Greg’s Corner February 2007
The American Dream vs. The Gospel of Wealth: The Fight for a Productive Middle-Class Economy
By Norton Garfinkle, Reviewed by Greg Petty, Operations Manager
In many ways, on the surface, it appears that since 2001 we have realized a long-term goal of many economists and politicians alike: an economy with a growing GDP (Gross Domestic Product); relatively low unemployment; and, an inflationary rate that is in control.
A deeper look at these economic indicators however finds a more disconcerting picture. American workers are being priced out of owning their own home. A recent Reuters article cited the Nonprofit Center for Housing Policy study that found the median home price is $248,000 and requires an annual income of $85,000.
Additionally, distribution of income figures indicate continuing disparity between the top income levels and all the rest of us. In other words, the middle-class continues to shrink and is indeed under attack. To quote Paul Krugman in his December 14, 2006 Rolling Stone article, The Great Wealth Transfer “…And while Bush’s tax cuts shaved only a few hundred dollars off the tax bills of most Americans, they saved the richest one percent more than an $44,000 on average… But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth — and they know it… Today, we’re (America) completely out of line with other advanced countries. The share of income received by the top 0.1 percent of Americans is twice the share received by the corresponding group in Britain, and three times the share in France. These days to find societies as unequal as the United States, you have to look beyond the advanced world, to Latin America. And if that comparison doesn’t frighten you, it should.”
Norton Garfinkle’s book does a superb job of providing a very readable survey of American economic history. Our economic history is vital to understand if we wish to place into context what is actually happening in the economic debates of today. Nothing less than the protection of our own economic self-interest and the health of our society is at stake.
The title of the book indicates the two competing economic views that have influenced our society and politicians since the founding of our country. Which set of policies and economic practices benefit America the most?
Do laissez-faire policies promoting the least government intervention as the greatest economic good increase incomes for all? Do lower tax rates for the wealthy generate the greatest economic well being? Are the wealthy the true entrepreneurs that stimulate most of our job growth? (Supply-side economics - The Gospel of Wealth)
Alternatively, do policies which promote and reward hard work and allow as many people as possible to attain a middle-class living really work? These policies also include an active role for government to assist in the expansion of economic opportunities and restrict economic exploitation and injustice. (Demand-side economics – The American Dream)
Garfinkle’s book gives Abraham Lincoln the credit he is due for being the first to grasp that the role of government was to clear the path for individuals to achieve as much as possible, and that a slave-based, aristocratic economic system would not allow America to prosper. More than the political differences over states rights, the Civil War was ultimately about the competing economic philosophies and which vision would allow the majority to prosper.
The economic Gospel of Wealth has been presented to us under different guises throughout the years. The cold-hearted Social Darwinism of the Gilded Age was eventually refuted by William Jennings Bryan, Theodore Roosevelt and Woodrow Wilson. The laissez-faire policies of the 1920s resulted in the Great Crash and the catastrophic consequences of the Depression including unemployment exceeding 25%. In more recent times, Ronald Reagan and George W. Bush’s presidencies, we know the Gospel of Wealth as supply-side economics.
By providing extensive research, charts and tables, Garfinkle explodes all of the economic myths of supply-side economics and proves that the policies do not stimulate economic growth. The book also shows the effect of reductions in marginal tax rates, the segments of society the tax cuts have benefited, and income distribution figures in America. Most striking of all are the results proving that demand-side economic polices have provided solid results that benefit the majority of Americans. Fiscal policy coupled with sound monetary policies provides us the economic tools to allow all Americans to achieve higher standards of living and the American Dream. We have deployed these tools for the benefit of the majority, not the few.
To quote Garfinkle, “The central claim of the supply-side school – that low top marginal income tax rates lead to increased investment, employment, and GDP growth – is not supported by the empirical evidence. Given that cuts in the top marginal income tax rate have also increased income equality – and that supply-side tax cuts have resulted in large federal deficits – history’s verdict on supply-side tax policy is likely to be unfavorable.”
So beware. The next time a politician, any politician, feeds you any of the supply-side rationale, tell them you know the truth. Only when Americans take the time to know the facts can they reject the voodoo economics called supply-side. In reality, it is the Gospel of Taking Your Wealth. Let’s refute, once and for all, this failed economic argument. I encourage you to read this book.
