What Have We Gotten Ourselves Into? Part II

This is the second part of a two-part series outlining our journey to the current state that we find ourselves in. In Part I, I outlined the impact of trends beginning at the end of WW II. I ended Part I as the 1980s opened with an uncertain future, but before continuing into the 80s, I want to revisit the social changes of the 1960s.

The 1960s is a period of monumental social change. In many ways it was the fulfillment of FDRs New Deal. Many attribute the tremendous social change to JFK, but in reality, he resisted much of the social legislation. It was LBJ who was the architect of the 1960s social legislation. Four landmark acts; The Civil Rights Act of 1964, The Social Security Act of 1965, The Civil Rights Act of 1968 and the Voting Rights Act of the same year. In addition, LBJ created the Office of Economic Opportunity (OEO) to oversee the War on Poverty. The nation reeled from unforeseen shocks; the assassinations of John Kennedy, Martin Luther King Jr. and Robert Kennedy along with many of the nation’s inner cities literally igniting into violence. Layered against these psychological shocks were the Counter-Culture Movement and the growing discontent with the Vietnam War.

By the time of Richard Nixon’s election the nation was divided deeply and caught up into rapid social change. The election of Jimmy Carter in 1976, found a nation, which was reeling from more shocks, Nixon’s crimes and resignation and the onset of “stagflation." The nation was primed for a major change.

Amidst the rapid social restructuring, the political and economic right wasn’t sitting idly by. Barry Goldwater’s run in 1964 for the presidency temporarily ended conservative hopes on the national stage. The Democratic left was also affected with the swing of the segregationist south from the Democratic Party (Dixiecrats) to the Republican Party. These two conditions necessitated a change in conservative strategies. Rather than pursue strategies to capture national offices or top down strategies, they began to pursue a bottom up strategy, capturing and dominating local government, from school boards to local councils. The end goal was to capture state legislatures and state houses eventually returning to the national stage stronger than ever.

The liberalization of the folkways, mores and values orientation created a significant reaction amongst traditional Christians, who up to this point had not actively engaged in American politics as a power block. The Warren Supreme Court ruling on Row v. Wade legalized the right to an abortion and was the trigger to politicize the Christian right. Thus, a division was created in the conservative movement between social conservatism and fiscal conservatism. However, as Ronald Reagan’s message began to be accepted and the two branches of conservatism merged, the two separate movements merged into a greater whole under a Reagan conservative banner.

The fourth significant change was when the fiscal conservatives adopted a new macroeconomic theory, “Supply Side Classic Economics." First formally introduced during the mid 1970s and picked up and promoted by Ronald Reagan, it began life as the panacea to the nation’s economic problems resulting in stagflation.  For most mainstream classical economists, supply side was seen as George H.W. Bush called it “voodoo economics." Unlike classical economic macro theory as strongly influenced by John Maynard Keynes, economic growth was created by the demand side or consumption demand. Whereas supply side advocates the lowering of any and all barriers to production, creating greater production, products and choice, which in theory will increase demand for those new products, creating economic growth.

What was not clearly known at the time was the true impact of supply side economics. Beginning in the 1980s companies and corporations began abandoning the fixed benefit retirement systems and shifted over to such programs as 401(k) and Roth IRAs, claiming it as a boon to self ownership and flexibility. At this time American corporations began to go through a tumultuous period with hostile takeovers, leveraged buyouts, buying and selling of companies, the era of “junk bonds” with the decade of the 1980s closing with the Savings and Loan collapse. The Reagan Administration was able to restructure the tax code in such a way as lowering the marginal tax rates while increasing government spending, but it increased the national debt by around one  to two trillion dollars.

Supply side economics supported the reduction or dropping of all barriers to trade and the reduction of production regulation. For nearly 30 years we have been entering into agreements which removed trade barriers, the most publicized being NAFTA. GAT and the WTO also were enacted during this period. The nation soon found itself with consumer goods’ pricing rapidly declining, but businesses were moving production offshore to take advantage of lowered production costs, less regulation, and access into new growing markets. With so much profit being made offshore, business quickly adapted and kept foreign earned profits off shore to avoid paying higher corporate income taxes. This along with the reduced marginal tax rates began a slow rise of the national debt. With production moving offshore, gross domestic jobs began a 20-year period of steady decline. More and more people were forced into underemployment that also impacted tax revenues.

However, during the Clinton administration economic activity was strong enough to show positive results slowing the growth of the national debt and represented a temporary reprieve from the continued acceleration of transfers of wealth. By the beginning of the millennium, the business climate dramatically changed with the collapse of the speculative “tech bubble”.

The lesser recession represented by the “tech bubble” collapse was met by the Bush administration’s first income tax reduction of the marginal tax rates to stimulate the flagging economy, commonly referred to as the “Bush Tax Cuts”.  However, the recession quickly took a back seat to a singular monumental event, the 9/11 Attack. From that moment on, life as we have known it, changed. Many of our civil liberties were abridged and we entered into two undeclared wars. Not only were the wars undeclared, but they were also unfunded, contributing to the depth of the national debt. By 2007, the economic growth slowed and we slipped into recession.

At first, the recession appeared to be only a traditional economic adjustment, but by March of 2008, the economy took a decided downturn quickly followed by the collapse of the subprime mortgage market. From that moment on, we fell ever deeper and everyone knows the rest of the story.

The question first posed, was how did we get here? Quite simply it was not the result of a conspiracy perpetrated by the plutocratic interests but the coming together of seemingly independent events and trends. In short, we are where we are because of indiscriminate consumption, based on want and not need, followed by reduced quality and obsolescence. The emergence of consumption supported media. As wages couldn’t keep up with the demands of consumption and inflation; the population continued their indiscriminate consumption relying on consumer credit. The final piece of the puzzle was moving to Supply Side economic policies to provide cheap pricing on consumption products.

Something sobering that has been known but has gained much more attention recently is that the U.S. has dramatically fallen behind Europe, Australia, etc. in upward social mobility. We no longer lead the developed world in innovation and still use twice the energy as our counterparts in Europe. Our health outcomes are worse, evidenced by life expectancy, as well as our infant mortality rate; even though we pay twice as much in healthcare than any other developed First Tier Nations. The myth of the “American Dream” has been busted, yet we still want to deny the truth. What is it going to take to get us out this mess?

As a people and a nation we must stop indiscriminant consumption, stop the reliance on consumer credit, rationalize and tighten regulation and move away from supply side economic policies. We have to move to a German Education System to bring our children’s education in line with what works and what is and will be needed for employment. We need to follow Europe and other developed nations and reduce our energy consumption. Finally, it is imperative to provide universal healthcare and finally move into the 21st century with the rest of the developed world.

If we don’t make these changes, we will, before mid-century, become a second tier nation or involved in a series of destructive wars to bolster and sustain our economy.