“DUH”, THIS TIME IT IS DIFFERENT!
By Ronald Orf
“DUH” MOMENT NUMBER ONE:
During the 1920’s Henry Ford decreed that nobody who worked in his automobile plants should receive less than $5 a day for their labor. Conservatives labeled him “a traitor to his class” and despaired that rewarding labor at that level would bring about the destruction of the American economic system. Ford’s response:
“People need to make $5 a day to afford to buy my cars”.
“DUH” MOMENT NUMBER TWO:
When I was a child my mother used to reminisce about her childhood during the depression. She recalled the government slaughtering hogs and burying them in pits to try to raise the price of pork by decreasing supply. My mother knew this “supply side intervention” could not succeed because:
The problem was not that people did not WANT to buy pork, but that they COULD NOT AFFORD to buy it.
During the 1980’s the Reagan administration instituted a tax policy of rewarding the capital side of the economic equation. “Supply side economics” put into place large tax cuts for business and the wealthy. The misnamed “Department of Labor” became the “stick it to labor” department throwing roadblocks at unionization and minimum wage increases while encouraging the outsourcing of industrial jobs to places where labor would be far less demanding. The idea was that the American workers get their reward through higher productivity and corporate profits. Of course they never received that promised payday because the gains in profits and productivity were systematically transferred to management and the top 5% of the population through incentives and a capital gains tax rate far lower than the working class was paying.
BUT IT WORKED! Or it SEEMED to. The American economy prospered, and whenever or wherever Republicans got a chance, they extended the “Reagan Revolution” to all aspects of the economy. The second Bush administration embraced “Reaganomics” while reversing every economic policy of the Clinton administration.
“DUH” MOMENT NUMBER 3:
Supply side economics never actually worked, and in fact brought about the disaster that is now engulfing the U.S. financial markets.
Most of the economic “recovery” that was brought about during the Reagan era was the responsibility of demand, and had nothing to do with the supply side cuts, which were really just the old “trickle down economics of the pre-depression era. So how was that expansion accomplished? Well basically, by eating our seed corn. We financed the boom with debt, home equity, hard work, deficit spending, a huge trade deficit and, oh yeah, more debt!
Let me explain. For thirty years, while the top tier prospered, the working class never received a raise. They lost spending power every decade; one thousand in just the last seven years. They have financed their middle class lifestyles by gutting the equity from their homes, their wives joining the workforce, working longer hours more productively than any other industrial nation, maxing out their credit cards, and even borrowing from their retirements. Despite this, American families realize that they are in a financial death spiral. Even if they cut back drastically on their lifestyles they still cannot meet their essential payments for fuel, food, health care, and college costs.
This disaster has unfolded because of a massive redistribution of wealth over the last 30 years. The last time the lion’s share of America’s assets were held by such a small percentage of the population was 1929. Now this administration, instead of proposing payroll tax cuts that should have been instituted 30 years ago, is belatedly trying a Rube Goldberg rebate scheme in the hope of creating demand along with more consumer borrowing to stave off an economic debacle until after the next election. Instead of a revamping the tax code they are going to foreign markets to borrow 1% of GNP to finance the scheme with even more debt. This is accompanied by pouring more good money after bad into the financial markets that hope to never have to face the consequences of their greed and insanity.
“DUH” MOMENT NUMBER 4:
IT WILL FAIL BECAUSE THIS TIME THINGS ARE DIFFERENT! This is not part of the “normal economic cycle”. Come this spring the Mexican or Sri Lankan who is making the automobiles and the washing machines will not be buying them. The average Joe can no longer pull the economic elite out of their folly, even though it is he who will suffer disproportionately because of his inability to do so. The people who have only peripherally participated in the “greed is good” economy are tapped out. It is like a game of Monopoly where the obvious winner continues to loan the other players small amounts of money to prolong their ultimate humiliation by keeping the game going. It probably won’t happen, but the cards need to be reshuffled and a new game needs to begin.
Ron Orf is a retired educator from Tripoli, Iowa
