The New Promise of America

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The tide has turned, at least potentially. The full historic significance of the re-election of Barack Obama to the Presidency of the United States will only reveal itself in time, but if it turns out to be the turning point at which the the concentration of economic and political power in the hands of a few recklessly power-hungry multi-billionaires was halted and reversed, its significance can only be understated today. What many feared to be the imminent death of democracy in America has been prevented, or at least postponed.  The 2012 presidential election was the most significant political contest in generations between the interests of ordinary people and the interests of extreme wealth – and ordinary people prevailed.

The historic responsiveness of the vast bulk of the electorate to little more than sound-bites implied that in a Citizens United world, where wealthy people and corporations could spend as much as they wanted to influence the electorate with no accountability for the dissemination of falsehoods on an Orwellian scale, the United States had become a corporate state beyond the grasp of popular government.  Only a massive ground effort by labor, progressives, and women’s rights groups, coupled with an arrogant attempt by the far right to bite off a chunk of America too large to chew just as population demographics were rapidly changing in its disfavor, could have stopped the slide towards autocracy. Stunningly, however, that is exactly what happened.  The required popular effort was enormous, not only because of the obstacles set up to getting truthful information to the public, but also because of voter obstruction efforts underway since at least 2010 in many states, including the swing states of Ohio, Florida, and Pennsylvania.

It is especially significant that, according to CNN exit polls (here), Obama received a majority of the popular vote while getting only 39% of the votes from white people (72% of all voters), only 45% of the votes from men (47% of all voters), only 47% of the votes from people aged 50-64 (28% of all voters), and only 44% of the votes from people 65 and over (6% of all voters).   The core support for a second Obama term, it turned out, came from a significant effort and turnout from non-whites and women, especially young female voters. And, significantly, that core support was substantial enough to deliver to Obama a majority of the popular vote.

It didn’t help Obama’s chances that there are many leftist progressives, whose morality I generally share, who have perceived Obama to be much like their perception of GW Bush, i.e., another war-mongering, torture-supporting, Wall Street tool.  I know one woman, in fact, who refused even to discuss Obama, despairing over the continuing war in Afghanistan.  She was prepared to put Republicans back in charge if they appeared (somehow) to be more interested in a peaceful world; I wonder if she learned during the campaign that the Romney/Ryan ticket planned to budget higher levels of military spending than the Pentagon was even requesting.

For the better part of the last year I have argued with radical progressives that, no matter how much they distrusted or detested Barack Obama, they really needed to think calmly and rationally about the effects of their actions. What a different world we would be living in, for example, if Al Gore, who had won the majority of the popular vote in 2000 and would have become president had his apparent electoral college victory not been snatched away when the Supreme Court gave the State of Florida to GW Bush.  This amazing opportunity for Bush and the political right would not have existed but for the spoiling effect that Ralph Nader’s third-party candidacy had on what would have been a much greater – and safer – Gore margin of victory in that state (here).  I know this is an emotional topic, but it is fair to say that Nader’s candidacy ended up putting Bush in the White House.

This time around, the most vocal Obama critics on the left understood that lesson, and urged like-minded voters in swing states to suck it up and vote for Obama. Noam Chomsky, for example, said: “If I were a person in a swing state, I’d vote against Romney-Ryan, which means voting for Obama because there is no other choice. I happen to be in a non-swing state, so I can either not vote or — as I probably will — vote for [Green Party candidate] Jill Stein” (October 1, 2012, here).

Similarly, Daniel Ellsberg (October 12, 2012, here) said this:

It is urgently important to prevent a Republican administration under Romney/Ryan from taking office in January 2013.  The election is now just weeks away, and I want to urge those whose values are generally in line with mine — progressives, especially activists — to make this goal one of your priorities during this period. * * * A Romney/Ryan administration would be no better — no different — on any of the serious offenses [for which I am critical of Obama], and it would be much worse, even catastrophically worse, on a number of other important issues: attacking Iran, Supreme Court appointments, the economy, women’s reproductive rights, health coverage, safety net, climate change, green energy, the environment.  * * * As Noam Chomsky said recently, “The Republican organization today is extremely dangerous, not just to this country, but to the world. It’s worth expending some effort to prevent their rise to power, without sowing illusions about the Democratic alternatives.”

Such admonitions may have delivered some disenchanted progressives to Obama, but they were not nearly enough to deliver the overall white male vote.  I reflect daily on the fact that I am a 67-year-old white male, a member of a demographic cohort that voted overwhelmingly against a second Obama term.  Apparently, only a small minority in that group believe as Chomsky and Ellsberg and I do that a Romney term would have been an unparalleled disaster, or that a second Obama term was essential for a shot at halting the destruction of the middle class, reducing unemployment, and increasing economic growth. Very few of my elderly white brethren, evidently, saw as I did the threat to the survival of democracy in America or to the longer-term survival of a habitable planet posed by the policies of a Romney/Ryan administration.

