Suddenly, the symmetry in the productivity/wages chart broke down. Productivity continued increasing since technology continued improving.
But wages stayed flat.
And, again, since higher and higher profits could be sucked out of the company and taxed at lower levels, there was no incentive to reduce the number of hours everyone had to work.
In the 1950s, before that TIME magazine article predicting the Leisure Society was written, the average American working in manufacturing put in about forty-two hours of work a week.
Today, the average American working in manufacturing puts in about forty hours of work a week. This means that despite the fact that productivity has increased 400 percent since 1950, Americans are working, on average, only two fewer hours a week.
If productivity is four times higher today than in 1950, then Americans should be able to work four times less, or just ten hours a week, to afford the same 1950s lifestyle when a family of four could get by on just one paycheck, own a home, own a car, put their kids through school, take a vacation every now and then, and retire comfortably.
That’s the definition of the Leisure Society: ten hours of work a week, and the rest of the time spent with family, with travel, with creativity, with whatever you want.
But all of this was washed away by the Reagan tax cuts.
Combine this with Reagan’s brutal crackdown on striking PATCO (Professional Air Traffic Controllers Organization) members that kicked off a three-decades-long assault on another substantial pillar of the middle class—organized labor—and life has been anything but “leisurely” for working people in America.
More Unequal than Rome
Instead of leisure, working people got feudalism.
As a result of the Reagan tax cuts, that era from 1947 to 1979, in which all classes of Americans saw their incomes grow together, ended. A new era, in which only the wealthiest among us got rich off a booming economy, commenced.
According to census data, the typical hourly wage for an American worker increased a mere $1.23 over the past thirty-six years, after accounting for inflation. From 1979 to 2008, the middle 20 percent of Americans saw their incomes grow only 11 percent. That’s compared with a 111 percent growth in the thirty years prior.
The poorest 20 percent of Americans, meanwhile, saw their incomes actually decrease by 7 percent between 1979 and 2008. In the thirty years prior, their incomes had grown by 118 percent.
Meanwhile, with the wonders of automation and Reagan’s tax cuts, the top 1 percent have seen their incomes increase by 275 percent since Reagan’s election (and it’s much higher for the top 0.1 percent and massively higher for the top 0.01 percent).
Today, workers’ wages as a percentage of GDP are at an all-time low. Yet, corporate profits as a percentage of GDP are at an all-time high.
The top 1 percent of Americans own 40 percent of the nation’s wealth. In fact, just 400 Americans own more wealth than 150 million other Americans combined.
Wal-Mart Stores, the world’s largest private employer, personifies this inequality best. It’s a corporation that in 2011 brought in more revenue than any other corporation in America. It raked in $16.4 billion in profits. It pays its employees minimum wage.
And the Wal-Mart heirs, the Walton family, occupy positions 6 through 9 on the Forbes 400 Richest People in America list, own roughly $100 billion in wealth, which is more than the bottom 40 percent of Americans combined. The average Wal-Mart employee would have to work 76 million forty-hour weeks to have as much wealth as one Wal-Mart heir.
Through some interesting historical analysis, historians Walter Schiedel and Steven Friesen calculated that inequality in America today is worse than what was seen during the Roman era.
So the Royalists, just like the Roman emperors, got their Leisure Society.
But there was an extra benefit for the Royalists buried in the politics of the Reagan tax cuts.
The “Debt” Crisis
In his First Inaugural Address in 1981, Ronald Reagan warned of a debt crisis.
“For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present,” he said.67
“To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.”
At the time, the national debt was a bit under $1 trillion. As a result primarily of his tax cuts, he tripled the national debt to about $3 trillion. He added more to our national debt than every single president before him, from George Washington to Jimmy Carter, combined.
In his Farewell Address to the nation in 1989, Ronald Reagan said the high deficits throughout his administration were one of his regrets. But no Republican since has regretted adding more and more debt.
Reagan’s successor, President George H. W. Bush, added more than a trillion dollars more. And his son, George W. Bush, added more than $6 trillion.
Since Reagan, Republican presidents have combined to add nearly $10 trillion to our national debt.
And yet, each devoted their inaugural addresses to promising to lower deficits and reduce the national debt. Republican politicians, in the spirit of Reagan, have even resorted to alarmism, talking about a “debt crisis,” while at the same time pushing for budget-busting tax cuts for the rich.
This could be written off as run-of-the-mill political flip-flopping and pandering. But it’s not. There’s a cunning political strategy behind it.
Shooting Santa
Starting with FDR’s big win in 1936, with the lone exception of the two-year “Do-Nothing Congress” elected in 1946, Republicans never held a majority in the House of Representatives until 1995. This period coincided with the banishment of the Economic Royalists as well.
The way the political right was able to finally come out of this political slump was by listening to a Republican strategist/faux economist named Jude Wanniski, who wrote a transformative article for the National Observer in 1976 that laid out the new Republican path to power.
