Stimulus Fandango
Yesterday was a bizarre day (Friday 2/6). Some grim unemployment statistics were released (600,000 jobs slashed in January, the worst in 34 years), and the DOW, NASDAQ, and S&P500 all responded by going up. Meanwhile, the Senate appeared to reach some sort of compromise on their version of the stimulus package, with some extra tax cuts and pork cut out. The conference committee on the package promises to be an uncomfortable affair, with the common perception being that the House version has too much fat.
But the really remarkable thing in all of this is the ridiculous conservative grandstanding that is going on, from both elected Republicans and pundits like David Brooks. After eight years of catastrophically bad leadership from Dubya, a period that has brought us to the brink of complete civilizational meltdown, these conservatives have the gall to finger-wag and scold the Democrats for being irresponsible with their spending proposals? Really? All of a sudden, it is as if the last eight years didn't happen, and the country is in need of a conservative lecture on the wonders of small government and minimal taxation and all that. It is an amazing phenomenon, and it is only possible because of the general ignorance and amnesia of the American public, and the passive mainstream media. Any time some GOP joker gets up and complains about the "bloated" waste of the Dems' proposals (like Susan Collins from Maine, and, yes, gasp, the venerable John McCain), the media should pummel them in their summaries and follow-ups as the Party that Wrecked America:
'Thanks for that report, Jim, on Senator Collins' remarks. Her statements should be taken with a grain of salt, however, as we remember that the social and economic wreckage all around us is primarily the result of her party's actions and policies over the last eight years. And now, on to a new anti-depression drug.... for your dog?'
So while we are treated to this infuriating and utterly bogus conservative blather about restraint and fiscal responsibility (after all, how subdued is a trillion dollar a year military budget?), we would do well to remember the longer historical context of our current predicament. These long trends make mincemeat of both conservative scolding and (unfortunately) the Democrats' stimulus hopes.
First, let's look at economic growth. The chart below (from www.data360.org), shows both nominal and real GDP data for the US since 1947 (projected out a bit too). As we can see, the American economy, even when adjusted for inflation (Real US GDP), has consistently grown throughout recent history. And this time period obviously encompasses Democratic administrations, Republican administrations, Democratic Congresses, Republican Congresses, and all manner of split and mixed federal leadership. So no matter who is in power, the American economy has grown. This same long view also includes several recessionary periods, without massive disruption or volatility. Growth is steady, in the long view. This is not surprising, as we have consistently added population (and thus workers) throughout this period.
So our economy has been steadily growing for the last several decades. What are the federal government's spending habits during this time? They have also consistently grown, to match the overall economic growth of the country. But when looked at as a percentage of GDP, federal spending has remained roughly the same. The graph below (from www.MarkTAW.com) demonstrates the steady ratio of government spending as a percentage of overall GDP (the large spike of outlays at the beginning represents the New Deal).
So has the federal government been growing and spending more money over the last few decades? Sure it has. But has it been growing above and beyond what would be expected from general overall economic growth? No.
Now, I am definitely not saying that this level of federal spending is okay, or sustainable. In fact, the steadily rising national debt across this same period would seem to indicate that there is a fundamental problem with such large expenditures. But that is beyond the scope of this posting. All I am trying to point out is that increasing federal spending has gone in lockstep with general economic growth, no matter which particular party happens to be in power at the time.
But what really has changed, over the last few decades, is the distribution of wealth and taxation. Essentially: who is footing the bill for increasing federal government expenditures? In the 1940s and 50s, the top tax bracket for the rich hovered at around 85 to 90%. Since then, it has steadily declined, and the top rate for 2008 was 35%. Similarly, in the mid-1960s, corporations were paying taxes at rate of about 4% of total GDP. But by the mid-2000s, that had dropped to less than 2%.
An interesting set of tables about tax burdens over the last four decades can be found here (http://www.ctj.org/pdf/oecd07.pdf). The general picture of the United States' tax situation, as compared to other industrialized countries, is that the US has a very low overall rate of taxation as a portion of GDP (28th out of 30 countries). Similar to our peer nations, we have seen social insurance and payroll taxes go up, and general, overall income taxes staying flat. Also, property taxes remain high, and consumption taxes remain low in the US, but the general rankings have been steady in those areas. What is very noticeable, though, is that corporate tax rates have declined steadily, as have the rates on the extremely wealthy. These are the general trends that have plummeted the US from the middle of the pack to the bottom, with regards to overall taxation as a percentage of GDP.
And let's not forget, the last four decades have seen an amazing concentration of wealth at the top. As the top tax bracket has come down to 35%, the top 1% now controls a third of the country's wealth, more than the bottom 90% of the population put together. So the fact that overall income taxes have stayed flat, while the top bracket has come down at the exact same time that wealth has concentrated at the top, should make it obvious who is paying more. And as we have detailed many times in earlier posts, household income has stayed flat for most Americans since the 70s, and that's with an extra breadwinner in the house. People are working longer hours, commuting longer distances, and improving their job efficiency, but they're making less money. And we all know that household debt for regular folks has ballooned, personal bankruptcies are on the rise, and the housing bubble burst has wiped everyone out, etc. etc.
So what are we saying, then? Basically, the US economy has grown steadily, and federal spending along with it. Nothing surprising there. But as this growth was going on, the tax burden on the very wealthy and corporations has gone down, as a percentage of overall GDP. And with other tax rates staying basically the same, the result is a very low overall tax burden in the US, as compared to other industrialized countries. Basically, you get what you pay for. Our country's infrastructure and social safety nets are now in deplorable condition. We're reaping the whirlwind.
Without major structural changes, the current stimulus proposals will thus not accomplish much. The wealthy elite have essentially captured, and now own, the federal government. And they use government taxation and spending policies to funnel money upwards and solidify their positions of power. This is not a nefarious, Bilderbergian plot. It's just the way things have developed. Changes in corporate legal structures and advances in financial technologies have allowed a small portion of the population to control and direct the levers of political policy. Our federal government and companion lobbying industry are made up of corporate lawyers and businesspeople. We can have all the stimulus we want, but if it is flowing through the same channels, nothing will really change.
Ideas that tax cuts will stimulate spending, or that refurbishing automobile industry will provide a profitable future, or that green jobs will magically paper over the reality of a country that has to incarcerate a huge portion of its population just to avoid societal chaos -- these are all pipe dreams. As we have detailed in earlier posts, the American Algorithm and its supporting social form (One Person-One Job/One Family-One Dwelling) are kaput. Nothing in any stimulus package, whether it be tax cuts or spending, will 'jump start' the economy and get it back on track. That 'track' has disappeared into the quicksand of cheap oil history.
Posted by Jeremy Raymondjack at 2/7/2009 9:55 AM 
Categories: Politics and Economics
Tags: obama stimulus economic crisis obama economic growth president obama federal stimulus stimulus package economic stimulus economic collapse
Categories: Politics and Economics
Tags: obama stimulus economic crisis obama economic growth president obama federal stimulus stimulus package economic stimulus economic collapse
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