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Trumponomics is 21st Century Reaganomics and That’s Bad for Working America

Photo by Daniel Lobo | CC BY 2.0

Donald Trump won the Presidency in November of 2016 by appealing to the white working class who saw him differently than the rest of the world and not as a dangerously inexperienced, politically unpolished, eccentric billionaire seeking attention, but a welcome Washington outsider who was willing to use his business expertise to improve their lives.
During the campaign, Trump promised the working class that he would fight for them like no politician before ever had. Trump told them that he alone, as a celebrity businessman who has earned billions of dollars, possessed the expertise to fix the economy and create millions of well-paying jobs. He promised to protect their jobs from greedy corporate executives seeking cheaper labor abroad. He promised to end unfair trade deals that threatened their jobs. He promised to provide real tax relief that brought them economic prosperity. He promised to drain the swamp, his metaphor for the corrupt Washington lobbying and law-making apparatus that is dominated by wealthy corporate interests, and end the outsized influence of big money on our government that has nullified their votes.

Trump’s strength among the white working class demographic group, particularly in the Midwest, allowed him to defy the electoral odds against him and pull off the greatest upset in American political history by defeating Democrat Hillary Clinton in the presidential election. Trump’s stunning victory easily supplanted the surprise victory fellow working class champion Democratic President Harry Truman earned over Republican New York Governor Thomas Dewey in 1948. Trump’s impossible victory over the inevitable Hillary Clinton truly made him the James “Buster” Douglas of American political history.

However, after his election, Donald Trump the populist became Donald Trump the president and as such, burdened with making good on his promises to the working class. Unfortunately, for his working class supporters, President Trump and his equally affluent and politically inexperienced economic team have been influenced by career politicians in the Republican Party and have governed like typical pro-rich, trickle-down Republicans. President Trump’s economic plan, which passed the Congress late last year without a single Democratic vote, represents classic trickle-down economic theory made popular in recent times by former President Ronald Reagan in the 1980s. The plan provides large tax cuts for the wealthy and small tax cuts for the rest of us. Corporations receive permanent tax cuts while individuals receive temporary tax cuts that will expire in a few years. The plan reduces the corporate income tax rate from 35 percent to 21 percent. The top tax rate for the wealthy has been lowered from 39.6 percent to 37 percent. [1]

The results of Trump’s pro-wealthy economic focus have been immediate. It seems that every month of 2018 has brought great news to the capitalist upper class. But why is this a bad thing for America? Trickle-down economics is supposed to work this way, right? The rich get richer first and then the money trickles down to the rest of us, right? Let me try to explain what trickle-down economics is, why it was implemented in the 1980s, why it has failed to keep its promise to create economic prosperity for the majority of Americans and why President Trump’s deceptive use of it must be called out and rejected by the American people.

Trickle down economics, also known as supply side economics, is an economic philosophy which favors the support of the wealthy class through tax relief and corporate deregulation as the best way to ensure broad economic prosperity for an entire population. The idea is that if we help preserve and enhance the wealth of the wealthy and corporations, the wealthy will in turn be in a position to grow the economy and create enough good jobs to solve our socioeconomic problems. The philosophy was made famous in the early 1980s by former President Ronald Reagan, a conservative Republican who implemented it to end a deep recession consisting of both high unemployment and inflation, a condition known as stagflation.

Reagan had campaigned for president by demonizing the government as the source of the recession and the rest of our socioeconomic problems. He defied political convention at the time and attacked the government’s penchant for paternalism, that is centrally solving societal problems, he argued, through expensive and ineffective government mandates, such as existed within President Johnson’s Great Society programs passed in the mid-1960s. Reagan argued that because this liberal approach required heavy taxation and regulation it sapped the growth of the American economy, leading to the economic misery that defined the stagflationary Carter Recession.

