Tag Archives: economic inequality

Voodoo You

“It just isn’t going to work, and it’s very interesting that the man who invented this type of what I call a voodoo economic policy is Art Laffer, a California economist.” – George H.W. Bush, Carnegie Mellon University, April 10, 1980

 

I’m frightened for the United States, and it’s not just because of my disdain for our faux president, Donald Trump.  I’m genuinely concerned about what could happen over the next few years.

In the above quote, George H.W. Bush was referring to the plans of fellow Republican and 1980 presidential candidate Ronald Reagan for revitalizing a stagnant U.S. economy.  Then, when Reagan won in most of the primaries, his camp offered Bush the vice-presidential position, and the former Texas congressman shut up about economics.  In 1980, the nation was in a bad financial situation.  The costs of the Vietnam War, coupled with oil embargoes from OPEC nations, had finally taken their toll.  Unemployment stood at nearly 10%; the prime interest rate was 21%; inflation was 14%; home mortgage rates were 17%; and the top marginal tax rate was 70%.  In the second quarter of 1980, the U.S. gross domestic product (GDP) declined by 8%.  By the end of the year, the overall GDP boasted about $3 trillion (in today’s dollars).

With the help of some Democrats in both houses of the U.S. Congress, Reagan was able to generate an agreement that slashed taxes down to 50% on wages, to 48% on corporate income, and to 20% on capital gains.  These measures initially jumpstarted the economy.  Average citizens had more expendable income, which they poured back into the economy by purchasing many so-called big ticket items, like vehicle and electronics.  By 1990, the size of the U.S. economy had grown from $3 trillion to $6 trillion, with roughly 4 million new businesses and 20 million new jobs created.  Although the national debt increased from $1 trillion to $4 trillion during the same period, overall revenues doubled.

Reagan’s economic policies were in line with conservative views on taxation: if we give the “investing class” (meaning, the most affluent) generous tax breaks, they will respond by expanding their businesses or starting new ones, which in turn, will create more products and / or services and more jobs.  Along with reduced business regulations (“job killers” in conservative lingo), average citizens will have more income, which of course, they will pour back into the economy.  Such growth then will expand the tax base; the additional revenue will replace any money lost to the initial tax cuts.

Ask any frustrated project manager and they will tell you that everything always looks great on paper.  While Reagan disciples keep championing his financial moves, the reality is that “Reaganomics” didn’t work out as planned.  One thing people forget is a little thing called the Garn-St. Germain Depository Institutions Act of 1982, which rolled back financial regulations that had been established by the administration of Franklin D. Roosevelt to prevent further damage caused by the 1929 stock market crash and the ensuing Great Depression.  It’s interesting that Bush’s voodoo comment was made at Carnegie Mellon University.  Founded by Andrew Carnegie in 1900 as Carnegie Technical School, it merged with the Mellon Institute of Industrial Research in 1967 to become Carnegie Mellon.  The Mellon Institute had been established in 1913 by brothers Andrew and Richard B. Mellon who, like Carnegie, were self-made businessmen and titans of early 20th century America.  Andrew Mellon served as Secretary of the Treasury from 1921 – 1932, one of the longest tenures for this position.  He created the “trickle-down” economic theory by declaring, “Give tax breaks to large corporations, so that money can trickle down to the general public, in the form of extra jobs.”

But Andrew Mellon is also known for a notoriously rotten hands-off policy with the Great Depression.  The banks that failed had put themselves in such a precarious financial position, he believed, and thus, they were responsible for extricating themselves from it.  It didn’t seem to matter that these bank failures took people’s money with them; therefore, amplifying the effects of the 1929 crash.

Still, President Reagan – like any good fiscal conservative – held onto these beliefs and eagerly signed the Garn-St. Germain bill.  That reduced the number of regulations on financial institutions and allowed them to expand and invest more of their customers’ deposits in various ventures, particularly home mortgages.  Again, that looks-great-on-paper ideology swung back around to bite everyone when the Savings & Loans Crisis erupted.  Between 1986 and 1995, 1,043 out of the 3,234 savings and loan institutions in the U.S. failed; costing $160 billion overall, with taxpayers footing $132 billion of it.  It was the worst series of bank collapses since the Great Depression.  That led to the 1990-91 Recession, the longest and most wide-spread economic downturn since the late 1940s.  I started working for a large bank in Dallas in April of 1990 and saw the S&L crisis unfold in real time.