Titling his article “Taxes and a Two-Santa Theory,” Wanniski warned that Republicans “embrace the role of Scrooge, playing into the hands of the Democrats, who know the first rule of successful politics is Never Shoot Santa Claus.”68
He said, “As long as Republicans have insisted on balanced budgets, their influence as a party has shriveled.”
Republicans first learned this lesson in the 1930s and ’40s after the New Deal, when Democratic president Franklin Roosevelt played the role of Santa Claus and gave the American people Social Security and unemployment insurance. At the time, Republicans played Scrooge, arguing that we couldn’t afford it. They played the role of Scrooge in the 1960s, too, as Democratic president Lyndon Johnson played Santa Claus as well, and gave the American people Medicare and other Great Society programs to cut poverty.
And what did Republicans get for playing Scrooge? Electoral defeat after electoral defeat.
Wanniski said Republicans need to play Santa Claus, too. They should be the Santa Claus of tax cuts!
Wanniski wrote, “The only thing wrong… is the failure of the Republican Party to play Santa Claus… The Two–Santa Claus Theory holds that Republicans should concentrate on tax reduction.”
When Democrats give “gifts” like Social Security and Medicare, Republicans can counter with gifts like massive tax cuts, which is exactly what they did when Ronald Reagan was elected in 1980 and picked Wanniski as an adviser.
But there was another dimension to Wanniski’s strategy that he doesn’t explicitly lay out in his article. And that’s this: If Republicans, by playing Santa Claus on their own, successfully pass their tax cuts (as Reagan and Bush 2 did) without cutting spending, then the government will be starved of revenue until eventually it can’t afford the Democratic Party’s social services such as Social Security, unemployment insurance, and Medicare—all things that Republicans have labeled “gifts,” yet are fundamental to the survival of a middle class.
I asked Ronald Reagan’s former budget director, David Stockman, about Wanniski’s theory and whether it had motivated the Reagan tax cuts.
Stockman referred to Wanniski as a “raving wildman,” and said the Two-Santa Theory wasn’t the basis of Reagan’s economic program.
But, Stockman admitted, when it became clear that the tax cuts weren’t actually working, and that the deficit was exploding, then the White House noticed.
“The White House became divided between the rational people, who realized that things were out of balance, the numbers weren’t working, the tax cut was too big, and that we needed to take some of it back. On the other side there were the true ideologues, who insisted, ‘Let’s just ride it out and continue to defend this massive tax cut that we couldn’t afford.’ ”69 In other words, the White House was divided between rational Republicans and the Economic Royalists.
Stockman admitted that the Royalists won the debate within the White House. “Unfortunately there are very few people left in the Republican Party who were on the fiscally conservative side of the debate.”
He went on, “More and more and more, Republicans took on the catechism of tax cuts anytime, anywhere, for any reason. You never have to pay the bills of government… and just blame it on the Democrats anyway.”
Just as Wanniski had laid out. The plan worked.
Republican President Clinton
The irony is that the Economic Royalists in the Reagan administration didn’t do the real harm to the social safety net that had once supported the American middle class.
It was a Democratic president who did it.
Bill Clinton was elected in 1992 after campaigning on a promise to bring a sea change to America similar to the one that Franklin Roosevelt had brought, back in 1932. Clinton’s agenda was called “A New Covenant,” and he summed it up in a 1991 speech at Georgetown University when he said, “To turn America around, we’ve got to have a new approach… we need a new covenant, a solemn agreement between the people and their government to provide opportunity for everybody… a new covenant to take government back from the powerful interests… and give it back to the ordinary people of our country.”70
But the New Covenant never got off the ground. As Adam Curtis uncovers in a documentary series he did for the BBC entitled The Trap, just a few weeks before Bill Clinton was to take the oath of office, he was paid a little visit by two notorious Royalists, the CEO of Goldman Sachs at the time, Robert Rubin, who would later become Bill Clinton’s treasury secretary, and Alan Greenspan, the chairman of the Federal Reserve. Rubin and Greenspan sat the young president down and explained to him that the Royalists were in charge.
Twenty years had passed since the Powell Memo was first circulated around corporate America. A Democrat just elected to the presidency made no difference to the shadow government of lobbyists, corporate-funded think tanks, and political fund-raisers. Clinton chose political expediency. He chose to carry the Royalist agenda forward.
In his First Inaugural in 1993, Clinton pledged, just as the Royalists wanted him to, to “cut our massive debt.”
Later in his presidency in 1996, sounding like Ronald Reagan, Clinton would declare that the “era of big government is over.”71 It was as though the Royalists had finally made the New Deal say “uncle.”
And then Clinton shot Santa when he “reformed” welfare. Buying into Reagan’s completely fraudulent myths of “welfare queens,” Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The law undid LBJ’s Great Society legislation, which had succeeded in cutting poverty rates in America from 22 percent in 1963 down to 12.6 percent in 1970.
For the first time since the sixties, families in poverty were not guaranteed a lifeline. They eventually had to prove they were working in order to qualify for assistance. This sounded like a good idea in theory, especially during boom times such as the nineties, when there were lots of jobs available. But during recessions, when three or four people are looking for every one job opening, then a work requirement for welfare does a lot of harm to already struggling families.
