One of the most disturbing fables I’ve ever encountered is a story about a frog and a boiling pot.
The frog is persuaded by his hungry enemies to enter a pot of water for a bath and they very slowly and almost imperceptibly keep turning up the heat so their victim won’t notice the water is boiling him until it’s too late. Such a story too often is what I fear economically about the United States over the last 34 years.
It wasn’t until 1981 that I first heard of the theory of supply-side economics and the Laffer Curve. It later became known for its explanation of the “trick-down effect” and was promoted by President Ronald Reagan during the 1980s.
I, of course, had more than a few reservations about a theory in which tax breaks should be given to the wealthy and business owners because they would take that extra money and invest it back into the economy. Then the poor supposedly would be beneficiaries of this so-called trickle-down effect.
My skepticism was increased greatly when Reagan’s budget director, David Stockman, resigned and asserted the system doesn’t work. And my greatest fear then and still now is that the result is the rich are getting richer, the poor are getting poorer and the middle class is disappearing.
During the presidential race of 1984, I had debates with colleagues about many blue-collar workers in factories who lost their good-paying jobs. I wondered where these displaced workers landed in the wake of layoffs in the rust belt.
I later learned these men had to accept lesser paying jobs and their wives entered the work force to make up the difference, thereby creating a lot of “latch key kids” who were not supervised for at least a couple of hours on common work days.
I was assured in the post-Re
agan era by people working in the financial sector that the richer and poorer fears were unfounded. But today, virtually no one disputes the contention the rich have gotten richer, the poor poorer and the middle class is on the verge of extinction. The wealth gap is widely accepted in the American economic landscape.
The free market boys and girls have argued that greedy unions and high taxes drove out the good jobs by forcing manufacturing facilities to move to states or even foreign countries that had a cheaper tax burden and cheaper workers. It was all about the bottom line.
So now the middle class struggles to land work in the much lower paying service economy. Furthermore, too many in the workforce no longer can get health care through their employers, just like they did in the good old days, when a man could support an entire family with his job alone.
As I write this, the U.S. Census Bureau has just released information that average household incomes continue to decline, adjusted for inflation and poverty rates continue to rise.
The information stated annual average family income in the City of Wayland decreased by 5% from 2009 to 2014 (to about $46.000) and the poverty rate in the Village of Martin increased from 5.5% to 23.8%. There were no figures available for area townships and Hopkins Village’s poverty rate decreased by 3.6%.
“Among the state’s biggest cities, poverty rates are up to 40 percent in Detroit, 27 percent in Grand Rapids, 20 percent in Warren, 13 percent in Sterling Heights and 23 percent in Ann Arbor. Statewide, almost 17 percent of people are in poverty,” noted the study, which was published in the MLive Grand Rapids Friday edition.
The article further stated, “”A lot of the manufacturing jobs that made Michigan into a solid thriving state, a lot of those jobs have gone,” said Peter Ruark, a senior policy analyst for the Michigan League for Public Policy. “We need to expect that every high school graduate will get some level of post-secondary training. We need to do more to help older people get post-secondary credentials.”
Median income in three out of every four Michigan cities and villages declined in the past five years, according to new data from the U.S. Census Bureau. At the same time, the share of people living in poverty has risen in two-thirds of the state’s communities.
Eventually, when the poor and middle class are stressed out to the point of not being able to make customary purchases in a buying and selling economy, what does this mean for the economic future of America?
Actually, the author is correct on a few counts, however, so ignorant on most of the articles claims.
Let’s examine what really caused the jobs to disappear and personal income to remain stagnant and decline.
Government.
Yup, almost all our problems can be directly traced to the root cause – government. Let’s return to yesteryear of 1992 – remember the hand grenade with a crew cut – Ross Perot? Both Bush and Clinton called him a nut-job! Yeah, one smart nut-job! The Roaring 80’s were behind us and all the working stiffs were fat and happy – union and non-union alike. You could be a high school graduate or even a drop-out and still make a good living with the sweat of your physical labor in a factory. Remember what old buddy Ross said “Hear that giant sucking sound” meaning once the NAFTA was passed, the standard physical labor jobs would move to Mexico or other low-wage country. What happened? NAFTA passed – President Clinton proudly signed it, and the sucking sound was muted with the jobs being moved to Mexico. I had UAW friends saying they couldn’t build good vehicles down there. Yeah, believe what you want I countered, but the jobs will be going to Mexico. Other GM plants moved to Mexico but the best producing stamping plant in GM on 36th St. remained – for a while. Then my friends lost their jobs. I guess the politicians didn’t read between the lines – laws have consequences and money goes where it is treated best. If you don’t understand that, don’t become a politician.
The high cost of doing business in the U.S. (highest tax burden on business in the world) is forcing, yes, forcing companies to look everywhere to cut costs. One of those ideas is establishing headquarters in another country. Many are doing just that to save as much as 1/2 of tax burden or more – going directly to the bottom line. Those companies, by the way, are paying good wages and thriving (look at local drug giant Perrigo).
As for David Stockman (a good economist, but a statist) – he thinks the economy is static and doesn’t expand and contract. If taxes are cut, it means less money into the Treasury. Oh, how stupid. Lower tax burden results in more economic activity (when not sucked away be subsequent taxes for being successful) and the economy expands exponentially. The Treasury doubled in tax revenue after the tax rates were lowered – that is a fact. And facts are stubborn things.