A new book, Winner-Take-All Politics: How Washington Made the Rich Richer, shows what we have known for quite some time now. For the past three decades, our economy has grown dramatically, while nearly all of those gains have gone to the top 1%, especially the top 0.1% whose education and skills are not significantly better than those just below them. Meanwhile, most Americans saw little to no improvement, the middle class has shrank, and the bottom 40% has actually seen a decline in their real standard of living since 1980. So much for the trickle-down theory that the conservatives promised. More like the reverse of Robin Hood: rob from the poor, and give to the rich.
However, it was not always like this. From the end of WWII through the 1970s, America's massive prosperity was actually shared. In fact, those at the bottom actually gained somewhat more than those higher up the ladder, and poverty rates plummeted from 1950-1970 as wages rose with the economy, reaching an all-time low in 1973. We had essentially full employment and relatively low inflation until the early 1970s when stagflation and the oil crises unfolded. Back then, we actually made stuff that was worth something, and laying Americans off to exploit cheap Third World labor was considered unpatriotic at best. And believe it or not, it was actually possible for the vast majority of workers to support a family on only one income and a 40-hour workweek. Though far from being a true golden age (just ask any black person who was around then, for example), our real economy was probably the best it had ever been before or since.
Why was this quasi-golden age possible? Of course, the aftermath of WWII that devastated other countries but left us relatively unscathed partly explains our massive growth. But that in itself does not explain why prosperity was shared so equitably compared to previous or later eras. So let's look at Washington's influence, which is quite obvious. In the 1950s and early 1960s, the top marginal tax rate was about 90%, and about 70% from the mid-1960s until 1981. Not only that, but inflation-adjusted thresholds for the top rate were also much higher then as well. The minimum wage, first instituted in 1938 under FDR, had been repeatedly increased faster than inflation until it peaked in 1968 at $10/hr (in 2010 dollars), after which it had begun lag inflation. And the effective minimum wage was even higher in most industries due to the strength of labor unions at the time, which Washington supported (or at least did not try to undermine). Under such conditions, companies rightly thought it silly to pay paper-pushing CEOs hundreds of times what the average workers make and give them massive bonuses on top of that. Instead, they invested their wealth in all of their workers, productivity enhancements, and thus invested in America as a whole. And of the high taxes they paid, a great deal was spent on public infrastructure that spurred economic growth. The 1960s also saw an expansion of social welfare programs as well, known as the Great Society. In other words, contrary to what conservatives like John McCain often claim, it seems that is entirely possible to both create and spread wealth at the same time.
But wait, haven't we all been told by the right-wingers (i.e. lapdogs of the ultra-rich) that all of these things somehow destroy the economy and cost millions of jobs? Apparently, these things work in practice, but not in theory. At least not what would eventually become the orthodox theory of economics.
Enter Ronald Reagan in 1981, who promised to fix the economy that was reeling from recession and inflation at the time. One of the first things he did was cut taxes, primarily for the top bracket. The top marginal rate was cut to 50%, and then to 28%. By the time he left office, the threshold for the top marginal rate had also shrank to below $100,000 in today's dollars. He also let the minimum wage lag behind inflation, cut various social programs, weakend business regulations, helped undermine unions, encouraged globalization (read: offshoring/outsourcing jobs) and increased "defense" (read: war) spending. CEOs got richer, while their employees saw no improvement or got poorer. Then Bush I raised taxes slightly, but continued in his predecessors footsteps. Clinton raised taxes more, especially at the top, but they were still lower than they were in Reagan's first term. While he presided over the longest continuous economic expansion in America's history, he too helped to promote further offshoring/outsourcing via NAFTA and gutted the social safety net further. Bush II continued the Reagan/Bush tradition of cutting taxes for the rich and weakening regulations, especially financial regulations. Over time, our manufacturing base, once the wonder of the world, has been gutted and replaced by a two-tier service economy with a massive financial sector at the top and low-wage jobs at the bottom. All throughout this time, the poor and middle class borrowed more and more money just to maintain the standard of living they had a few decades ago, let alone keep up with the rich Joneses, who gained unprecedented levels of wealth. By 2007, our nation's economic inequality had reached the levels we had in 1929, and like then, the bubble finally burst and the economy crashed in 2008. And we are still reeling from the crash nearly three years later, with unemployment more than double the 2007 rate and poverty at a 15-year high. And now the deficit and national debt are at an all-time high.
Another trend that occurred in parallel with this was inflation, which really took off when Nixon abandoned the gold standard in 1971. Now, the Feral Reserve can print as much money as they want and keep interest rates artificially low. This, along with lower taxes on the rich and weakened financial regulations, also helped to fuel massive bubbles, such as housing, commodities, credit, derivatives, and the stock market. In addition, massive inflation (what cost $1 in 1970 now costs $5.62 in 2010, and that's a conservative estimate) hits the poor the hardest all while helping to conceal stagnant or declining real wages. In fact, it got so bad that the Fed actually had to cause a recession (by jacking up interest rates to double-digits) in 1980-82 just to slow down inflation. Going back much farther, we see that what would have cost $1 in 1774 (just before the American Revolution) would have still cost about the same in 1912. Then the Feral Reserve was founded in 1913, the gold standard was abandoned in 1933 (but reinstated from 1946-1971), and what would have cost $1 in 1774 or 1912 would now cost a whopping $22--again a conservative estimate. Just like boiling a frog by gradually turning up the heat, this has been a clever way to rob from the poor and middle class and give to the rich, with most of the former being none the wiser.
It seems that the American Dream is now running in reverse. If we continue on our current path, each generation can expect to be poorer, not richer, than the previous one. Not to mention more heavily taxed to pay for the excesses of the past. But not the top 1% of course. Nevermind that they benefit the most from the mere existence of government to protect their massive wealth and to provide a stable infrastructure to enable them to earn it, as even Adam Smith (the veritable god of capitalism) so astutely observed.
There is nothing necessary, just, or sustainable about our nation's economic policies of the past few decades. Extreme concentration of wealth at the top hurts just about everyone in the long run. If we are to recover from the predicament our nation is in, we need to get back to doing what once made America great. Merely repealing the Bush tax cuts is not nearly enough. We must raise the top marginal rate to at least 50% for every dollar above $1 million, and perhaps even 70% for every dollar over $10 million, with no loopholes this time. The (apparently missing) million-dollar bracket that once existed must be restored. We must eliminate the tax cap on Social Security payroll taxes. We must remove corporate loopholes so that the largest corporations like GE and ExxonMobil (who somehow managed to pay zero taxes last year) would start actually paying taxes for once. We must raise the minimum wage to at least $10/hr, which is what it would have been if it had kept up with inflation since 1968, and index it to inflation from then on. We must repair our frayed social safety net. We must restore reasonable regulation on the financial sector. And we need to restore tariffs on imports made with cheap Third World labor, and use that revenue to put unemployed or underemployed Americans to work fixing our declining infrastructure and revitalizing our dilapidated manufacturing base. The government has redistributed wealth upward for decades now, and it's time to halt and reverse this ugly trend ASAP. While some may denounce these measures as "socialist" or even "communist", that would make Truman, Eisenhower, Kennedy, Johnson, and Nixon communists. And these Cold War presidents would all spin in their graves at such an accusation to say the least.
The time to end this massive injustice is now. But will our elected officials have the intestinal fortitude to stand up to the ultra-rich?