Nonetheless, trickle-down economics saw a rebirth with George W. Bush, as his administration further deregulated the banking industry and also deregulated housing.  Combined with the costs of wars in Afghanistan and Iraq, the U.S. economy almost completely collapsed at the end of 2008.  The 2007-08 Recession was the worst economic downturn since the Great Depression.  Unemployment reached double digits for the first time since the start of the Reagan era, as millions of citizens lost their homes and their savings.  Had it not been for such programs as the Federal Deposit Insurance Corporation (the FDIC, established by Roosevelt), we surely would have plunged into another depression.

Now, with Donald Trump in office, I fear we’re headed for the same morass.  On December 22, 2017, Trump signed the Tax Cuts and Jobs Act; the largest overhaul of the U.S. tax code in 30 years.  Financial prognosticators have already forecast the act will raise the federal deficit by hundreds of billions of U.S. dollars over the next 10 years.  The law cuts individual taxes temporarily, but cuts corporate tax rates permanently.  As suspected, the most affluent citizens will benefit greatly, as they experience a significant reduction in their taxes.  The rest of us lowly peons may see a tax increase after those temporary provisions expire in 2025.

You know that classic definition of insanity?  Doing the same thing over and over, while expecting different results.  It’s more like, well, if you keep doing stupid shit, stupid shit will keep happening!

Ignore Russia-gate for a moment and the fact Melania’s side of the First Bed is colder than a Chicago winter.  This past week Trump visited the World Economic Forum (WEF) annual meeting in Davos, Switzerland.  This is where the most elite members of the business world meet (conspire) with leaders of developed nations to create economic policies and decide what’s best for us peons.  Kind of like evangelical Christians often meet to decide what people should see and read.  They’ve set themselves up as the righteous few; the ones who supposedly understand exactly what works and what doesn’t and are divinely compelled to bestow such knowledge upon the rest of us.

Trump ran his presidential campaign on the wave of anti-Washington sentiment; appealing to average citizens about reviving a once-lost “Great America” with a variety of clever ruses: ban Muslims, build a wall along the Mexican border, etc.  So many people, of course, bought into it.  Like Ronald Reagan, Trump was able to tap into that sensitive nerve of everyday angst; spitting out a slew of quaint buzz words to appeal to average folks.  He had said he would never take part in a WEF convention.  Yet, there he was; leading a parade of those self-righteous few into another kind of revitalization: the Gilded Age.

I doubt if most Trump voters even know what Davos means and how it could impact their lives.  Understand, though, that Switzerland is a place where Hollywood celebrities often went for a retreat or a little vacation – code words for cosmetic surgery; long before Phyllis Diller made it openly acceptable.  That’s essentially what Donald Trump did this past week.  He flew to Davos to tell the world, “America first is not America alone.”

I’m frightened for the United States.

 

Image: Golden Spike National Historic Site, Utah.

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Downton Abyss

Crotchety Violet Crawley doing what she does best – smirking.

Crotchety Violet Crawley doing what she does best – smirking.

Since 2010, “Downton Abbey” has been one of the most popular dramas on television.  It’s enjoyed high ratings here in the U.S., which surprised its British producers.  I’ll concede that the production values are extraordinary: the period costumes and set design are as appealing as the beautiful cinematography.  I also love seeing those vintage automobiles.  My parents are modest fans of the show, but I’m not.  In fact, I actually loathe it.  The concept of upper-class Britons spending their time delivering snarky comments to one another, while haggling over what attire to don for the latest high-society ball, bears no sense of originality or purpose in my view.  But, “Downton Abbey” actually serves a greater, if unintentional purpose: it represents what is wrong in the U.S. from a cultural and economic standpoint.

