Understanding Our Economic Paradox
As an economics major in college and someone who spent his entire legal career serving business clients, I have naturally been drawn to the writings of Paul Krugman, a Nobel laureate in economics and a Distinguished Professor of Economics at CityUniversity of New York. Of all of the columnists who write about the U.S. economy, I have found Krugman to consistently be the most accurate in both explaining and predicting the workings of the U.S. economy. Over the past year, however, Professor Krugman has been struggling to explain why 79% of Americans believe that the U.S. is heading in the wrong direction when all of the economic indicia are indicating the that U.S. is currently experiencing one of the strongest economies it has had in the past 60 years.
Specifically, annual economic growth has been averaging 3.4%; the number of employed Americans is at an all-time high; and unemployment has been below 4% for the past 26 months. On top of that, the stock markets have been soaring, with the Dow Jones Industrial Average up 25.6% since Biden took office and the S&P index of 500 stocks up 37.1% during that same period. Although inflation jumped up to 9% early in Biden’s term, it is now back down to a little over 3% which is the lowest rate of inflation currently being experienced in all developed nations.
Adding to Krugman’s quandary is that Trump is leading Biden in the polls in all of the battleground states and has a commanding lead over Biden when it comes to who is best able to manage the nation’s economy. This seems particularly bizarre when you consider that during the Trump administration the nation’s economy only grew at an average annual rate of 2.13%. Moreover, employment DROPPED by 2.9 million jobs; the first time in almost 100 years that a U.S. President has left office with fewer employed Americans than when he assumed the presidency. By contrast, job growth during the first three years of Biden’s presidency has topped 18 million.
Krugman’s answer to these paradoxes is that Biden suffers from a messaging problem. More specifically, Biden has not been able to convey to Americans what he has been able to accomplish. That’s a reasonable, but incomplete, explanation. Certainly, most Americans are more concerned with the problems they face on a daily basis—performing their jobs, paying their bills, taking care of their children and elderly parents and dreaming about their next vacation. They have little time for following the news of the day; and since they have little understanding of macroeconomics and no control over such matters, they would rather devote their TV time to watching sports events, game shows and sitcoms. Even those few who do pay attention to the business news, get their news from “sources they feel they can trust” which, more times than not, means a media outlet that slants the news in a way to appeal to them. Even worse, some don’t even chance receiving news that distresses them; they simply turn to social media which uses algorithms designed to make sure that they are only exposed to the news they want to hear.
The problem is actually even worse. Today, the airwaves are filled with a plethora of disinformation. Donald Trump seems addicted to disseminating false statement. His “Big Lie” about the 2020 election is only one of over 30,000 false statements he made during his term in office. He operates on the theory that if he says something outrageous people will pay attention to him; and if he says it often enough they will begin to believe it. This technique is rendered even more effective because his allies in the Congress and in the right-wing media continue to repeat his remarks, adding to their seeming credibility.
Trump, however, is not alone in generating disinformation. Authoritarian countries, such as Russia, China, North Korea and Iran, who would like to help Trump be re-elected, have their own disinformation operations which they use to assist Trump’s re-election campaign. In addition, a score of Republican member of Congress have assisted them by repeating their statements. The use of artificial intelligence makes these disinformation campaigns seem even more credible.
Another problem is that most people tend to only hear what they want to hear. This problem was recently illustrated in a cartoon depicting a man lying on a couch with his spouse standing over him. The wife inquires “Are you feeling okay dear?” to which the man replies “Yes, I would like a beer.” The problem of selective hearing has been made much worse since Trump burst upon the political scene, characterizing the mainstream media companies as purveyors of “fake news” and casting doubt on the accuracy of economic statistics disseminated by the federal government. As a result, Americans may be consciously, as well as unconsciously, tuning out news of the nation’s surging economy.
The messaging problem facing the Biden campaign may be even more fundamental than that of getting its messages of Biden’s accomplishments to American voters. Indeed, the Biden administration may actually be delivering the wrong message. This point was made in a recent article by Damon Linker which appeared in The New York Times. Linker cites a Gallup Poll which points to a widespread dissatisfaction among Americans, not specifically addressed to the economy, but rather to the overall dysfunction of our federal government. He cites two articles written by Alana Newhouse and published in Tablet in which Newhouse recounts the following events over the past 20 years that have undermined the confidence of Americans in their government. Those articles cite the following as causing dissatisfaction among working class Americans.
“A disastrous war in Iraq; a ruinous financial crisis followed by a decade of anemic growth when most of the new wealth went to those who were already well off; a shambolic response to the deadliest pandemic in a century; a humiliating withdrawal from Afghanistan; rising prices and interest rates; skyrocketing levels of public and private debt; surging rates of homelessness and the spread of tent encampments in American cities; undocumented migrants streaming over the southern border; spiking rates of gun violence, mental illness, depression, addiction, suicide, chronic illness and obesity, coupled with a decline in life expectancy.”