Reagan promised to promote policies that would enable corporations and the people to solve our socioeconomic problems. He said he could stimulate economic growth by significantly reducing taxes on wealthy individuals and corporations and by relieving corporations of expensive regulations. To carry out his plan, Reagan did several things. Most notably, Reagan dramatically lowered income taxes for the top income tax bracket from 70 percent to 28 percent. He reduced the corporate tax rate from 48 percent to 34 percent. He also broadened the base for the taxation of business income, reducing the bias among the types of investment but increasing the average effective tax rate on new investment. Reagan reduced economic regulation but in a relatively modest and targeted fashion, contrary to conservative folklore. To deal with the energy crisis, Reagan eased or eliminated price controls on oil and natural gas. He also eased or eliminated price controls on cable TV, long-distance telephone service, interstate bus service and ocean shipping. Importantly, Reagan deregulated in the financial industry by allowing banks to invest in a broader set of assets and by reducing the scope of antitrust laws. Controversially, despite Reagan’s reputation as a free trader, he actually substantially increased import barriers on countries he thought were not trading fairly with America, such as Japan. [2] [3]

By some traditional economic metrics, Reagan’s economic plan, popularly known as “Reaganomics,” was wildly successful. Reagan’s plan famously reduced the seemingly intractable “misery index” of the Carter years, an economic indicator which combines the unemployment rate with the inflation rate. The unemployment rate declined from 7 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988. During Reagan’s tenure, 15.9 million jobs were added to the economy. The rate of new business start-ups increased. [4] [5] Importantly, Reagan’s laissez-faire economic policies ignited an aggressive Wall Street investment subculture that resulted in the creation of thousands of new millionaires and millions of more modest successes for some people in the middle class. Reagan’s policies restored the confidence Americans had lost in our economy during the end of the 1970s when it seemed as though the American Dream was no longer possible.

On the down side, much of the great American middle class did not fare so well during the Reagan years due to the administration’s focus on enriching the wealthy and its subsequent failure to equitably enrich the middle and lower classes. The wages of middle and lower class workers actually stagnated during these years despite the robust rate of employment.  Many good manufacturing jobs were lost to workers in foreign countries as company executives found cheaper labor abroad.  Some jobs were lost to technological advancement which caused them to expire. Other jobs were lost to the Reagan-inspired pirate capitalism of the day, such as hostile takeovers of underperforming companies by flush financial professionals seeking to exploit the lax regulatory environment and make a financial killing usually without regard for the well-being of company workers. The middle class was said to have been “squeezed” by trickle-down economic policies. [6] [7]

The middle class squeeze is significant because from the early part of the 20th century until roughly 40 years ago when trickle-down economics took hold in our country, the middle class was properly seen as the most important cog in the American capitalist engine. The government actually saw the middle class as our best bet to discourage popular acceptance of socialism. Our government once understood that since the middle class contained the most prolific consumers of American goods and services it had to keep this large group happy, that is gainfully employed in well-paying jobs that allowed middle class members to pay for their living with enough money left over for recreation and savings. The government actually created agencies to help grow and preserve the American middle class. For example, one federal agency, the Federal Housing Administration was created in 1934 to assist the middle class with obtaining mortgages to purchase homes because private home ownership was considered a central tenet of capitalism and an indispensable part of the American Dream. [8] The government also helped to protect middle class jobs by the passage of the National Labor Relations Act in 1935. [9] As a result of the Act, many workers benefited from the protection of labor unions which advocated for them against employers to protect and increase their job security, wages and benefits. These government safeguards allowed the middle class to survive the harsh effects of capitalism’s mighty profit motive and facilitated the great middle class expansion of the 20th century that made America the wealthiest and most powerful nation the world has ever known.  It was the middle class that made America exceptional.

But that was before trickle-down took hold of the economy and shifted the government’s policy focus away from the middle class to the upper class. Today, labor unions still exist but they are far weaker organizations than they were in the mid-20th century due to a decades-long assault on them by the wealthy power elites. Over the past few decades, the power elites have successfully undertaken a broad and sustained campaign to neuter labor unions. This is because labor unions urge a greater distribution of corporate profits down toward worker wages and benefits rather than up toward executive compensation. In other words, unions advocate for an approach that is the exact opposite of trickle down economics. During this time, conservative funding arms such as the Koch Institute and the Walton Foundation have spent millions of dollars to weaken unions by funding anti-union campaigns across the country.  [10] According to statistics released by the Economic Policy Institute, the expenditure has paid off. At the pinnacle of their strength in 1946, unions represented 33.4 percent of workers while the top 10 percent of Americans earned roughly 1/3 of the nation’s income. However, by 2015, unions represented a paltry 11.1 percent of workers while the top 10 percent earned roughly half of the country’s income.  [11] Do you see the correlation between weak union participation and higher executive income? These figures signal the biggest failing of the trickle-down economic approach: the great American wealth and income inequality gap.