In one episode, I happened to overhear the character of Violet Crawley, portrayed by the exquisite Dame Maggie Smith, lament that life in England was pathetically different than it was before the “Great War,” a.k.a. World War I.  She desperately wants to see it return to “the way it was before.”  That’s how some White conservative Americans view this nation; they want to see it return to the way it was before the 1960s, when droves of Negroes, Hispanics, Indians, women and queers dared to demand equal treatment.  It’s one thing that makes Ronald Reagan so popular among White conservatives.  The “Gipper” (a failed, divorced actor) had always believed America was just fine before c. 1963.  Reagan’s British counterpart and political soul mate, Margaret Thatcher, apparently felt the same.  Aside from their subtle distaste for equality, both enacted legislation to crush unions and subsequently impede workers’ rights.  Reagan fired more than 11,000 air traffic controllers in 1981 for going on strike to demand higher wages and better working conditions.  Thatcher systematically destroyed coal miners’ unions; coming close to bringing in the military to help put an end to their relentless strikes.  Consequently, labor never viewed either Reagan or Thatcher with much adoration.

It’s these latter antics that brought both countries back to an earlier time when large companies could do what they wished to their workers with little regard for their health or safety.  And, it’s where “Downton Abbey” plays out – during a period in which the wealthiest citizens managed to insulate themselves from “The Rest of Us” and stay above the fray of everyday life.  “Downton Abbey,” with all its vivacious costumes and sumptuous furnishings, is emblematic of the very real and extraordinary economic disparity in the U.S.  We’re still suffering the ill effects of dramatic deregulation of the banking and housing industries that the Bush Administration enacted more than a decade ago; irresponsible actions that, along with two unfunded wars and disparate tax policies, almost completely destroyed the U.S. economy by the end of 2008.  It lingers as a financial hangover for us common folks.

Still, Peter Augustine Lawler, a conservative professor of government at Berry College, celebrated the “astute nostalgia” of “Downton Abbey” in an editorial in “Intercollegiate Review,” a publication of the Intercollegiate Studies Institute.  ISI promotes limited government and free market economies – hallmarks of conservative ideology that leave no room for individual freedom, despite their claims to the contrary.

Wrote Lawler: “Everyone – aristocrat or servant – knows his place, his relational responsibilities. . . . The characters aren’t that burdened by the modern individualistic freedom of figuring out one’s place in the world. . . . Many of the customs that seem pointlessly expensive and time consuming, such as dressing for every dinner, are employment programs for worthy servants given secure, dignified places in a world where most ordinary people struggle. . . . The nobility of living in service to a lord. . . . What aristocracy offers us at its best is a proud but measured acceptance of the unchangeable relationship between privileges and responsibilities in the service of those whom we know and love.”

Notice how Lawler mentions the term “place.”  It’s a common designation the upper classes often bestow upon their lowly minions.  It’s a word many Whites in the U.S. have used in conjunction with non-Whites; what some men have often said to women.  Everyone supposedly has a “place” in the human food chain and they shouldn’t dare to undermine that structure; lest they be denounced as heretical and banished to social obscurity.  Regardless of race or ethnicity, though, Lawler coldly declares that the aristocracy of any nation should be able to preserve their right to a privileged state without impediments and damned the rest of us.  In other words, we’re supposed to accept such conditions without question; it’s just the way things are and too bad if we don’t like it.

There is no “nobility” in a life of servitude – whether to the lord of an antiquitous estate or a bully boss in a Fortune 500 company.  It’s one reason why I’m strongly opposed to illegal immigration.  Aside from the legality question, illegal immigrants are easy prey for unscrupulous employers who force them to work in the worst of conditions and sometimes fail to pay them; they then threaten the individuals with deportation if they have the audacity to demand the promised compensation.

It’s somewhat similar to what’s occurring now in the American workplace, as the economy remains fragile.  Corporate executives threaten employees with layoffs or termination if the latter won’t accept harsh working conditions, low pay and / or cuts in benefits.  I was threatened with my job at an engineering company in 2010; at the height of the “Great Recession.”  It worked, as I kept quiet and searched earnestly for another job.  So were most of my colleagues.  Everyone seemed unhappy, but could do nothing about it.  Our supervisor once mentioned in a meeting, “I wish you could see the number of applications on my desk.”  As her boss sat there nodding, we all comprehended the subtle threat.  Despite working so hard, though, four of us were laid off that fall.  My only consolation is that the supervisor and manager ended up losing their jobs, too.