If I am in the minority among the older white males, nonetheless I did vote for the winner, so perhaps I am in the majority of voters in holding the Bush Administration and Republican recalcitrance responsible for the deep recession that lingered throughout Obama’s first term. To be sure, the Obama Administration has disappointed me on some issues, such as its failure to close Guantanamo or to denounce and investigate the Bush Administration’s “sting operations” and prosecutions of apparently innocent American Muslims for fictitious terrorist plots. But those of us who voted for a second Obama term, I believe, recognize that Barack Obama took the helm at an extremely low point in American history, and that he has confronted deeply entrenched economic and political power at every turn.

Unlike Chomsky and Ellsberg, I think Obama is the real deal, the right man for the job. Against the odds, he helped increase private sector jobs and avoid a depression. He has consistently championed the declining middle class and sought to improve the education and upward mobility of the American people, America’s infrastructure, and the environment. His opponent in this election could not even find tangible issues with Obama’s foreign policy. I think Obama has been an exemplary commander-in-chief, reminiscent of former president Dwight D. Eisenhower, a general who detested war and regarded it as the option of last resort. Obama not only ended the war in Iraq and committed to ending the war in Afghanistan by 2014, he has consistently honored the commitment the nation must make to the men and women who serve in its defense, and to support them when they return home.  Retreating from America’s materialistic ambitions, and the hegemony implicit in America’s determination under the neoconservative vision to police the world, will not happen overnight; it seems clear, however, that neither Obama nor Clinton have evidenced anything like the neoconservative vision of the Republican administrations.

So I do not side with fellow progressives who find Obama’s performance thus far to be insufferable. I believe he has done a good job, indeed a remarkable job under the circumstances.  He is the first president in my experience to demonstrate an academic-level understanding of Keynesian economics, as evidenced by his first Cooper Union speech in March of 2008 (here).  We should believe him when he says he wanted to be president to help lift up the American people and restore the American promise of equal opportunity, and when he says that he is far from satisfied with his administration’s accomplishments so far.

With his academic success, he could have done anything he wanted with his life, and he chose a non-lucrative career in public and community service. I see no reason, from anything in his life history and his personal conduct as president, to doubt Obama’s commitment to family and country. I also believe he knows how lucky he is to have a second term, and how much he owes to the hard work of ordinary people who rallied to him for a chance for enough “stuff” (as Republicans have been putting it lately) for a decent life.  We need to curb our cynicism about him; there is no way, in my view, Obama could have faked any part of the sincere and humble appreciation he so emotionally expressed in his statement of thanks to his staff after the election (here).  As we approach the debt limit early next year, I expect the Obama Administration and its growing army of political troops to react far differently to a repeat of Republican blackmail tactics, especially if, this time, the legions who helped reelect Obama stay active and support him every step of the way.  Hey – we’re in a class war here!

So why is my perspective so different from the majority of aging white males in America? Why did the vast majority of them vote for Romney?  Why do most of them seem to have a view of the world so very much unlike mine? I trace this different perspective to a broad ignorance of a fundamental truth of economics even economists are only now starting to learn: The controlling determinant of prosperity and growth is the distribution of wealth and income.

Another cross-sectional view of the electorate is revealed by this breakdown of voter perspectives from the NBC exit polls published by “Too Much” (here):

While the CNN polls reveals significant differences in support for Obama along age, gender and ethnic lines, this NBC poll reveals a major difference that cuts across all of these demographic categories: Only one in four voters who voted for Romney believed that the economy favors the wealthy, while 77% said they believe the economy is fair to most Americans.  Conversely, only one in five of those who voted for Obama thought the economy is fair to most Americans, while 71% said the economy favors the wealthy.

This makes sense: To support Romney and the Republican agenda on economic issues, voters had to believe the “trickle-down” idea that rich people’s taxes could be cut and the economy would grow stronger, thus it would be “fair to most Americans.”  People supporting Obama would be those inclined to agree with him that the rich should pay higher taxes, out of fairness and because the economy “favors the wealthy.”  Americans are only just beginning to learn and talk about the growth of economic inequality over the last thirty years, so it’s not surprising that there is still much confusion on this issue.  As we have pointed out on this blog over the last twenty months or so, the data we now have for income inequality over the last century shows conclusively that the economy “favors the wealthy.”

