Thom Hartmann: Reaganomics killed America’s middle class

Reaganomics killed America's middle class

This country's fate was sealed when our government slashed taxes on the rich back in 1980

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The article below is a good reminder of how far back this mess really goes. 

But it provoked some rethinking as well -- when something has been going on for 3 generations and old tools are getting nowhere --- is it time to rethink some basic understandings and assumptions about reality and the insufficiency of some past dearly held 'principles'.

 It is worth considering the possibility that objective, as well as subjective, factors drove the Reagan counter-revolution against Roosevelt (and Johnson) -- and and against global social democracy and socialism too. When Reginald Jones (https://www.ge.com/.../leadership/profiles/Reginald-h-Jones) published remarks to the Biz Roundtable calling for a "massive and sustained re-capitalization" of the US economy in the early Seventies, Ronald Reagan, a long time employee of GE, was just starting his Robin Hood in Reverse run for the presidency by heaping praise on Barry Goldwater. The left roundly criticized Reagan and Reaganomics as the robbery it was, and still is, from the pockets of working people. But we, or at least I, did not ask back then what seem to me now like a couple of important questions. 1) Capital (and related commodities) in motion (real transactions) is a material force, no less than wind or ocean currents in the domain of economic society -- and there are no societies without economies. Capital sets the real available choices before CEOs no less than wages and benefits define most of the means of life -- and choices -- set before working families. The rise and culmination of the 20th Century imperial agendas ended in a globalized world where the scales of both production and commerce do indeed require the accumulation and mobilization of truly immense sums and forces. "If you want to move mountains, don't call the granola crowd" Jerry Brown is reported to have quipped in connection to the High Speed Rail project along the Cal. coast. There is a line of profound truth in Brown's remark (could be the Jesuit, or the Buddhist in him!) , which any reform program must consider. 2) Despite massive investments in technology, and economies of global scale, productivity -- at least as currently measured in terms meaningful to capital -- is not rising sufficiently. Ultimately -- a la Piketty -- that means serious, structural and political crisis, because it means the profits will not in aggregate justify the investment, which will retard global investment, which is what is happening across the board, except in SOME of the more "socialized" or "strong industrial policy" nations. This challenge strikes at the heart of serious internal conflicts in a capitalist economy where material production is increasingly automated, while services and intangibles consume the labor market. Neither services nor intangibles can be fully monetized -- i.e. made 'good commodities' -- for their value (example: health care). At the same time this big cycle crisis of which Piketty warns, with very sharp class divisions, takes place in a world where the class structure and composition of the leading economies is very very different than the last time this level of global, pervasive, threats arose and became an irreversible slide toward war, fascism, and dictatorships. Every struggle toward the future, toward social and scientific progress, is now a multi-racial, multi-ethnic, multi-nationality, multi - gender cultural affair. That's good compared to the past. Labor, however, at least as it was legalized in the 1930's, has been all but exterminated in the structural change. That's bad -- which makes the tactics of raising working class bargaining power and unity also very different, indeed a burning question

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here's nothing "normal" about having a middle class. Having a middle class is a choice that a society has to make, and it's a choice we need to make again in this generation, if we want to stop the destruction of the remnants of the last generation's middle class.

Despite what you might read in the Wall Street Journal or see on Fox News, capitalism is not an economic system that produces a middle class. In fact, if left to its own devices, capitalism tends towards vast levels of inequality and monopoly. The natural and most stable state of capitalism actually looks a lot like the Victorian England depicted in Charles Dickens' novels.

At the top there is a very small class of superrich. Below them, there is a slightly larger, but still very small, "middle" class of professionals and mercantilists – doctor, lawyers, shop-owners – who help keep things running for the superrich and supply the working poor with their needs. And at the very bottom there is the great mass of people – typically over 90 percent of the population – who make up the working poor. They have no wealth – in fact they're typically in debt most of their lives – and can barely survive on what little money they make.

So, for average working people, there is no such thing as a middle class in "normal" capitalism. Wealth accumulates at the very top among the elites, not among everyday working people. Inequality is the default option.