The skewered viewpoint of the “Downton Abbey” gang is courtesy of principal writer Julian Fellowes, a private school graduate who holds a seat in England’s House of Lords.  Most writers compose what they know.  I’ve lived all my life to date in Texas; raised in a middle class household with two working parents in a good suburban home.  So, that’s who my characters are.  They may encounter some unusual events (since I have a fetish for the supernatural), but they’re generally working folks.  That’s my view of reality – and it’s a more accurate assessment than the world according to Fellowes.  He grew up in a golden bubble where his family obviously had privileges.  He never questioned the veracity of that lifestyle – why should anyone else?

Well I do – and I have no problems questioning it.  Violet Crawley (the name sounds as wretched as the character looks) reminds me of former First Lady Barbara Bush and conservative activist Phyllis Schlafly.  After Hurricane Katrina devastated the American Gulf Coast in August of 2005, Bush and her husband, former President George H.W. Bush, visited the Houston Astrodome where many New Orleans residents had been evacuated.  Observing the masses of people who had lost everything to floodwaters and high winds, Mrs. Bush quipped, “Everyone is so overwhelmed by the hospitality.  And so many of the people in the arena here, you know, were underprivileged anyway, so this is working very well for them.”

Schlafly came to prominence in the 1970s when she vehemently opposed the Equal Rights Amendment (ERA), which would have guaranteed complete and total equality to everyone in the U.S., regardless of gender.  Schlafly warned that women’s traditional roles were under threat from the proposed amendment: protective orders for sexual assault and alimony would be eliminated; women would no longer automatically be granted custody of their children in divorce cases; women would be drafted into the military; and unisex public restrooms would become mandatory.  With a law degree in her background, Schlafly often opened her speeches with gems like, “I’d like to thank my husband for letting me be here tonight.”

In the narrow prism through which Bush and Schlafly see the world, everyone has their proper place, and challenging it would simply disrupt the natural order of things.  Because of the near-total economic collapse, the U.S. now has the greatest wealth disparity since the 1920s.  It’s a trend that actually began years ago, but became more pronounced by the end of the previous decade.  A 2011 study by the Congressional Budget Office found that, between 1979 and 2007, after-tax income for the nation’s wealthiest 1% grew by 275%.  For the rest of the populace, it increased during the same period by an average of only 40%.  Although the “Great Recession” technically ended in 2010, unemployment remains stubbornly above 6%.  It’s been a “jobless recovery,” a term no one I know had ever heard until now.  It’s an oxymoron – how can an economy recover from a recession if so many people can’t find work?

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In January 1952, two young men, Ernesto Guevara and Alberto Granado, launched a road trip across South America on a motorcycle.  Their purpose was purely hedonistic; their youthful vigor infused with a craving for adventure and fun.  But, as they traveled from one town to another, Guevara in particular noted the gross economic disparities between the elite European-style upper classes and the downtrodden indigenous populations.  He became disillusioned with a world he thought was just and righteous.  He turned his anger to the written word in a chronicle he dubbed “The Motorcycle Diaries: Notes on a Latin American Journey.”

“And then many things became very clear… we learned perfectly that the life of a single human being is worth millions of times more than all the property of the richest man on Earth,” wrote Guevara.  Later, the would-be medical student metamorphosed into the revolutionary Che Guevara – and would be murdered because he dared to challenge the elitist authority.

But, that happens when a country’s finances become skewered to favor the most affluent and their puppets in government.  People like Violet Crawley may feel safe and comfortable in their diamond-studded estates for a time.  But, we all die at some point – and whatever money and jewels we possess won’t go with us into that abyss of the next world.

Graph courtesy Congressional Budget Office.

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When the Truth Really Hurts – and Scares the Crap Out of Most People

“It’s easy for CEOs with mega-million-dollar retirement funds to demand cuts to Social Security.  They’ll be enjoying their country clubs while America’s already shamefully high poverty rate among the elderly will increase.”

Scott Klinger, of the Institute for Policy Studies, in “Inequality in the Social Security Debate,” March 14, 2013.

Why don’t our elected officials take this issue more seriously?  With the worst economic downturn in U.S. history depleting the savings and home values of millions of citizens and so many people entering their “Golden Years,” there are few other matters that deserve more attention.

Download the full IPS report here.

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Fuzzy Math

Well, the U.S. has always wanted to be number 1 in something.

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