How the Country Has Come to Find Itself in the Current Economic Mess

As the Senate moves to consider the wholly inadequate stimulus package passed by the House -- zip for the jobless, no increase in food stamps, squat for the nation's crumbling infrastructure -- it's useful to consider how the country has come to find itself in the current economic mess.

Part of the reason we need a "fiscal stimulus package" under what President Bush continues to claim is a strong economy is the bad behavior of a government operating in cahoots with corporate America over the past 30 years. This shameless cabal has given us a reckless stock market, a subprime mortgage crisis that is taking down homeowners while threatening banks and insurers, health care and gasoline costs flaming out of control, an endless war that violates international law and savages the budget, rising unemployment and income inequality, and the off-shoring of manufacturing jobs that is undermining real wages.

This, as New York Times financial reporter David Cay Johnston points out in his new bestseller, Free Lunch, is not the America of FDR. It is not the America that nurtured a middle class from the time of the New Deal with Social Security, employer-paid health insurance and defined benefit pensions, and, later, low-cost college educations. This is not the America of investing tax revenue in programs to benefit the majority, like the U.S. interstate highway system, and in regulation to benefit the majority, like the U.S. Consumer Product Safety Commission (a chicken coop now being "guarded" by a fox formerly employed by the corporate-dominated U.S. Chamber of Commerce).

That America is gone. Ronald Reagan got on his high horse, cracked his whip and told those little doggies to move along. Since then, income disparity in this country has grown so that in 2005, Johnston reports in Free Lunch, if you consider all income, the 300,000 wealthiest men, women and children, the top one tenth of one percent, made more money than all the other 150 million Americans put together.

This concentration of income at the top does not occur in places like Canada, Europe, Japan and Australia. It does, however, in places like Brazil, Mexico and Russia, Johnston points out.

And what makes it happen is government rules. Your government's rules. The government that is supposed to be of the people, by the people and for the people.

In Free Lunch, Johnston explains how this happens, "When an executive shortchanges the pension plan, making his company appear to be more profitable, he inflates the value of the company stock and therefore his stock options. When the pension later fails and the workers get less than what they were due, or the taxpayers have to make up the part of the shortfall guaranteed by the government's Pension Benefit Guarantee Corporation (PBGC), the executives get a free lunch. Our economy is riddled with these subsidies, many of which are intentionally subtle and hard to detect."

The book also explains how George W. Bush managed to use millions in Texans' tax dollars to make his fortune on the purchase and sale of the Rangers baseball team, and then call a white-tie audience, he referred to as " my base" at a fund raiser at a Waldorf-Astoria dinner in 2000, the "haves and have mores."

This isn't how most citizens imagine their tax dollars are going to be used -- to fatten the pockets of the wealthy. But here's the problem: The wealthy purchase the services of lobbyists and put lots of money into lawmakers' campaign coffers. By contrast, the average citizen may send the Congressman an e-mail once in a two-year term.

Under Reaganomics, money was supposed to trickle down to the workers. What trickled down was broken promises, closed factories, collapsed pension funds, withdrawn health care, and foreclosed homes. Reagan asked if we were better off than we were four years earlier.

Now, as Johnston points out, we should be asking: are we better off 30 years later? The answer is a thundering NO.

And the solution is not a piddling $150 billion fiscal stimulus package that helps those who don't need it much and provides no help at all to those who need it most.

For quick infusion of cash into the economy, a stimulus package must extend unemployment benefits and increase food stamps. In addition to being moral measures to help the most needy, these ideas were endorsed by the Congressional Budget Office as among the best ways to immediately stimulate the economy.

Beyond extending the length of time that unemployment benefits are given, the amount should be increased by at least $50 a week. Eligibility for the program should be expanded as well.

In addition, a payroll tax rebate would provide more effective relief to those most in need. This would target the very low income taxpayer. And it would provide a stark contrast -- though not a counterbalance because they'd never be large enough -- to those massive tax cuts Bush and the Republican Congress gave to the richest Americans at the outset of his Administration.

And, finally, the program needs to invest in a plan to Rebuild America, something akin to Roosevelt's WPA program. The effects of this may take longer to realize. But the damage done to this economy didn't occur overnight either. And the long-term needs of this country's infrastructure are real, as the collapse of the I-35W Bridge into the Mississippi in Minneapolis last August illustrated so horribly. Fixing the nation's bridges, roads, dams, sewers and other municipal buildings and facilities would provide jobs and enduring benefits to the great majority of Americans, not to mention radically reducing energy consumption by retrofitting the nation's publicly-owned buildings.

Better yet, commit to a decade-long investment in renewable energy development that will give meaningful work to millions while addressing the growing hazard of global warming .

If oil companies making the biggest profits in the history of the planet weren't getting "free lunches" in the form of multi-billion-dollar tax breaks, such progressive policies might provide the sort of stimulus that an all-too-timid Congress seems unwilling to consider.

