| America didn't stop being a manufactuing economy because we stopped making things. In fact, we still have a huge manufacturing sector. It's just that it's small by comparison. What's more, those who work in that sector may much, much less than they used to. It is no longer the engine of our economy.
The reason for this is simple: manufacturing core goods became too expensive, because we were paying people a decent living to make things. It was much cheaper for the companies involved to ship manufacturing jobs overseas. This did not sit well with the workers who lost their jobs, of course. But because there were far more consumers of any one product than there were workers producing it, there was a ready path to sacking workers one industrial sector at a time, all the while justifying it in terms of "lower prices" for the much larger pool of consumers in general.
Of course this was always economically foolish in long-run terms, since every time a worker lost a high-paying job, there was that much less consumer demand to buy up the cheaper imports. And this is where the finance sector got a good deal of its traction from: financing an increasing gap in what people could afford. Originally, the Reagan tax-cuts were rationalized in terms of stimulating the economy by increasing savings and encouraging investment.
But this was absurd on its face. If you wanted to encourage investment, then you'd do things like give investment tax credits--you could even raise marginal tax rates at the same time to keep the move revenus nuetral. And, in fact, the result of the Reagan tax-cuts was not to increase savings and investment. Indeed, savings rates drastically declined, and have never recovered since, but instead have eventually dropped to below zero:
This drop in savings rate is in part a reflection of the sharp transition between a multi-decade period after WII, when the New Deal economic bargain produced broadly egalitarian economic growth, and the Reaganite "Voodoo Economics" bargain that has predominated since 1980. The difference between the distributgion of income gains in these two eras could not be more stark.
New Deal Economic Era
This is a picture of healthy economic growth, broadly shared. Since the basis of a strong economy is the circulation of money, broadly-shared economic growth is a key ingredient in keeping the economy healthy. This is what the New Deal bargain accomplished for a period of over 30 years.
Conservativwe Economic Era
This is a picture of unhealthy economic growth, narrowly focused on the most affluent. Since the basis of a strong economy is the circulation of money, narrowly-focused economic growth is a major contributor to an economically unhealthy system. This is what the conservative "Voodoo economics" bargain has accomplished for a period of almost 30 years now.
Minority Wealth Inequality
Minorities were especially hard hit by the subprime mortgage crisis, because their exclusion from the New Deal era of vastly increased home ownership deprived them of the major form of inherited family wealth. With much less family wealth to draw on, the mortgage deal disproportionately offered to them in the conservative era was characteristically a much worse deal than that offered to whites in the New Deal era.
The Root Problem--And Solutions
In summary, the root problem of the last 30 years has been the lack of balanced growth benefitting all income levels of society. So long as those on the bottom--and even the broad middle--lag so far behind those on top, the economy as a whole will not be healthy, finance will maintain an unhealthy dominance, and we will be highly vulnerable to repeated booms and busts, which will take a much more devastating toll on those below as opposed to those above. Therefore, the most fundamental thing we need to do is to begin restoring the health of Main Street and the real economy, while subjecting Wall Street to strenuous regulations to reign it in, and make it serve the larger economy.
The following perscription from the Campaign for America's Future is a good broad-spectrum summary of what's needed:
Progressive Solutions
Impose new regulations on all parts of the financial system-limits on capital, leverage, exotic instruments, and compensation. The price of rescuing the financial system must be to get it back under control.
Strengthen the cop on the financial beat. We need regulators who will enforce the law, not scorn the responsibility they have.
Kick start the real economy, don't just bail out the banks. We need a public investment initiative to get the economy moving, investing in renewable energy, rebuilding green, extending unemployment insurance, helping cities and states avoid deep cuts in health care, police and fire services, and more.
You don't have to be a sophisticated economic analyst to understand what's going on here, at least in terms of the broad outlines. And that's all that the political debate should be about. Indeed, if we can maintain that focus, there won't even be a poltical debate. It will be open and shut.
Quite simply put, there is nothing conservative--in the ordinary person's traditional understanding--about running a casino ecoenomy for three decades straight, when the vast majority of people keep falling further and further behind, only to end up bailing out the fat cats when the whole thing falls apart. This is theivery, pure and simple. And conservatives should be as mad about it as anyone else. Madder, in fact, considering that it was all done in their name. |
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