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Jared Bernstein Headshot

It's Our Turn Now

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Candidate John McCain gave a truly innovative speech last week that suffered from one fatal flaw. The innovation: cast your speech as a fantasy, looking back from the end of your first term so you can tout all your great accomplishments without the distraction of pesky fact-checkers. The fatal flaw: recent history has shown that his policy agenda is antithetical to his goals. His vision of the future is divorced from his roadmap to get there.

To the contrary, anyone interested in a future that looks quite different from the present, and most Americans are leaning in precisely that direction, needs to remember but one mantra. It's one of the most important arguments progressives can make between now and November, and it's simple, compelling, and unarguably true: we've tried it their way, and it hasn't worked.

Whether it's the economy, the environment, foreign policy, fiscal policy, government competency, judicial fairness... you name it... we've tried it their way, and it hasn't worked.

For this post, let's focus on the economy. We're aided by the fact that we are likely at the end of the economic expansion that began in late 2001, so we can now compare the results from this cycle to previous ones. We're additionally aided by the fact that the work has already been completed by my EPI colleagues Josh Bivens and John Irons. They've done the math, comparing growth rates of all the key variables over this and past cycles.

We'll get to those results in a minute, but consider them in this light: they are the outcome of a natural experiment, one wherein we turned every branch of Federal government, including the judiciary, over to conservatives with a unified vision of the economy. I describe the vision as YOYO (you're on your own) economics, though you're free to amend it to "you're on your own unless you've got friends in high places... in that case, you can plunder the treasure." For the rest, it's "here's a tax cut, a private program, some deregulation, and a nudge into the market place to sink or swim."

Note, for example, that McCain's speech revives privatizing Social Security ("personal retirement accounts) as a policy goal. He reforms health care though the injection of more "market forces," as we're all incentivized to go out and shop for health care in the open market, a plan that has the potential to be both expensive and ineffective. And as I pointed out last week in this space, McCain's tax cuts are Bush's on steroids. He begins with extending the Bush cuts (10-year cost: $1.7 trillion), but that's less than a third of the cuts that he's planning. And remember, in the midst of all these cuts, he's got to pay for a lot more war.

So, what are the economic outcomes of this great, neocon experiment? From Bivens and Irons:
  • Of the 10 expansions since 1949, as measured from the end of the recession (trough) to the end of the expansion (peak), the expansion from 2001 through last year ranks last in average growth of GDP, investment, employment growth, and employee compensation.
  • Despite [supply-side] tax changes that were promoted as incentives to increase investment, average growth in total investment over the latest expansion was less than half of the post-WWII average, and ranked last in this group. For the full cycle (from the 2001 peak to the last quarter of 2007), investment growth was also less than half the average and worse than all cycles in the last 50 years.
  • Corporate profits were the only area of strength in the latest cycle, ranking 2nd strongest among the last the prior 10 cycles.
  • The rankings for all 10 full business cycles since WWII show that the 2000s rank eighth in GDP, ninth in consumption spending and employment growth, and last in labor compensation and the ratio of the population employed.

Regarding the variables that matter most to working families, the neocon experiment was a particularly dramatic failure. Employment grew one third as fast as the average over the 2000s business cycle and the unemployment rate, though low on average, was higher at the end of the cycle than at the beginning. Perhaps the most damning indictment is this: for the first time on record, going back to the mid-1940s, the income of the typical, middle-income family was slightly lower last year than at the prior peak in 2000 (see their figure A).

The reason, of course, is that the benefits of the economy's growth flowed largely to those at the top of the scale, an outcome long associated with YOYO'ism. In the history of income inequality data going back to 1913, income is now more concentrated among the top 1% of households than in any other year, bar one: 1928.

So there you have it: the great, neo-con economic experiment is over and the results are in. Outside of the top 1%, there's less income growth than in any past business cycle. The key macro-indicators, such as employment, GDP growth, and investment have also faired uniquely poorly. The anti-government, deregulatory agenda has led to fatal incompetence, a massive housing bubble, ailing global credit markets, and near-recessionary growth for the US. The "ownership society" is a cruel joke: homeownership rates are falling for the first time in decades.

The defenders of the status quo will howl in protest: the Democrats blocked us, the terrorist attacks and the war changed everything, we must stay the course to victory! But such rhetoric should be dismissed as what it is: the last, desperate gasps of a dying movement.

They've had their turn and they've failed. It is our turn now.

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