As a result of 40 years of trickle-down economics, America has the greatest wealth and income disparity the world has ever known. Despite the promise of trickle-down economics to grow the economy to a state where the middle and lower classes can join the wealthy in the land of economic prosperity, this has never happened. Why? In my opinion, as we shall see, trickle-down economics has failed because the government has failed to draft and enforce laws to ensure that the wealth distributed upward to wealthy individuals and corporations is equitably spread downward to people in the middle and lower classes. Lacking this check against their greed, the wealthy have succumbed to temptation and essentially hoarded the bonanza they have received from the government. As a result of the government’s pro-wealthy focus and lack of distributive enforcement, the wealthy have gotten much richer while the middle and lower classes have gotten much poorer.

For example, over the past 30 years, the top one-tenth of one percent of our country has seen its share of our nations’s wealth increase from 10 percent to 22 percent. At roughly the same time, the share of our nation’s wealth owned by the bottom 90 percent of Americans has dropped from 36 percent to 23 percent. [12] As you can see, our government’s flawed economic policies are rapidly pulling the wealthy and the rest of us in opposite directions. Our wealth and income disparity gap is the source of virtually all of our major socioeconomic problems, including impoverishment, unemployment, crime, political corruption, police misconduct, social unrest and human-caused climate damage. An anonymous wise person once said that the definition of insanity is doing the same thing over and over again and expecting a different result. Since we have four decades of evidence that trickle-down economics has failed to lift all boats it is insane to continue down this track.

Despite his winning rhetorical focus on the working class, President Trump’s economic plan is a textbook example of trickle-down economics. Still, upon its passage, Trump supporters told skeptics to take a wait-and-see attitude, pointing to strong, traditional economic indicators, such as the current 4.1 percent unemployment rate, as proof that his plan would work for the middle and lower classes. Well, we already have some definitive proof that President Trump’s trickle-down economic policies are working extremely well for the well-off and not so well for the rest of us. As with President Reagan in the 1980s, President Trump’s policies have offered encouragement to Wall Street players and they have resumed the self-serving behavior that led to the ruination of the U.S economy over the past 40 years and the recent 2008 financial crisis.

In February, MSN reported that Wall Street bank boards rewarded executives with large pay raises after a profitable 2017 year which featured strong performances in investment banking, wealth management and retail banking operations. Citigroup CEO Michael Corbat’s compensation increased 48 percent to $23 million. Goldman Sachs CEO Lloyd Blankfein saw his pay increased by 9 percent to $24 million. JPMorgan Chase’s CEO Jamie Dimon experienced a 5 percent  pay increase to a whopping $29.5 million. [13] Last month, the New York Comptroller’s Office released figures which indicated that the average bonus paid last year to securities industry employees increased by 17 percent to a near record $184,200. This figure is just shy of the $191,360 record posted in 2006 just before the 2008 financial crisis. Finance industry profits have increased from 42 percent, their highest level since 2010, the year the Dodd-Frank financial reform law was enacted. [14] So, just a few years after triggering the worst financial crisis in decades, Wall Street’s elites are once again taking the money and running.

As for the worker bees stuck in the middle and lower classes? Well, let’s see if the numbers can confirm President Trump’s love for us little people. As a result of the tax savings in the Trump economic bill, some companies, such as Walmart, are paying their employees a one-time cash bonus ranging from roughly $200 to roughly $1,000. I’m not kidding. And in Walmart’s case, only those workers who have been employed for 20 years or more are eligible for the full amount. [15] This is economic torture. While the cash bonus payments represent a positive trend we should support and attempt to perfect, there is no escaping the insult these paltry dollar amounts pose to our underpaid, overworked and cash-strapped American workers. It is shameful that so many of our corporate executives believe they are really helping the bill-paying working classes by giving them a bonus this small. Can you see how out of touch with reality the power elites who run our country in the public and private sectors have become?