The stats have borne this out. In the sixteen years after welfare reform, even more people have been kicked off benefits, yet poverty has increased. Before reform, 70 percent of impoverished families had access to a lifeline. But after reform, by 2009, only 30 percent did.72
This attack on the Great Society was the first of a long series of attacks on the social safety net.
But Clinton’s greatest betrayal of the middle class came when he didn’t listen to Ross Perot.
A Giant Sucking Sound
The year Reagan was sworn in, we were the richest nation in the world, and other than a few wobbles during the two world wars, our national debt had been relatively steady in inflation-adjusted dollars since the administration of George Washington.
We were the world’s largest creditor—more countries owed us money than any other nation on earth. Today, we are the world’s largest debtor nation, and our national debt nearly outweighs our annual GDP.
And here’s another startling figure: The year Reagan was sworn into office, 1981, the United States was the largest importer of raw materials in the world and the world’s largest exporter of finished, manufactured goods. We brought in ores and shipped out everything from TVs and computers to cars and clothing. Today, things are totally reversed: We are now the world’s mining pit, the largest exporter of raw materials, and the world’s largest importer of finished, manufactured goods.
This has resulted in an enormous trade imbalance, one that has grown from a modest $15 billion deficit in 1981 to an enormous $539 billion deficit by 2012.
From 1791, when our nation’s first treasury secretary, Alexander Hamilton, created an eleven-point plan for American manufacturers, all the way until just the last few decades, the United States protected its manufacturing base with high tariffs on imports and government support for domestic industries.
This “protectionist” approach to trade transformed the United States into the world’s largest exporter of manufactured goods, which built and sustained an enormous middle class of Americans working in factories collecting high wages.
Then the forces of globalization crept in, extolling the virtues of a world economy free from national boundaries and protections for domestic manufacturing.
With the Reagan Revolution in the 1980s, Alexander Hamilton’s eleven-point plan, yet another pillar on which the middle class was built, was scrapped. In 1986, Reagan lowered tariffs. He also secured a free-trade deal with Canada in 1988. He vetoed protectionist trade bills throughout his presidency. And he doubled America’s spending in the global economy.
But Clinton really did a number on working people.
In the 1992 presidential debate, third-party candidate Ross Perot famously warned about a “giant sucking sound” of American jobs going south of the border to low-wage nations once trade protections were dropped.
Perot was right, but no one in our government listened to him.
Tariffs were ditched, and then Bill Clinton moved in to the White House in the 1990s. He continued Reagan’s trade policies and committed the United States to so-called free-trade agreements such as GATT, NAFTA, and the WTO, thus removing all the protections that had kept our domestic manufacturing industries safe from foreign corporate predators for two centuries.
In the 1960s, one-in-three Americans worked in manufacturing, producing things of lasting wealth. Today, after jumping headfirst into one free-trade agreement after another, only one in ten Americans works in manufacturing.
Over the last decade, fifty thousand manufacturing plants in the United States have closed down and 5 million manufacturing jobs have been lost. They didn’t disappear, they just moved away to low-wage factori
es, such as Foxconn, in foreign nations.
I saw the damage firsthand when I was returning home from a weekend trip to New York City on the Amtrak regional train that runs about hourly from Boston to Washington, DC. I was sitting in business class, looking out the window and talking on the phone with my old friend Earl Katz, an activist and documentary-film producer.
A few months earlier, while in Germany, I’d taken a long train ride from Frankfurt to Kulmbach, involving three changes of trains during the course of the four-hour trip. The German trains were new, gleaming, the interiors done in twenty-first-century plastic-and-teak paneling, the carpets quiet and elegant, the power seats highly adjustable with state-of-the-art audio. Even the bathrooms were elegant. And the train was traveling at well over one hundred miles an hour, and perfectly smooth.
The Amtrak train, on the other hand—even with the most expensive seat in the train—was old and decrepit. The bathroom was ancient in its technology, the tracks so rough that it was hard to walk from car to car without being pitched into some poor, unsuspecting person’s lap, the carpet and seats soiled, the doors between cars loud and clunky. And for much of the trip, the train was going between fifty and seventy miles an hour, and bumping, jerking, and screeching all over ancient and poorly maintained tracks.
But the most shocking difference was what I saw out the windows.
On my trip across Germany, I’d seen vibrant factories, towns where about a third of all the rooftops were covered with solar panels (Germany has gone from no solar power production to the point where home rooftop panels produce more power than ten nuclear reactors in less than a decade), gleaming modern office buildings (built to strict energy-saving standards), and everywhere the bustle of prosperity.
On the other hand, on my trip down the East Coast, I saw mile after mile of ancient, decrepit redbrick or cement factories that were covered in graffiti, cracking with weeds, dotted with boarded-up or broken windows looking at me like toothless old men staring unfocused out at the train through Salvation Army secondhand glasses.
The Crash of 2016 Page 10
