What Happened to the American Dream?
Where has all the money gone?
At the end of the Second World War the United States entered a period of economic growth that has never been repeated. After years of rationing and saving (via war bonds) US consumers unleashed a flood of demand that drove unemployment to the lowest level ever recorded. Over the following 30 years real GDP doubled, making the US economy the largest in the world and three times the size of number two Japan. During this same period the top marginal income tax rate was as high as 90% and never dropped below 70%.
Along with prosperity came unsettling change and conflict. Civil rights reforms, the Vietnam War, the assassinations of JFK, RFK and MLK, pollution so bad that a river caught on fire, and several recessions, including the 1979 the Iranian oil crisis.
Ronald Regan ran for president in 1980 with a campaign slogan of “We Can Make America Great Again” and a promise to reinvigorate the US economy by unleashing the forces of free market capitalism. His economic policy, Supply Side Economics, claimed that high taxes and bloated government were stifling the economic engine driven by ‘job creators’. The solution? Lower taxes, looser regulations, and smaller government, which would reinvigorate the economy and “trickle down” benefits to workers. His signature accomplishment was the 1986 Tax Control Act which delivered the lowest individual and corporate tax rates of any industrialized nation in the world. Lost tax revenue would be made up by gains in GDP.
The results were unimpressive. During Regan’s two terms real GDP per capita grew by 21%, slightly better than the 19% for the previous eight years, the federal debt grew from 31% to 50% of GDP and the gains did not ‘trickle down’ as promised. Instead, compensation for hourly workers remained static while productivity (a euphuism for the lower cost of labor) soared. A trend that has continued to today. (ref).
Where did the money go? During Regan’s eight year term CEO pay grew from about 34 times the average worker to 58, the Gini coefficient, a measure of inequality, grew from 34.7 to 37.7, erasing all of the gains since 1950, the Dow Jones Industrial Average grew by almost 150%, and the American taxpayer was left with the bill in the form of an increase in the national debt.
The Road to Ruin?
Since the Regan years the trend towards inequality has continued. In 2024 the Forbes 400 Richest Individuals are worth $5.4T compared to a total of $3.4T for the entire lower 50% of the population. This seems incredible, but history tells us that without intervention the concentration of wealth is inevitable and irreversible. Wealth can be used to accrue power which can in turn be used to increase wealth. But this cycle is self limiting. Wealth is created by all of society, and at some point the disenfranchised will revolt. In his book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century Walter Scheidel warns that “the big equalizing moments in history may not have always had the same cause, but they shared one common root: massive and violent disruptions of the established order.”
So where are we in this cycle? Is it possible that the United States is nearing a tipping point? Voter dissatisfaction with the economy has led to rejection of business as usual in favor of Trump and the MAGA wing of the Republican party. And the recent online reaction to the murder of United Healthcare CEO Brian Thompson may be an indication of the depth of anger that people feel. But it seems unlikely that an administration made up of billionaires will dedicate themselves to improving the plight of the working class. In fact, the policies of the MAGA coalition are a continuation of the magical thinking that has led us to the current unimaginable concentration of wealth and hollowing out of the working class that has caused wide spread dissatisfaction. If Trump doesn’t deliver on his promises will the myth of MAGA as their savior be shattered?
Another Path?
Past experience tells us that a strong economy needs a vibrant middle class to purchase the goods and services that drive our economic growth. And logic tells us that this will require massive tax increases on the oligarchs, more equitable distribution of the fruits of our economy, and strengthening of government safeguards like Social Security, Medicare, public education, and worker protections. Is there a political path to a more equitable economy? Only time will tell.
Questions:
Since it seems clear that trickle down doesn’t, why do conservatives continue to insist that it’s the solution?
Will putting billionaires in charge of government improve the plight of the working class?
Is inequality a problem that can be solved politically, or are we doomed to repeat history?
Since it seems clear that trickle down doesn’t, why do conservatives continue to insist that it’s the solution? Maybe because this is what they believe is the solution but in reality it doesn't. Greed is powerful and once people get their hands around wealth they won't let go. Even old robber baron Andrew Carnegie believed that the wealthy had the obligation to use their wealth for the common good. The definition of common good is in play, but he funded more than 2500 libraries throughout the US and beyond. Taxation partly came about because trickle down is a false concept and without a clearing house for redistribution of wealth there is none. We are about to see to what extent a new generation of robber barons are going to thrive, especially when they are in possession of political power as well.
Thanks for another thought provoking essay, Jim. “Magical thinking” - my favorite phrase of this morning’s readings. That and maybe the fairy godmother will save us.