And that’s not all of the bad news for American workers. Remember that figure I quoted above for the near record average Wall Street worker bonus paid last year? Well, that figure, $184,200, is more than three times larger than the national median household income of $59,039, last reported in 2016. [16] And a salary increase forecast released just last summer, predicted that despite the economic recovery and the windfall enjoyed by Wall Street, salary increase budgets for most other U.S. employers will grow a mere 3 percent this year, essentially unchanged from last year. [17] So, most American workers will not see their pay increase to a significant degree this year.

America, welcome to the world of Trumponomics, the modern day version of Reaganomics. Without proper government distributive enforcement, Trumponomics will pick the same winners and losers Reaganomics did. The rich will become richer. Some in the middle class will support Trump and his policies in the hope of joining the wealthy in the upper class through reckless investments that risk harming our economy. Some of them will succeed. A majority of middle class members will continue to struggle as a result of the governmental abandonment of this vital group. Most minorities, most of whom are stuck in the middle and lower classes, will suffer exponentially more due to their historically-based lack of assets and institutional discrimination. The ranks of the poor will likely expand. And they will almost certainly continue to be forgotten altogether by this administration and the Republicans in Congress.

Americans stuck in the middle and lower classes who must work for a living must learn to reject Trumponomics. To do this, they must overlook President Trump’s working class appeal and look at his policies. This is because he is a wealthy, trickle-down-supporting capitalist who has clearly demonstrated a deep commitment to an economic philosophy that is adverse to their interests and harmful to the well-being of the country. The American people will need help discerning truly populist policies from trickle-down policies cleverly marketed to them by slick Republicans in Washington and in the conservative media to look like populist policies. They will also need help with learning all of the other tricks that the wealthy power elites play to get their way. For example, the government’s periodically released economic indicators come to mind. The wealthy power elites rely on these economic reports to rock the majority of Americans in the middle and lower classes to sleep so they can continue to make their financial killing. The economic indicators, such as the unemployment rate, do not accurately reflect our nation’s economic health because these numbers could never show the suffering millions of Americans are always experiencing in this draconian trickle-down economy. Only serious in-depth reporting by an honest news media could do that. The American people must learn to ask the hard questions and stop accepting the status quo which is set up by the wealthy to further their interests. The main indicator of a healthy economy is the amount of jobs in it that pay workers a living wage. The mere possession of a job is relatively unimportant if the job does not pay a living wage because it will adversely impact that worker’s quality of life in many ways. So, Americans must learn to stop celebrating these economic indicators, such as the unemployment rate, and demand an honest examination of our economy.

The Democrats must assume the mantle of both economic educators and representatives of the American majority in the middle and lower classes who have been left behind by trickle-down economics over the past 40 years. Democratic politicians must stop underestimating Donald Trump and begin to take the threat he poses to their political relevance seriously. Democrats must stop hoping for an easy way out of the political wilderness. Donald John Trump is not going to be impeached. It ain’t gonna happen. He is making too much money for too many of the powerful elites to be prematurely taken out of office in that manner. Trump must be defeated in the political arena. Contrary to what the polls are indicating now, this will not be easy. While clearly lacking the adoration the public held for Reagan, Trump will retain an electorally sufficient degree of popularity because the economy will remain strong by conventional measures and his policies will continue to enrich the wealthy. He need not be popular with the public to gain re-election. Remember, he beat Hillary Clinton while his popularity numbers were largely upside down. And given the conventionally strong economy, the public’s penchant for accepting the conventional wisdom and the fact that he is enriching the most powerful people in our country, Trump may yet turn into an unbeatable electoral juggernaut like Reagan. This could happen unless Democrats wake up and begin to accept the challenge posed by Trumponomics.