Comments

[davidcayjohnston]

continuing....

The top .01 percent, 14,588 taxpayers (equal to about 30,000 men, women and children) made on average $26.3 million per taxpayer in 2005.

In contrast to the flat to falling incomes of the bottom 90 percent, the top 0.01 percent had more than 3 percent of all income in 2005, six times their share in 1973.

Other data sources -- Census, BLS, Fed -- show different but consistent figures because they report from different sources.

Schatsie, wages account for a lot more than half of income.

Wages and salaries were 69.5% of adjusted gross income in 2005, IRS table 1.4 shows.

Add to this deferred wage income in the form of pensions, individual retirement plans like IRAs and 401(k)s, and Social Security benefits, you get another 14.5 percent.

So 84% of total reported income, roughly $5 of every $6, comes from wages and wage-like income, far higher than the figure you cite.

The value of tax data is that it is independently reported for all but business owners/landlords/investors, it is submitted under penalty of perjury and it tells us a lot about economic income from the marketplace of jobs and investments, as opposed to government transfers. The weakness is that excludes government transfers, which net are about 3 percent of the economy, roughly half the net transfer rate in Europe.

Our government does not publish tables showing income flows to the top caused by government policy, but Free Lunch tackles that issue.

The important point is that the wages and the total incomes of the vast majority, the bottom 90 percent, when adjusted for inflation and population growth, are smaller today than in the 1970s.

How this happened when the economy has done so well since 1980 -- national wealth more than doubled and real per capital output is up more than two-thirds -- is the mystery I explain in FREE LUNCH.

[davidcayjohnston]

The comments just above on incomes contain some misunderstandings about the data.

The income data in FREE LUNCH, my new book that Mr. Gerard wrote about, is per taxpayer, not per household. Some households have more than one taxpayer.

grumpywoldwoman, the top 0.1 percent reported slightly less income on their tax returns than the bottom half.

Add to this all of the income flowing to the very top that they are not required to report because of loopholes and favors in the tax code their incomes are larger. I explained these devices in an earlier bestseller, PERFECTLY LEGAL, now in paperback.

The rest of the income went to people from the halfway point to the 99.9 percent threshold or just under half of the population (150m-300k=149.7m people).

As with all large numbers, these are no more precise than ExxonMobil's quarterly profits (which are rounded) or most people's check register balances.

Significantly, the top 1 percent is not a cohesive group as it starts at just under $365,000 for 2005 (latest IRS data) and runs to more than a billion dollars. Those at the very top make 7.5 times as much per DAY at those at the treshold make per year.

The $1.6 million figure cited by Kasa5400 is not the top 1 percent, but for the top 0.1 percent.

More below---

[chappelforpres]

Reaganomics: Table Crumb Economics

My brother-in-law works for USAIR. He's making way less money now than he did 10 years ago. The airline has been through several restructurings. During these, insiders and management types have garnered numerous windfalls, yet the company eeks along as one of the most hated by its own employees, and not the beloved of passengers either.

My point is, that if I were too look back at his voting record, he somehow believes that Republican claims about keeping your money, cutting welfare, lowering taxes and being tough on crime and foreign enemies is consistent with his world view, yet a complete disconnect from his working existence. How does this happen? My guess is that there are thousands of ordinary working Americans just like him. Still worshiping the legacy and discredited "Voodoo Economics" of the Great Communicator".

[robinhood1]

President Clinton and the missus have done pretty under this system. Maybe Congress could propose a phase out of Presidential post-retirement benefits: lose $1 in benefits for every $3 in earned income. Mr. Clinton certainly doesn't need his Presidential pension since he charges about $150,000 per speech to special interest groups of one sort or another. I suspect that the Clintons are doing much better financially than a few of the old line Duponts and Fords. Wealth is now more concentrated now than in the so called golden age of the 1950's when Blacks knew their place in the land of Jim Crow and Jews were kept out of Waspy private clubs. But today, there are more Black billionaires than Duponts (0) or (auto) Fords (0). A self-made billionaire Jew might even run for President as an independent. I would not want to go back to the 1950's, or even the 1960's.

[sheila]

i am constantly amazed at the total disconnect between the "economy" and the "environment." why would you try to put everyone to work building more bridges for more cars instead of putting solar panels on every roof, guaranteeing financing and 100% power buy-backs (like they already do for the Big Utilities)?? any power produced beyond what is used will become a profit center, which both provides an income stream AND encourages massive conservation. this is a no-brainer, absolute, win/win!

the "renewable power" industry as it's emerging now is a TOTAL SCAM, just another giveaway to rich, rapacious utilities who get to completely and permanently destroy hundreds of thousands of acres of OUR federal wilderness (yeah, real "green"), bottle OUR wind and sun, and sell it back to us at a profit, all on OUR tax dime. as usual, socializing the costs and privatizing the profits.

the only way we can break free of the nightmare of Enrons, Chevrons, 3 Mile Islands, dead coal miners, melting glaciers, wars in the middle east, unemployment, etc. is SANE ENERGY, ENVIRONMENTAL, AND ECONOMIC POLICY - put the stimulus package to work by getting out-of-work construction crews putting solar on every rooftop in america!!!

this is so painfully obvious, people need to take some direct action NOW - contact your federal and state reps and demand change.