You can see this trend today in America. When we had heavily regulated and taxed capitalism in the post-war era, the largest employer in America was General Motors, and they paid working people what would be, in today's dollars, about $50 an hour with benefits. Reagan began deregulating and cutting taxes on capitalism in 1981, and today, with more classical "raw capitalism," what we call "Reaganomics," or "supply side economics," our nation's largest employer is WalMart and they pay around $10 an hour.

This is how quickly capitalism reorients itself when the brakes of regulation and taxes are removed – this huge change was done in less than 35 years.

The only ways a working-class "middle class" can come about in a capitalist society are by massive social upheaval – a middle class emerged after the Black Plague in Europe in the 14th century – or by heavily taxing the rich.

French economist Thomas Piketty has talked about this at great length in his groundbreaking new book, Capital in the Twenty-First Century. He argues that the middle class that came about in Western Europe and the United States during the mid-twentieth was the direct result of a peculiar set of historical events.

According to Piketty, the post-World War II middle class was created by two major things: the destruction of European inherited wealth during the war and higher taxes on the rich, most of which were rationalized by the war. This brought wealth and income at the top down, and raised working people up into a middle class.

Piketty is right, especially about the importance of high marginal tax rates and inheritance taxes being necessary for the creation of a middle class that includes working-class people. Progressive taxation, when done correctly, pushes wages down to working people and reduces the incentives for the very rich to pillage their companies or rip off their workers. After all, why take another billion when 91 percent of it just going to be paid in taxes?

This is the main reason why, when GM was our largest employer and our working class were also in the middle class, CEOs only took home 30 times what working people did. The top tax rate for all the time America's middle class was created was between 74 and 91 percent. Until, of course, Reagan dropped it to 28 percent and working people moved from the middle class to becoming the working poor.

Other policies, like protective tariffs and strong labor laws also help build a middle class, but progressive taxation is the most important because it is the most direct way to transfer money from the rich to the working poor, and to create a disincentive to theft or monopoly by those at the top.

History shows how important high taxes on the rich are for creating a strong middle class.

If you compare a chart showing the historical top income tax rate over the course of the twentieth century with a chart of income inequality in the United States over roughly the same time period, you'll see that the period with the highest taxes on the rich – the period between the Roosevelt and Reagan administrations – was also the period with the lowest levels of economic inequality.

You'll also notice that since marginal tax rates started to plummet during the Reagan years, income inequality has skyrocketed.

Even more striking, during those same 33 years since Reagan took office and started cutting taxes on the rich, income levels for the top 1 percent have ballooned while income levels for everyone else have stayed pretty much flat.

Coincidence? I think not.

Creating a middle class is always a choice, and by embracing Reaganomics and cutting taxes on the rich, we decided back in 1980 not to have a middle class within a generation or two. George H.W. Bush saw this, and correctly called it "Voodoo Economics." And we're still in the era of Reaganomics – as President Obama recently pointed out, Reagan was a successful revolutionary.

This, of course, is exactly what conservatives always push for. When wealth is spread more equally among all parts of society, people start to expect more from society and start demanding more rights. That leads to social instability, which is feared and hated by conservatives, even though revolutionaries and liberals like Thomas Jefferson welcome it.

And, as Kirk and Buckley predicted back in the 1950s, this is exactly what happened in the 1960s and '70s when taxes on the rich were at their highest. The Civil Rights movement, the women's movement, the consumer movement, the anti-war movement, and the environmental movement – social movements that grew out of the wealth and rising expectations of the post-World War II era's middle class – these all terrified conservatives. Which is why ever since they took power in 1980, they've made gutting working people out of the middle class their number one goal.

We now have a choice in this country. We can either continue going down the road to oligarchy, the road we've been on since the Reagan years, or we can choose to go on the road to a more pluralistic society with working class people able to make it into the middle class. We can't have both.

And if we want to go down the road to letting working people back into the middle class, it all starts with taxing the rich.

The time is long past due for us to roll back the Reagan tax cuts.

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John Case
Harpers Ferry, WV

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