Apr 9th 2013

The Biggest Republican Lie – “America is Broke”

by Robert Creamer

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.
 
The big lie in American politics today is that “America is broke” or “in this time of austerity we have to tighten our belts.”  America is not broke.  We are not in a time of “scarcity” and when we buy into this fallacy, we contribute to political decisions that actually will do damage to our standard of living and that of our children.
 
This lie is used relentlessly to argue that “America just can’t afford” investments in education, or infrastructure, or jobs programs.  It is used as the justification for the need to cut Social Security benefits, shift the cost of Medicare to senior citizens, increase the costs families bear to send children to college, or cut back on food for low-income children.
 
The fact is that for ordinary people times are tough. Median per-person income for ordinary Americans hasn’t increased for 20 years.  And the federal, state and local governments are short of revenue.  
 
But America is not broke – far from it. Ask the gang on Wall Street.  Ask the bankers whose recklessness caused a massive financial collapse, yet continued to get multi-million dollar bonuses, if America is broke.  
 
The reality is our economy is producing a higher gross domestic product per capita – the best measure of the sum of goods and services produced by our economy per person --  than at any other time in American history.  Gross domestic product per capita slumped after the Great Recession that was caused by the recklessness of the big Wall Street banks. Then it once again began to increase and has now reached record levels.
 
Overall, America is still the wealthiest nation in the world – and wealthier today than it has ever been.  
 
In fact per capita gross domestic product increased over eight times between 1900 and 2008.  That means the standard of living of the average American today is over eight times higher than it was in 1900.  Average Americans today consume eight times more goods and services than they did at the beginning of the last century.  We are eight times wealthier today than we were then.
 
And note that GDP per capita has increased six fold since Social Security was passed in 1935 and 2.3 fold since Medicare was passed in 1965.  Demographic trends, like the number of seniors in society, have been massively outstripped by increases in our per capita gross domestic product – or standard of living.  Those who claim that while we might have been able to afford Social Security and Medicare when they were passed, we just can’t afford them anymore, are just plain wrong.
 
So if per capita gross domestic product keeps going up, how could it be possible that the median income of ordinary Americans hasn’t increased in twenty years?  And why do we have such big budget deficits? Why do we feel so broke in our everyday lives?
 
The answer is that we are not living in a time of scarcity.  We have been living in a time of enormous inequality.  Look at a guy like John Paulson.  In 2007, as the financial crisis descended, he made $4 billion in personal income betting against subprime mortgages that helped sink the rest of the economy.  In 2011 he made a record $5 billion in personal income as the manager of a hedge fund.
 
In 2011, Mr. Paulson made as much as 100,000 of his fellow citizens who earned $50,000 per year.  
 
Ordinary people haven’t had a raise in 20 years, while the wealthiest among us have accumulated unthinkable riches.  As a percentage of national income, corporate profits have risen to their highest levels since the 1950’s – 14.2% in the third quarter of last year.  At the same time, the percentage of national income going to wages dropped to 61.7% -- almost to its low point in 1966.
 
And we are living in a time of scarcity for government budgets because Republicans in Congress slashed taxes on the wealthy, opened up new loopholes for big corporations, and obstructed policies that would put everyone back to work and generate new tax revenue.
 
Ask our friend Mr. Paulson how Republican tax policies affected him.  Had he somehow managed to make his $5 billion laying bricks or sweeping floors, he would have paid taxes at a rate of 35% on the bulk of that income.  Instead, he paid at a rate of only 15%, since he earned his money by speculating as a hedge fund manager instead of making a useful good or service.  Makes sense, right?
 
Remember that just over 12 years ago, under Bill Clinton, America had budget surpluses as far as the eye could see and the most prosperous economy in human history.  Then George Bush and the Republicans cut taxes for the wealthy, conducted two wars on a credit card and intentionally tried to increase budget deficits so they could justify shrinking the size of the public sector and allowing big corporations and the wealthy to have a larger and larger share of the pie.
 
Republicans were not the least bit shy in explaining why they helped create deficits.  By starving government of money, they forced the perception that “we’re broke” and can’t “afford” critical public sector outlays.  As anti-government crusader Grover Norquist once explained, by cutting tax revenue, he hoped to shrink the size of government small enough to be “drowned in a bathtub.”
 
And the thing that is most outrageous is that far from “not being able to afford” expenditures like new roads, bridges or mass transit system – or “not being able to afford” investments in educating the next generation – our refusal to do so will actually reduce our standard of living – right now, and in the future.
 
What really reduces our standard of living – our per capita gross domestic product – is when able workers, plant and equipment sit idle without producing goods and services.  Unemployment costs our standard of living goods and services that we will never recoup. 
 
Does it make sense that we let roads and bridges crumble while able-bodied people who are perfectly willing to rebuild them instead spend their days pounding the pavement looking for work?  That’s just plain stupid.
 
And it turns out that the other thing that really reduces our standard of living is when we create even more economic inequality by cutting Social Security benefits, or reducing the power of unions to demand good wages, or cutting teacher’s salaries – because when we do that we put less money in the pockets of consumers, money that they use to buy products and incentivize companies to invest in more production and more hiring that create economic growth.
 
The bottom line is that cutting Social Security benefits with Republican proposals like the “chained” CPI will actually reduce economic growth.
 
We need to get our “fiscal house in order.”  But all proposals to do that are not created equal.  The principle test for whether proposals make sense is whether they increase or reduce economic inequality – whether they put more income in the pockets of ordinary people, or allow it to concentrate in the hands of the John Paulson’s of the world. 
 
Let’s put our fiscal house in order by eliminating the cap that protects higher income taxpayers from having to pay Social Security taxes on income over $108,000.  Does it make sense that someone who makes the median wage of $50,000 has to pay Social Security taxes on 100% of their income and someone who makes $500,000 has to pay Social Security taxes on only about a fifth of their income – or that someone like our friend John Paulson pays Social Security taxes on only .002% of his income?
 
Or let’s do it by eliminating tax loopholes like the ones that save people like Paulson hundreds of millions because he is a speculator instead of a secretary.
 
Let’s do it by ending tax subsidies to oil companies that are among the most profitable enterprises in human history.
 
Let’s do it by requiring Medicare to negotiate with drug companies to get the best price on pharmaceuticals. Right now Medicare is prevented by law from negotiating for the best price.  Medicare is required by a law passed by the Republicans to allow the drug companies to chump the taxpayers into paying rates sometimes twice as high as the price that the same companies charge people in other countries.
 
Let’s put our fiscal house in order by changing the way we finance health care and stop paying 40% more per capita for health care than any other country and getting results that rank only 37th in the world.
 
Let’s cut deficits by creating economic growth through a major program to develop alternative energy and rebuild our infrastructure.
 
Let’s prepare our economy for the future by passing proposals like President Obama’s initiative to provide universal pre-school education and cutting the cost of sending kids to college.
 
And for God’s sake, let’s stop repeating the great lie that “America is broke” or that “we have to make cuts in this time of scarcity.”  By repeating this big lie, pundits and policy makers help justify policies that actually will reduce our standard of living and the economic prospects of generations to come.
 

 

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