American economy. But it is important to understand that their current policies continue decades of successful efforts to get richer at everyone else’s expense. Their wealth provides them with substantial control of political parties and the federal government, not to mention the media, and it’s through exercise of this control that they have gained a vastly disproportionate share of America’s wealth. Here is our assessment of how they have done it:
- Through control of government, primarily during Republican Administrations, the rich have manipulated taxes and tax rates and kept their effective personal and corporate income taxes relatively low, contributing to the unequal distribution of wealth;
- Through control of government over the last thirty years, during Republican administrations, they have at taxpayers’ expense borrowed more than $12.1 trillion to finance their lower taxes. Their reduced taxes have given them a higher percentage of total wealth, but the disproportionate interest they collect on government debt (relative to all taxpayers), has allowed them to further increase their percentage of total wealth;
- Through control of government, they eliminated restraints (of anti-trust enforcement and regulation) on corporate abuses and profits in the private sector. Monopolistic pricing and market control produce excessive profits, and few major business sectors today have sufficient competition to achieve efficient market pricing;
- Through control of government, they have tilted the balance between capital and labor in their favor, and steadily increased their power over employment and wages. As unions and collective bargaining declined, they have kept employee wages, salaries and benefits relatively low while increasing management salaries and bonuses. The gap between incomes of the highest-paid CEOs and the average workforce incomes has ballooned;
- Through control of government, they have provided billions of dollars in tax subsidies to oil companies and other profitable big businesses. Such subsidies have provided profits for corporations and growing wealth for the top 1% at the expense of other taxpayers;
- The military-industrial complex, through its control of government, has made extraordinary profits through the often inefficient and excessively profitable provision of weapons and military equipment. The total military budget has been roughly $1 trillion per year;
- Through control of the government banking system, the Wall Street investment firms have manipulated financial markets and made obscene fortunes, such as bonuses of over $1 billion in a single year, on highly leveraged mortgage and other “derivative” security investments. When the economy crashed in 2008, homeowners absorbed most of their own losses through mortgage foreclosure, while the Wall Street rich were deemed “too big to fail” and bailed out by taxpayers.
Control of Government
Government in a democratic society is supposed to provide the institutional framework for people to regulate their conduct among one another, manage collective affairs, and advance collective social goals. Among such goals, as famously recognized by John Maynard Keynes, are the maintenance of full employment and an equitable distribution of wealth and incomes. This requires regulation of economic power and corporations.
Wealth is power, however, and politicians of both political parties over time have fallen under the influence of the wealthy elite. Corporations and the elite have gradually increased their control of all three branches of the federal government. This has made it possible to control the national economic agenda, as outlined above, and made it increasingly difficult for an intentionally misinformed public to have their interests successfully represented in government. In short, the fox has been in charge of the hen house.
Control of the Media
Over the past 30 years, the wealthy have gained increasing control of information provided on radio and TV, in the internet, and in newspapers and magazines. Today, internet neutrality is also under attack by corporate interests, and the Republican majority in Congress has just voted to eliminate all federal funding for NPR, further reducing media that is not controlled by the very rich.
Over time, they have gained increasing control over how people frame issues, and what they believe. Large segments of the population have been persuaded to believe, against their own interests, that “freedom” and their own well-being are advanced as the rich get richer. The wealthy and their media have misled people about the true state of the economy, and the advancing corporate control over America.
We address the self-serving falsehoods and ideological myths the wealthy elite are using to gain public support. Here’s a short summary:
- They tell people government is their enemy, and that it seeks to “control” them. Government works for the people, or at least it is supposed to. Corporations do not;
- The problem with the economy, they say, is that Democrats are “big spenders” who waste taxpayer money. Actually, they are the big spenders, running up intolerable levels of federal debt and amassing great wealth at taxpayer expense through their control of our government. We can’t understand why people still call this “conservative”;
- The virtues of “capitalism” are endlessly extolled, while “socialism” is demonized. But the virtues of hard work and industry are lost when the free market is destroyed and the machinery of government is converted to their use. The invisible hand of Adam Smith becomes an iron fist when military contractors become their own customers (e.g., Cheney/Halliburton), or hedge fund managers can draw annual bonuses of $1 billion out of the banking system while producing nothing of value for society;
- They claim they are paying a “fair” amount of taxes. However, by definition they are not paying their fair share of taxes if they get extremely wealthy absorbing other people’s wealth and everyone else gets so poor that the economy is driven into the ground. Today, corporations increasingly escape paying any taxes at all, and only people living at the poverty level are afforded income tax rates as low as millionaires and billionaires pay on their earnings;
- Most pervasive is the ideology of “The Reagan Revolution,” which argues for corporate freedom from regulation, “small” government, and low taxes for the rich. The latter is based on an economic hoax called “Reaganomics.” Widespread and quasi-reglious fervor generated around these ideas, most recently by the Tea Party, is a big part of how America got so far off the track and has come to this desperate situation. A “small” government from their perspective is one that they control, and that does not work for the people, who mostly pay for it. It’s become painfully clear what they do with their tax savings: They are driven to create more wealth for themselves, not “prosperity.”
Control of the Courts and the Law
From 1972 until he became Chief Justice in 1986, Justice William Rehnquist was often referred to as “the Lone Ranger” for his sole conservative dissents. Since then, through replacement, the Supreme Court has lurched radically to the right and, in the last decade especially, it has advanced the rights and interests of corporations and the wealthy over those of individuals.
In 2010, the Court issued a decision in Citizens United v. FEC that awarded corporations the right to unlimited spending in political campaigns. Thus corporations, created originally as legal devices to structure business relationships among people and to limit personal liability, have now gained the First Amendment right of “free speech” originally intended to protect real people from oppression.
This decision is dangerously anti-democratic, and now Americans must work even harder to avoid media influence and regain control of their government.
JMH, ARC – 3/23/11
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