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Debating The Bush Economic Record: Lessons From History

If you want to see the worst of this President's economic track record, you only have to look backwards. In fact, the contrast between the last 30 years and the 30 years before that, from the end of the Second World War until the early 1970's is stark. In the golden year's of the Keynesian economy, real wages for hourly work doubled. And that is not including the advances from technology. In the last 30 years real wages have declined slightly, and that includes some of the advancements of technology. Measuring apples to apples, the difference is even worse for the present economy.

What made the New Deal, and the programs that followed, so successful? It wasn't a victory of party, nor of a specific policy, but a victory of a different kind of politics than we have seen for the last 30 years. At the root of America's rise was a partnership where government became the edge of the sword to enact the public good. It was this world leading labor force which made the creativity of American business over that time possible. The captains of industry could not have run the plays they did, without players who could execute on them. This advantage in work force remained, and paid huge dividends. It meant that labor could demand higher wages, it meant that companies had the confidence to build jumbo jets and government could plan and lay a vast interstate road network. Better workers meant better products and better government than other countries.

In the 1970's a series of monetary failures made Americans lose confidence in this kind of economy. Instead, we thought that cheap was the way to go. Don't invest, don't buy insurance and don't pay for work. And this runs afoul of what is, basically the first rule of economics: you get what you pay for, and you don't get what you don't pay for. As American business stopped paying for work, the incentive for the work force to get better declined. As we stopped introducing as many new technologies, the difference between America's labor force and the rest of the world eroded. For a while, we could get away with this, and coast on the national rents of the last decade of the Cold War.

But with the opening of the once Stalinist nations, with the change from a bi-polar world where almost half of the world's educated population was imprisoned in the Soviet system or its spin offs, to a multi-polar world, these national rents came to a final, and permanent end. The economic dislocation was painful, and prolonged. Reagan's good years of 1983-1990, "the fat years" as the Wall Street Journal likes to call them, were paid for with the six lean years of 1991-1996, and with the depth of the Great Recession of 1981-1982.

But if the last 30 years have been lost, then the last six have been positively wasted. The hard and painful political choices of the 1990's – which include George Herbert Walker Bush's raising taxes, and the bi-partisan effort to balance the budget, as well as the Clinton-Gore stewardship of the government – have been thrown away on one drunken spin of the wheel in Iraq. These last six years have seen the entire slender cushion that had been built up eaten away on four programs: Iraq, a drug company give away called "Medicare D", a vast series of tax breaks on upper incomes, and a huge and ineffective "homeland security" bureaucracy which couldn't read the memo "Katrina determined to strike in the US." Work hasn't been rewarded, instead, George W. Bush and Alan Greenspan put up a giant sign that said "housing market casino." Some people have made out like bandits on the housing market, but most people have not. The problem with houses is that we can't put them on ships and sell them to the Saudis, the Chinese or any of our other trading partners. All we can sell to them is the debt, which is now a chain around the necks of the American consumer. Incentives matter – the housing market was the only place to play. Stocks were bad, wages were flat, bonds were yielding at generational lows.

The answer begins, not with policy proposals, or laundry lists of programs to cut or enactd, but with a diagnosis of what is wrong. The numbers point to the symptoms: too much debt, too little investment, too much money spent on non-tradables like housing and not enough on exports, too much energy consumption, too little conservation, too low a return for those who work, too many tax breaks for those who shirk. It is not time for Democrats to pile into the wonkavator and cover the country with white papers, but to win elections.

Winning elections means telling the American people in plain language that we have work to do. It is not a time for commissions and committees, but commitment to direct and positive action to improve the fortunes of the broad majority of Americans now. It means telling the story of how America lifted itself form backwards poverty to forward prosperity, and challenging the electorate to make a clear choice between losing another generation, or becoming a generation found. It means telling Americans that while we are on the wrong track, we have not yet lost our way – that guided by our heads and hearts, that there is nothing wrong with America, that we cannot fix with our hands.

This is a guest contribution as part of NDN's ongoing debate about the economy. Read our new report The Bush Economic Record here.

Debating The Bush Economic Record: Wall St and Main St Must Prosper Together

Bright is the light that shines from America, and yet for many those hopes have dimmed. If you look back on any measure of well being, the last 30 years have seen an America where a few have made a killing, while most people have taken a bath. Technology has forged ahead, and with it our absolute standard of living, but our economic policies have contributed nothing to this. We have lived on the vision of a casino America, where people hoped that the wheel of fortune would spin their way.

Elections, such as 2006 and 2008, often turn on short term fears and pains, but government hinges on vision, on how to set the course to ride the economic highs and lows. I am sure you will read Hale Stewart's sharp and accurate warning on the dangers of debt and the coming housing bust, and I hope you will read Mark Thoma's thoughtful look at how successful globalization and education are keys to an American restoration.

NDN have put together a tight package of numbers which hammer home the story that this has been a lost generation. People who work have fallen farther and farther behind. This is a trend that has remained in place largely unaltered, in recession and recovery, in contraction and expansion. There have been only a few brief moments of respite, the longest being under President Clinton, against the a slow and steady erosion of the place of work in American society. In 2004 Howard Dean made "take America back" his battle cry, General Wesley Clark warned us that "good people were losing good jobs, and that is the problem" and Senator John Edwards diagnosed the disease as "a war on work." This is an insight that unifies every elected politician running on a Democratic ticket: finance was prospering, but many ordinary Americans were being left behind.

I work in finance. It might seem strange for someone who is in finance to say this, but it is bluntly the truth: an economy where people can't work, won't work. Finance can grease what Adam Smith called "the great wheel of circulation," it can open the road to taking risks and reaping rewards, it can give the life of liquidity to great ideas that will change the way people live. All that is true, but financial people are fond of the expression "at the end of the day," and, well, at the end of the day, someone had to put in a real day's work. Finance without labor is a steering wheel without an engine, and investment without good government is a stick shift without a clutch.

If the world economy is not advancing, then other nations will catch up to the US, and wages will keep falling. The NDN report documents the sobering reality that for most Americans, there has been a long decline of the place of work in the economy. All of our economic pressures – from the federal budget deficit, to our dependence on oil, to our trade problems, to the immigration controversies that rage across the country – can be traced back to the two fundamental failures: the failure to constantly reinvent the American economy, and the failure to reinvest in an American work force which can be paid higher than the competition, because they have skills and abilities for which there is no competition. The last time it took a World War to create this work force, which transformed America from the cheap factory floor of Europe into the engine of the free world's economy. This time, let us hope, we can regain that edge without such a drastic incentive.

Because sooner or later, financial power moves to where the wealth is, and, as Adam Smith wrote over two centuries ago, the real wealth of a nation is the specialized labor and the capital that it uses to create products. The danger highlighted in this report is clear. On President Bush's watch we've had an economy which has grown, but has left most American's behind. Only by ensuring Wall St and Main St both benefit from our growth can we return to the type of prosperity we enjoyed during the 90s. Bottom line: Wall Street will remain on top only so long as you can get there from Main Street.

This is a guest contribution as part of NDN's ongoing debate about the economy. Read our new report The Bush Economic Record here.

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