Democrats must commit to reversing the effects of trickle-down economics and bringing real economic prosperity to Americans in the middle and lower classes. They must commit to an economic agenda that is positioned to the left of Trump’s. The Republican lite/new Democrat approach will not work against Trump. Erroneously thinking that Trump would be an easy opponent, Hillary Clinton allowed him to get to her left and connect with the white working class in sufficient numbers to defeat her. She allowed Donald Trump to win over these modern day Reagan Democrats. The white working class wants a fighter to represent them against the wealthy power elites. The only way Democrats can appeal to this group is to prove to them that Trump is a counterfeit populist who is actually promoting policies that would hurt them. Democrats must then promote and draft policies that will help the working class. On the other hand, Trump’s few white-collar middle class supporters and his upper class supporters, trying to enhance or protect their wealth, have already begun to reap the fruits of Trump’s economic policies. They are not going to dump him now for a liberal party that is historically opposed to runaway capitalist policies that are enriching them beyond their wildest dreams. No, Democrats must prepare for an ideological battle and get ready to run hard to Trump’s left. This means that they must embrace economic measures that level the playing field in favor of the middle and lower classes.

Notes.

  1. Ohlemacher, Stephen, Marcy Gordon. (December 20, 2017). Trump, GOP plan White House celebration as tax bill OK nears.  Associated Press. Retrieved from wane.com(WANE-TV 15, Fort Wayne, Indiana).
  2. Niskanen, William A., “Reaganomics.” The Concise Encyclopedia of Economics, Library of Economics and Liberty, Library of Economics and Liberty, May 2010, www.econlib.org.
  3. Richman, Sheldon L., “Cato Institute Policy Analysis 107: The Reagan Record on Trade: Rhetoric vs. Reality,” Policy Analysis, Cato Institute, May 30, 1988.
  4. Niskanen, William A., “Reaganomics.” The Concise Encyclopedia of Economics, Library of Economics and Liberty, Library of Economics and Liberty, May 2010, www.econlib.org.
  5. Amadeo, Kimberly. “Which President Created the Most Jobs? 12 Presidents’ Jobs Creation by Number and Percent,” The Balance. The Balance, 15 February 2018, www.thebalance.com.
  6. Tyler, George R. What Went Wrong: How The 1% Hijacked The American Middle Class….And What Other Countries Got Right. Benbella Books, 2013.
  7. Alexander, Brian Glass House: The 1% Economy And The Shattering Of The All-American Town. St. Martin’s Press, 2017.
  8. Rothstein, Richard The Color Of Law: A Forgotten History Of How Our Government Segregated America. Liveright Publishing Corporation, 2017.
  9. Wikipedia contributors, “National Labor Relations Act of 1935.” Wikipedia, The Free Encyclopedia.Wikipedia, The Free Encyclopedia, 7 Apr. 2018. Web. 11 Apr. 2018.
  10. Young, Brian. “Who is Funding Janus? Economic Policy Institute exposes the rats behind the mayhem to weaken America’s unions,” Ucomm Blog, Working News You Can Use,  UCOMM Media Group, 21 Feb. 2018, ucommblog.org.
  11. Michel, Lawrence, Jessica Schneider. “As union membership has fallen, the top 10 percent have been getting a larger share of income,” Economic Policy Institute, 24 May 2016, www.epi.org.
  12. Sanders, Bernie, “Bernie Brief: Income Inequality, Episode 1,” YouTube 2016, YouTube 2016www.youtube.com.
  13. MSN contributors. “Wall Street CEO’s Bring In Huge Pay Raises,” Wochit Business, MSN Money. MSN Money18 February 2018, www.msn.com.
  14. Egan, Matt. “Wall Street bonuses soar 17% to an average of $184,200,” CNN Money. CNN Money, 27 March 2018, money.cnn.com.
  15. Thomas, Lauren. “Walmart’s bonuses: Here’s what workers will receive,” CNBC. CNBC, 12 January 2018, www.cnbc.com.
  16. Egan, Matt. “Wall Street bonuses soar 17% to an average of $184,200,” CNN Money. CNN Money, 27 March 2018, money.cnn.com.
  17. Miller, Stephen.“2018 Salary Increase Budgets Expected to Rise 3% in the U.S.,” Society For Human Resource Management. Society For Human Resource Management, 20 July 2017, www.shrm.org.

 

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