The following chart from OMB Watch, for example, shows the distribution of economic growth over two thirty-year periods, 1946-1976 and 1976-2006, based on the income database compiled by economists Thomas Piketty and Emmanuel Saez.  The first of these periods was the period following World War II in which middle class prosperity grew.  The second reflects the period of declining growth and accumulation of national debt that effectively began with the Reagan administration:

The first period was a period of declining income inequality; note that overall economic growth was 90% over this period.  During the second period, there was almost no growth for the bottom 80% while top 1% incomes grew 232%.  Clearly, the operation of the economy has “favored the wealthy” over the last thirty years.  But two other observations are important:

First, overall growth was only 64% in the second thirty years, compared to 90% in the first thirty years.  This establishes that “trickle-down” mythology, which argues that reduced taxation of the wealthy will increase the rate of income growth (so that everyone else can experience rapid income growth as well), is the opposite of what really happens.  A quick non-technical explanation for why this is true is this: “Money doesn’t grow on trees.”

Second, this major change took place because the wealthy cut their taxes.  The owners of capital always make more money than laborers, because they are not limited to the fruits of their own labor.  How much gets redistributed back into the economy and how much accumulates at the top depends on the degree to which the wealthy are taxed.  During the second period, the top income tax rate (the marginal rate on top incomes) was reduced from 70% to 35% today.  The Romney/Ryan plan called for reducing the top rate further, to 25%.  It’s a bit more complicated than that, but the key point is that would only make the economy less “fair to most Americans,” and voters are beginning to catch on to that.

So it should be easier with this data in mind to understand that nothing the Obama Administration did caused the deep recession and the continuing high levels of unemployment.  Under the old political calculus that Republicans tried to use in this election, Obama would have been held responsible for high unemployment at the end of the term, and turned out of office; and it nearly worked! But Obama has been trying all along to raise taxes on the wealthy while keeping taxes down for the middle class and below, which is exactly the right policy.  Happily, enough voters understood that it was the wealthy that created and perpetuated the recession (by not allowing themselves to be charged high enough taxes), and Obama was granted a second term.

This next chart, prepared by the Congressional Research Service (CRS) and published by Public Intelligence (here), shows for the last ten years of the period we’ve been looking at (1996-2006) the percent growth in pre-tax income, after-tax income, and income taxes for the various income quintiles and also the top 5%, the top 1%, and the top 0.1%:

The argument that the wealthy are already paying a fair share of taxes is based on a comparison of effective tax rates.  This chart shows, however, that over the last decade, for the top quintile and the top income groups within it, after-tax income has grown at a faster rate than pre-tax income.  Thus, the low level of taxation at the top of the income ladder has only exacerbated the growth of income inequality.

The Piketty/Saez data have shown that nearly all new income is going to the top 1% since 2010.  This is effectively a depression scenario for the bulk of the bottom 99%. Higher taxes on the rich sufficient to get the lavender line down to the burgundy line would at least stop the regressive effect of taxation of accelerating the natural growth of inequality. A sensible policy today, which would not be at all unfair, would be to get the lavender line for the top 1% and the top 0.1% below the burgundy line, with income taxation sufficiently progressive to halt the growth of inequality entirely.  The best estimate of what is needed to accomplish that is taxation of top incomes and capital gains at the net effective tax rates prevailing back in the 1970s. The top rate back then, as noted, was 70%.

It is crucial to remember that the excessive wealth transferring up to the top, through the normal operation of the economy, does not trickle back down, and instead reduces economic growth.  Only the government can stop this vicious cycle of decline, which resulted in the Great Depression in the 1930s and today is leading us into another depression.  Because the excessive wealth transfers that have been siphoned up will not trickle back down, they must be taxed back down.

Americans, and the economics profession, are only just awakening to the truth about the macroeconomic implications of inequality.  Voters in America (and other democracies) have been selecting leaders forever without knowing that income and wealth distribution is the controlling factor in a market economy, and unaware of just how deadly and unstable unfettered capitalism can become.  The 2012 election will go down in history, hopefully, as the last presidential election in America for which its population was so badly misinformed.

Because the electorate was attentive enough to give Obama a second term, there is now a better than even chance that American economic health can be regained and that a major depression can be avoided.  Much depends on how well our president is able to withstand Republican demands.  We have survived this time, by a razor-thin margin, but America must continue to increase its awareness and understanding of the macroeconomics of inequality, back away from the cliff, and undertake never to get this close to it again.

JMH – 11/13/2012 (edited 11/14/2012)

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2 Responses to The New Promise of America

  1. vorfahrt says:

    As I stated before, this has to be re-learned over and over. While now the majority of American people understands that income and wealth inequality causes the economic malaise of our time and we are now ready to fight it, the young generation does not know or understand what happens if you go too far towards equality and suffer from an inflationary crisis as in the 1970s. To be fair we are decades away from that and it will only happens if we manage the turnaround towards greater equality here and maintain the momentum for decades to go. But eventually there will be a new 1970s, maybe in the 2040s? OK, right now we have to fight for more equality… or this economy, country and the American Dream will fail.

  2. Joe says:

    The Second Guilded Age is over. Game over for the Robber Barons of our time.

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