40 Years of Voodoo Economics
The 40-year project to transfer the wealth of the nation to a new oligarchy is complete.
The coup de grâce was delivered unexpectedly by Covid-19, which stripped the façade from our Potemkin economy, revealing tens of millions of Americans on the brink of penury, even as the 1% reaped a Fed generated windfall.
Billionaire wealth gains during pandemic: Jeff Bezos +$81 billion, Elon Musk +$60 billion, Mark Zuckerberg +$41 billion, Daniel Gilbert +$38 billion, Bill Gates +$15 billion, Charles Koch +$6 billion.
Let me begin with a disclaimer: I am NOT anti-business, or anti-capitalism. I love our free enterprise system (what’s left of it). I am entrepreneurial by nature, and I have been an independent businessman since I was tall enough to push a lawnmower and wield a snow shovel.
I am, however, anti-crime. In particular – white collar crime, corporate crime, political corruption – abuses of our free enterprise system. The notion that efforts to call out and reign in destructive, corrupt and outright criminal activity by corporations and super wealthy individuals is somehow anti-capitalist, or anti-business, is oligarchic propaganda, propagated by the Republican Party and right-wing media.
I find it especially offensive that Republicans portray themselves as the “real” Americans, standing for our traditions, for the common folk, and most shockingly, fiscal responsibility, even as they provide a conspiracy-laden smokescreen for their financiers while they strip-mine the nation and load up future generations with a mountain of debt.
As the charts below demonstrate, prior to 1980 the fruit of the U.S. economy was fairly equitably distributed between wage earners and the “rich,” going back to the ‘30’s. The disparity began to manifest in 1980 with the election of Ronald Reagan and the onset of Reaganomics, or supply-side economics, more properly known as voodoo economics (the term coined by George H.W. Bush). This is the latest iteration of an old con generally known as trickle-down economics. A previous version in the 1890’s was known as the Horse & Sparrow theory: ‘If you feed the horse enough oats, some will pass through to the road for the sparrows.’
This can become confusing for the uninitiated. So for the sake of clarity:
Reaganomics = supply-side economics = trickle-down economics = voodoo economics.
These terms are all synonymous. There are those who will try to mislead you on this. Those people I refer to David Stockman, Reagan’s economic advisor, budget director and the architect of “supply-side” economics.
It’s kind of hard to sell ‘trickle down,’ so the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.
— David Stockman, The Atlantic
Trickle-down apologists will point to technology and globalization as the culprits in rising disparity. This is a convenient misdirection.
Technology and globalization are certainly factors in the rise of disparity, but they are not the cause. They are the disruptors that have been exploited by the oligarchs and their political enablers to fleece the masses in America. One need only look at the relative disparity in Europe during the same time frame to see that the response to the disruption created by technology and globalization could have been handled far more equitably in the U.S.
Ever since Ronald Reagan successfully sold voodoo economics to America, Republicans have been repeating the winning formula over and over: keep saying it long enough, with great certainty and righteousness, along with diversionary smears against the “liberal press” and divisive campaigns on social wedge issues, and enough of the people will follow. Why bother doing real analysis and offering honest solutions when a con is so easy to pull off?
A 2015 study conducted for the International Monetary Fund concluded that GDP growth actually declines over the medium term after trickle-down tax cuts, and that if you really want to use deficit financing (which is what the tax cuts are) to create growth, you would give money to the bottom tier, which needs things and has to spend the money, and not to the upper tier, which uses the money to create asset bubbles, not growth.
40 years later, Republicans are still following the Reagan playbook. The fact that this “theory” is demonstrably bogus has not stopped Republicans from continuing to promote tax cuts using the trickle-down rationale. They insisted that the 2017 tax cut would pay for itself by creating “so much” growth.
We have been like the proverbial frogs, not realizing until it is too late that it is we who are being served for dinner, because the heat has been turned up very gradually.
We are still collectively averting our eyes to this reality, wanting to call ourselves middle class, still believing in the American Dream, when in fact we’re (almost) all working class now, and that dream has become an historical artifact.
The great American middle class is no more. 80% of Americans are now living paycheck to paycheck. 70% have less than $1,000 in savings. 40% don’t have the ability to meet a $400 emergency expense. When you factor in student loans and the cost of housing in high income regions, even those we generally consider upper middle class are struggling.
All of this was pre-Covid!!!
The cumulative effect of decades of voodoo inspired policy and “favors” to the wealthy has had an especially devastating effect on young people trying to get established.
Education for example:
The cost of higher education is increasingly out of reach, and unless young people have family resources, those who go for it anyway find themselves saddled with crushing debt. 70% of students take out loans, and the average student loan debt for the class of 2019 was almost $30,000. Those pursuing graduate studies typically accumulate debt of $50,000 or more. MDs average $150,000 up to $300,000 by the time they finish their training.
What kind of society starts its young people off in life with a debilitating debt burden?
My answer: A society that has lost its moral compass.
And then there is healthcare:
Americans spend more on healthcare than any other nation – 18% of GNP, triple that of 50 years ago, and more than twice the OECD average. For all that spending, our health outcomes are near the bottom of all OECD nations – lowest life expectancy, highest chronic disease burden, highest rate of obesity, highest suicide rate.
This bloated system is the product of billions of dollars spent lobbying Congress by big pharma, insurance companies and hospitals, and the burden of it falls most heavily on young families.
