Sep 21st 2010

Two Contrasting Sets of Economic Values at Stake in Mid-Terms

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.

There are those who believe that there's not a dime's worth of difference between Democrats and Republicans - that everyone in Congress is beholden to the same economic interests - that it really doesn't matter who is elected.

Those people are wrong.

Certainly there are conservative Democrats - and Democrats that do the will of major corporate interests. But at their core, there is a fundamental difference between the economic philosophy and underlying values of the Republican and Democratic Parties. Which party's world view sets the course for American economic policy will have a profound effect on the lives and livelihoods of everyday Americans.

Perhaps the sharpest contrasts is that Republicans and the Right believe that economic growth is driven from the top down, while Democrats and Progressives believe that growth is driven from the bottom up.

Progressives do not believe that the engine of economic growth is supply. It is demand. Productive investment in innovation responds to the presence of demand, not the other way around. "Trickle-down" - or "supply side" economics has never worked to stimulate long-term economic growth, and it never will. It only works to legitimate the insatiable appetite of the very rich.

For almost a decade, the American Right conducted a massive experiment in "trickledown" economics. The results are in. It was an abject failure. It resulted in a reduction of the real incomes of average Americans and it ultimately lead to the collapse of the economy, and cost eight million Americans their jobs.

In her fascinating recent book Third World America, Arriana Huffington documents many of the disastrous consequences of right-wing economic policy - in particular, the destruction of the American middle class.

And just last week, a Census Bureau report showed the toll the Great Recession took on the 1 in 7 Americans now in poverty - the highest level in half a century.

Of course the central flaw in the Right Wing economic vision is that the concentration of more and more wealth in a tiny number of wealthy people ultimately undercuts the ability of everyday people to buy the products produced by the economy. As much as the rich wish it were not true, consumer demand is necessary for companies to make products and profits. That consumer demand requires that economic growth be shared widely in the society.

Republican economic policy - cutting taxes for the wealthy and cutting the rules that make big corporations accountable - just exacerbate the natural tendency of the rich and powerful to concentrate more wealth into the hands of a few. That, in turn, creates the inevitable conditions for economic stagnation and collapse. Throughout the entire period of Republican rule, all of the economic growth was siphoned off to the top two percent. Real wages stagnated, and continued growth in the Gross Domestic Product was fueled - for a time -- by an expanding credit bubble that ultimately burst.

To put it another way, Republicans believe in a low wage economy, and Democrats believe in a high wage economy.

Fundamentally, economic growth is about the development of processes and technologies that increase productivity. But these do not occur when labor prices are cheap. They occur when wages are high.

A high-wage economy leads to major long-term economic dividends because:

· It incentivizes companies to invest in higher-productivity technologies that increase overall productivity and provide real economic growth.

· It creates customers with spending power to drive economic growth. There is a natural tendency of market economies to use low-cost labor and increase profits. That's good for each company's bottom line, but it kills off the goose that lays the golden egg by reducing the buying power of its ultimate customers - the people who work for all the companies in the economy combined.

Progressives believe in Government policies that encourage unionization and a living minimum wage that fuel economic growth over the long haul. These provide a brake on the natural tendency of market economies to concentrate income and wealth among the owners of corporations.

While low-wage economies may be good for specific companies, high-wage economies are good for everyone - by incentivizing innovation that increases productivity and by turbo charging economic demand.

In Wealth and Democracy: A Political History of the American Rich, Kevin Phillips summarizes the case against "trickle-down economics."

He argues that the economic history of the 20th century demonstrates that economic growth happens from the bottom up, not the top down. He points out that:

· From 1933 to the early 1970s, real disposable income increased by over 130% for average Americans. Gross domestic product grew virtually continuously. That growth occurred on the strength of a broader and broader distribution of wealth and income - more consumers who could buy products. This was the same time when hundreds of new protections for average Americans were passed by our Congress - Social Security, Medicare, the Wagner Act that allowed serious labor organizing, and the minimum wage. 1968 marked the century's peak of purchasing power for the federal minimum wage.

· During the same period, the percentage of wealth concentrated in the top 1% of the population shrunk from a high in 1929 - the year of the stock market crash - to a low in 1976.