[Sundialsvc4]

Very interesting article, Leo. Excellent points.

One factor that I believe also needs to be emphasized is the critical importance of true Law Enforcement. In recent years we have recognized the consequences of corporate white-collar crime. We have enacted stiff (sometimes too-stiff) legislation and we have severely punished corporate officers under them.

But within the halls of our own Government, this lawlessness continues -- and is tolerated. It is taken as "heh heh, status quo, just the way it is you know." And maybe we need most of all to put the stomp on THAT.

What isn't okay in a corporate boardroom also isn't okay in any State or Federal government hall -- whether you are an elected official or any other civil officer at any and all levels. We have a "standard of excellence" for our civil officers, and those who violate the law can rest assured they will be promptly evicted. Even if they are subsequently acquitted by a jury of their peers, they're still evicted.

I think we would see truly dramatic changes in very short order if we did that. What's good for the Goose is also good for the Gander. You get what you ... tolerate.

[realitytrumpsbull]

I want to run my own independent small business.
Where's a good place to learn about business taxes? I'm done working for other people. From this point on, it's independent, do-or-die. And they can keep their blanking handouts.

[RevStrickler]

It is refresing Leo, to see such a lucid commentary. It would be ineresting to know whether you agree with an observation that FDR saved capitalism from cannibalizing itself due to the "kleptoparasitic financial structure {re: Dr. Michael Hudson, Wall Street financial analyst, distinguished research professor of economics at the University of Missouri " Kansas City}" which appears to be regaining its operation and holding Americans in thrall even to this day.

[Oldchef]

Incidentally, the improvement in the economy under Clinton in the '90s was largely the result of the new taxes (reasonably fair) forced on Bush 1, ion the effort to balance the budget. We all know that our personal finances are best when there's enough money coming in to meet expenses. When we have to go into debt to meet expenses, we're in deep trouble. Why is it a surprise that the country should be the same. If we owe a lot of money, it's hard to borrow more. Same deal with the government. the money has to be paid back sometime. If we get back to a more reasonable tax policy and have enough coming in to meet our expenses and get rid of the war and it's profiteers so we can balance the budget, the economy will improve like it did in the mid '90s.

[LeftRight]

So, wait, you're saying that if the gov't were to spend TARGETED money we could get a better economy AND better infrastucture, AND better wages for all!!! No, georgie, say it ain't so, you can't be wrong, you've been right on every other thing! From Bush-v-Gore, to OBL, to 9/11, to Iraq, to Iran, to business in general, to big oil in particular, to Katrina, to Enron, and everything else, right?

[Oldchef]

Of all the people I've talked with in the last week, more than 80% don't like the package as proposed. Even us little working people can see that the biggest benefit is going to go to the people(companies) that need it least with little or nothing going to the poor and those out of work. Most of us felt that it would be better to invest that money in public projects that would shore up the infrastructures and provide actual JOBS. That would do a lot more for the economy. Most of us working folks did not benefit from the last package (I got $1.00/week extra on my paycheck from the Bush tax cuts), but the top 1/10 of 1% of people did very well indeed. As Bush and his people kept touting the economy, we could see that big corporations were doing well, but people(those of us who actually spend money in this economy) weren't doing worth a damn. Every month our expenses were going up, gasoline, food, medicines, etc., all climbing every month, but wages were stagnant and those few dollars we got were worth less and less as the country went deeper into debt and bankers blew their bubbles in the mortgage market, with $100,000 houses now costing $3-400,000. Same house, just looser mortgages. Seems to me this was a variation on the Savings & Loan scandals under Reaganomics. The only thing trickling down in the famous trickle down economics was the shit rolling downhill towards us taxpayers. Same game
thinly disquised, and the same ending, the money disappears and the taxpayers bail the bankers out.

[Cathexis]

Well stated. I'd be hard-pressed to add to what you've succinctly put forth.

Bush and the GOp tell us we have a "strong" economy.

Strong economies don't need fiscal stimilus.

Strong economies don't need emergency 75-basis-point tax cuts.

After 7 years of experience, we can pretty much count on the truth being the exact opposite what any GOP policitican mouths.

[usna73]

Perfectly presented. It amazes me how Americans continue to vote against there self interests, and buy the GOP pablum.

The only chance we have is a Democratic majority in both Houses and Obama in the W.H.

[grumpyoldwoman]

The top 300,000 men, women, and children in the US in 2005 made more money than the rest of the 150,000,000 people in the U.S.? Um. . .there were approximately 300,000,000 people in the U.S. in 2005. What happened to the other 150,000,000? Did I miss something?