The average health insurance premium for a young family in 2019 was $15,000 with a $5-10,000 deductible! Add on average childcare cost of $200 a day, almost $50,000 a year, student loan debt service, the high cost of housing and stagnant wages. Even with a good job, it’s increasingly difficult just to get by, let alone get ahead. Single parents face especially dire financial conditions. The U.S. leads the world in single parent households (23%).
Economic anxiety and downward mobility are the dominant economic themes for this generation of young Americans.
So how did our society become so imbalanced?
This situation didn’t just happen all by itself. It is the result of deliberate policy decisions, bought and paid for, year after year for the past 40 years, that steadily, incrementally, tilted the flow of economic gains to the upper tier, at the expense of wage earners and the general public.
This is not the picture of a prosperous society, or a society in balance, or one that has it’s values in the right place. It did not, and does not, have to be this way.
The primary driver of this disparity has been trickle-down tax cuts, especially the Bush tax cuts, which alone are responsible for approximately one-third of the entire national debt.
But it wasn’t just the tax cuts. The “government-is-bad, markets-solve-all-problems” philosophy that spawned voodoo economics created a vast network of tributaries feeding into the wealth transfer pipeline.
Scores (probably hundreds) of below-the-fold policies and special favors, tucked into footnotes on page 273 of this or that legislation, have spiked the gains for the upper tier at the expense of the general public.
These issues generally fall under the categories of arcane tax policies, exemptions, carve-outs, no-bid contracts, regulatory capture and neglect, unaccountable corporate malfeasance – tax fraud, accounting fraud, offshore headquarters, off-balance sheet expenses, executive compensation abuses, “carried interest,” financial engineering, high frequency trading, special purpose vehicles, and epic scale political corruption that has gradually, steadily, transferred the fruit of American labor to management and shareholders, while offloading the cost of “externalities” like pollution, environmental degradation and negative health outcomes onto the public.
These policies and special favors are shepherded through committees and into laws and regulations by an army of lobbyists, drawn from the ranks of corporate lawyers and executives, former representatives and staffers.
One of the most appalling features of the current state of affairs is that lobbying has become the single most popular career path for former lawmakers. Witness the sad case of Bob Dole, former Senator and Republican Presidential candidate, collecting a $140,000 paycheck from Taiwan for his “success” in getting newly elected and clueless President Trump to give a shout out to Taiwan, which immediately drew a threatening rebuke from China.
And then you have insider political “operators” like Paul Manafort, who often don’t even bother to register as lobbyists, representing the interests of warlords and kleptocrats in Washington.
How is this possible, you might ask?
For one thing, Congress thinks the public is way more conservative than it actually is. And the reason for this is that they are paid to think that way. It’s not that they don’t have access to polling data that tells them differently. The need for money trumps all other considerations in Washington.
A recent survey found that “45% of senior legislative staffers report having changed their opinion about legislation after a group gave their Member a campaign contribution.” Is anyone surprised? And those are just the ones who admitted it.
Due to the nature of our political system, politicians listen to those who remunerate them, not to the American people.
Not surprisingly, when only the affluent strongly support a proposed policy change, that policy is adopted 46 percent of the time; when only the middle-class strongly support a policy, that policy is adopted only 24 percent of the time.
Likewise, when a policy is strongly opposed by the affluent, but not strongly opposed by the middle-class, that policy is adopted only 4 percent of the time. But when a policy is strongly opposed by the middle-class but not by the affluent, the policy is adopted 40 percent of the time.
So what to do about this?
Guiding principle: The wealth of a nation is like the blood in the body; it needs to circulate everywhere.
Our current economic paradigm does just the opposite – concentrating the flow to the head and constricting the flow to the rest of the body.
Applying this guiding principle requires a service-oriented mindset, considerable creativity, and an environment of open inquiry and trust, supportive of nuanced discussion, and debate of policy objectives and options.
That sounds impossible given current conditions, but I think we’ve all had enough of the current degrading, profoundly dishonest, scorched-earth political paradigm, so this may be the time for change.
For at least 250 years, the prevalent economic debate has revolved around the binary notion of capitalism vs socialism. The recent iteration of this framing has been “pro-market” vs “pro-government.” This false dichotomy has served only to elevate factional partisans rather than genuine public servants, and to perpetuate endless class warfare that has seriously limited the upside potential of human civilization.
The reality is that in the U.S. we have had a mixed economy since the 30’s, and for 50 years it worked quite well for us, generating an unparalleled period of shared prosperity and growth, the envy of the world. That wave of prosperity began to flatten and then wane in the 80’s. The ensuing period of laissez-faire capitalism and rampant corruption it enabled has generated the imbalance and chronic disparity with which we are currently living.
Our advancing technology is offering us an unprecedented opportunity to transcend this state of perpetual conflict, and manage our affairs in an equitable way going forward.
Presently, our technology is not being implemented toward that end; it is being used to consolidate wealth and power in the hands of the few, and to deliberately create division, confusion and conflict among the many.
What we are currently lacking is the political will, courage, and the economic morality to put aside animosities, personal and factional priorities, and work together to make best use of the new tools and capabilities that are being delivered to us, to uplift all of humanity, not just the favored few.
We are not condemned to continue on the low road of endless conflict. I will follow up this letter soon with an outline of principles, policies and priorities needed to set things on the path to the high road. The first step is the election. Then the real work begins.