· Since then, the percentage of wealth concentrated in the top 1% has once again skyrocketed to 1929 levels - all as part of the "supply side" philosophy that claimed that the increased wealth of a few would "trickle down" to everyone else.

· But even before the 2008 market crash, the median income of the typical American family was almost the same as it was in 1969.[i]

The myth that tax cuts for the rich somehow benefit the economy as a whole, as well as average workers, has also proven to be completely false. Phillips points out that during the greatest war of the 20th century, it was wealthy Americans who were called upon to pay more for the war effort - not given tax breaks as they were during the war on terrorism and the war in Iraq.

During World War II, the tax bite on wealthy Americans was close to punitive (the highest bracket was 91%). But that didn't hurt the economy; far from it. By war's end, Americans were rolling in cash. The average weekly pay rose 83% between 1940 and 1945. Many families had their first discretionary income.

In contrast, the Bush tax cut/regulation cut regime of the last decade ultimately yielded zero growth in private sector jobs - ZERO - and a decrease in real income for everyday Americans.

The current battle over whether to continue these tax cuts for the rich -- on family incomes above $250,000, at a cost of $700 billion over ten years - is the best illustration of the Republican's failed top-down economic philosophy.

Democrats want to extend the tax cuts for 96.6% of Americans for individuals who make less than $200,000 and couples that make less than $250,000.

According to the non-partisan Tax Policy Center, the Democratic version of the tax cut would provide a $3,810 per-person tax savings for individuals making between $100,000 and $199,999. It would provide a $1,180 savings for people making from $50,000 to $74,999.

But Democrats refuse to support tax cuts for the wealthiest 3.4% of the population on income above $200,000 per individual and $250,000 per household. Why? Remember these people would still get the same savings as a person making $200,000. But they wouldn't get an additional $128,832 average tax break that the Republicans want to hand them.

To get a sense of the difference in top-down and bottom-up economics all you need to do is contemplate the fact that while the Bush tax cuts saved people earning $10,000 or less only $335 total from 2004 to 2010, they saved people making $7,700,000 (the average for the top .1% of the population) $2,326,607. Now that's top-down economics.

The difference between top-down and bottom-up economics is also highlighted in positions concerning wages.

Progressives categorically reject the right's claim that wages should be set solely by "private" markets and that anything else is "artificial" or "unnatural."

Human beings are not "commodities" to be bought and sold. They're the purpose of the economy, not objects to be chewed up and spit out when they're no longer needed. There is a huge population of unemployed workers in the developing world. In rural China alone there are 600 million people that are not necessary to produce food and must be integrated into the non-agricultural economy. If we allow the right wing to make supply and demand the sole basis for wage rates and payment for labor, we will see a continued race to the bottom, lower and lower wages and salaries, and in the short term, higher and higher corporate profits.

Collective bargaining, labor laws, a Federally-mandated living wage and trade policies that recognize the rights of labor and not just capital are necessary to assure that growth is widely shared and that individual workers are treated as human beings not commodities.

Finally, Progressives believe that there is no excuse for poverty. The only solution that Republican economic policy offers to eliminate poverty is "education" that allows the next generation to do better than the one before it.

But so long as there are people who make beds in hotel rooms, and sweep floors, and empty bed pans, and pick fruit there will be "low wage" jobs filled by someone - unless there are no longer any "low wage" jobs, period.

We will eliminate poverty when we assure that every job is paid a living wage and our nation enacts an economic policy that assures that every American can find a job.

The economic policies of the Obama Administration are based upon Progressive principles. In several cases the size and effectiveness of these policies has been constrained by Republican opposition. This is particularly true of the economic recovery act that should have been substantially larger in order to deal adequately with the depth of the recession caused by Republican policies. But in virtually every area, Obama's policies are moving American in a Progressive direction.

The most profound question that will be decided in the Mid-terms is whether we continue to pursue a Progressive economic vision - or we return to the failed right-wing policies of the past. Everyday Americans cannot afford to stay home November 2nd; their economic futures are riding on the outcome.



[i] Kevin Phillips, Wealth and Democracy: A Political History of the American Rich (New York: Broadway, 2003)

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