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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.