It’s Still the Economy — but More So
J.J. Goldberg September 29, 2010
It’s pretty obvious by now what this election is about. It’s the economy. Folks are hurting, and those who aren’t hurting are scared. Too many people don’t have jobs; too many families are losing their homes. Too many kids can’t move out and start their lives. Too many parents saw their savings evaporate and don’t know how they’ll retire. Voters are sad and angry, and nobody — nobody — knows what to do.
The basic facts are familiar, but bear repeating. In mid-2007, banks started teetering. They had made too many bad loans, mostly to people who bought homes they couldn’t afford in hopes of joining our “ownership society.” Strapped for money, the banks stopped lending, which meant businesses couldn’t borrow to expand and create jobs. As family spending dropped, business declined and firms laid off workers, further reducing spending.
By late 2008, the economy was in free fall. Former President George W. Bush and Congress created a $700 billion emergency bailout fund to save the financial system from catastrophe and get banks lending again. The money saved the banks, but the banks mostly kept it instead of lending it. In the spring of 2009, President Obama pumped in another $787 billion, partly to goose the banks, partly to keep teachers and police on the job, partly to encourage new industries. The bit about teachers and cops worked. The rest, not so much.
Today, unemployment is nearly 10%, twice the 2007 rate. Four million people have fallen into poverty anew. Eight million jobs have disappeared, and many experts say these will never come back. Topping it all, the national debt has reached a staggering $13 trillion, thanks to bailouts and lost income taxes. The country feels like it’s going bankrupt.
The politicians’ solutions are, frankly speaking, the same old stuff. Democrats would give people money to boost demand and to feed the hungry, hoping things turn around somehow. Republicans would cut taxes and stop all the health care and environmental meddling that’s spooking business, hoping things turn around somehow.
The Jewish community is even more predictable. On the left, a posse of organizations including the federations, Reform movement and Conservative rabbinate is working with a big interfaith anti-poverty coalition. The major push right now: Improve school lunches. On the right, a crop of Orthodox pundits, including Shmuley Boteach and Jonathan Rosenblum, complains that Obama is treating America as badly as he treats Israel.
To be fair, Obama didn’t start this crisis — he inherited it. Many of his antidotes stalled in the Senate. Senators stunted his stimulus plans, so as not to increase the debt. They gutted his banking reforms, meant to prevent another collapse, arguing that regulations burden business and hinder growth. They won’t even let him raise the top tax rate on the richest 2% of Americans by a lousy 4.6%, bringing it back to the pre-Bush rate of 39.6%, which would cut $1 trillion in debt, because taxes supposedly punish investors and hinder growth. As for the debt, most of it, $10 trillion worth, was inherited from Bush, who had managed to double it in his eight years in office.
But blaming Bush isn’t fair, either. This crisis didn’t start in 2007, nor in 2000. To unravel it, you have to go way back to 1980, when Ronald Reagan was elected.
Reagan’s biggest goal, you’ll recall, was to get government off people’s backs and liberate the free market. For eight years he deregulated everything from airlines to banks to communications. He slashed the top income tax rate, which was 70% (for income over $200,000), to 38% and then 28% (with a lower income ceiling). Companies were encouraged to look abroad for new markets and cheaper labor. Democrats bickered about details but hardly challenged the president’s assumptions.
How’s that working out? Let the numbers speak: In the 27 years from the end of World War II until the Arab oil crisis of 1973, the top tax rate averaged 80% and the economy grew an average 3.8% per year. In the 26 years from 1981 to 2007, the top tax rate averaged about 35%. Economic growth: 3.8% per year. Net gain: zero.
Well, not quite zero. The economy didn’t boom, but the debt did. Reagan inherited a cumulative national debt of $905 billion. Eight years later, the debt was $2.6 trillion, nearly double even accounting for inflation. By 2007, the debt had reached $9 trillion.
In other words, lowering taxes didn’t stimulate the economy, but hollowed it out. We borrowed a fortune just to stay even.
But that’s not the real scandal. Watch where the money went. In 1980, the luckiest 1% of the population took home 8.5% of the nation’s total income. The bottom half of the population got 17.7%. That is, 46 million households at the bottom made about twice as much, all told, as the 932,000 households at the top.
By 2007, the shares were reversed. The top 1% now pocketed 23% of the nation’s total income, while the bottom half took home 12.3%, just over half of what the top 1% collected. In fact, the bottom half — we’re now talking about 66 million households — received almost exactly the same as the 133,000 households that made up the top one-tenth of 1%.
This problem isn’t simply about feeding more mouths. For three decades we’ve had a system that steadily makes the rich much richer and the poor more numerous, while the middle disappears.
Why? That’s very complicated. There’s a masterful series by Timothy Noah at Slate.com called “The Great Divergence” that sheds some light. What’s certain is that things won’t get better if we keep doing what we’ve been doing. And it’ll take a lot more than improving school lunches.
For source materials and further resources behind these numbers, see J.J. Goldberg’s blog at www.forward.com
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