Moreover, Linker points out that “the people who run our institutions have done very little to acknowledge or take responsibility for any of it, let alone undertake reforms that aim to fix what’s broken.” He concludes “that is why angry anti-establishment populism has become so prominent in our politics over the past decade.”
Admittedly, even though most Americans are now slowly coming to the view that they and their friends are personally doing better financially, they remain convinced that “others” are not. They, therefore, willingly accept the disinformation that our metropolitan areas are hotbeds of crime and that the nation is being overrun by illegal immigrants who bring with them drugs, crime and disease. The problems cited by Newhouse and purportedly ignored by the Biden administration are mostly exaggerated and far less dramatic than the events that took place over the second half of the 20th century which included (1) a disastrous war and humiliating defeat in Vietnam in which over 58,000 American soldiers were killed, (2) runaway inflation and interest rates rising to over 20%, (3) the Thalidomide scandal of the 1960s in which 10,000 children were born with severe birth defects, and (4) the Texas Tower shooting in which 15 people were killed and 31 others were wounded.
Biden’s messaging problem is that he tends to be optimistic and continuously makes statements to the effect that there is nothing that the American people cannot achieve when they work together. To the roughly 80% of Americans who have not participated in the growth of the American economy over the past 40 years, this sounds like a fantasy harbored by a senile old man who lives cloistered in the White House where he isshielded from reality.
By contrast, Trump is constantly talking down life in the United States. In his initial inaugural address he proclaimed that “This American Carnage stops right here and right now.” This statement resonated with many working class Americans who concluded that Trump “tells it like it is.” It hard to believe that Trump is actually well-attuned to the plights and fears of working class Americans as he consistently labels all of the accomplishment of Democratic administrations as “disasters,” while characterizing his own undertakings, even those that weakened our nation, as “unmitigated successes.” Nevertheless, notwithstanding Trump’s mishandling of the Covid pandemic, his trashing of the U.S. economy and his undermining of our nation’s foreign alliances, working class Americans continue to adhere to the belief that he is a competent business executive who gets things done.
Perhaps more to the point, most working class Americans believe that our federal government is so dysfunctional that it is beyond repair and that what is needed is not more collegiality, but rather a wrecking ball to tear it down so it can be rebuilt to operate in a more productive manner. It doesn’t take a lot of imagination to figure out who among Biden and Trump they feel is best suited for such a task. Trump’s message is that if re-elected he will clean house and terminate those member of the civil service who are not willing to comply with his wishes. Trump also has made it clear that he has no intention of following the norms established for the Executive Branch over the past 240 years. By contrast, Biden is a strong believer in our Constitution and adheres to the notion that Republicans and Democrats can work together to create a better America, just as the nation’s founding fathers envisioned. This distinction in large measure explains why Trump, notwithstanding his poor performance in office and his collection of criminal prosecutions, currently enjoys a lead over Biden in the polls.
So what should be Biden’s message to American voters? First and foremost, he should be telling them that he understands both the depth and the sources of their unhappiness and why they have lost confidence in our federal government. Without making that admission he has no chance of getting their attention. The sad truth is that working class Americans have not participated in the nation’s economic growth since Ronald Reagan took office in January 1981. His message should include the following:
While the nation’s GDP grew from $2.857 trillion to $27.960 trillion since Reagan took office, the distribution of the nation’s wealth has shifted upward to those in the highest earnings quintile causing the percentage of the nation’s wealth held by middle class families to drop from 36.6% to 26.2%, while the percentage of the nation’s wealth held by families in the top 20% rose from 60.5% to 70.6%.
One of the reasons explaining this shift in the distributions of the nation’s wealth was the growth in globalization. The countries in Europe whose economies had been devastated by the Second World War had recovered and by 1980 were beginning to compete with U.S. companies for the production of manufactured goods. In addition, those countries in southeast Asia with an abundance of low-wage workers were starting to entice many U.S. companies to shift their production facilities to them. This caused a reduction of high-paying U.S. manufacturing jobs and forced most working class Americans to accept lower-paying service industry jobs.
In response to this increased competition, the U.S. relied on its technological superiority to begin producing more sophisticated products. This explains why only business owners and highly skilled U.S workers were able to continue to thrive under these competitive pressures.
Globalization and technological advances, however, only begin to explain why those at the upper end of the income scale have been able to accumulate great wealth while working class Americans are being forced to live from paycheck to paycheck. The principal reason lies in changes to the U.S. Tax Code which the administrations of Ronald Reagan, George W. Bush and Donald Trump rewrote to favor the wealthy.
Those changes were not accidental; nor did they fulfil any national purpose. They were crafted by attorneys for wealthy Republican Party donors and enacted by Republican majorities in the House and Senate. They were a part of a plan devised by Republican political strategists in the 1960s to channel the nation’s wealth into the hands of their donors who, in turn, would finance their political campaigns. Another facet of this plan was to have the Supreme Court strike down limits on campaign contributions which the Court with a majority of Republican-appointed justices did in the Court’s 2013 decision on the case of Citizens United v. Federal Election Commission.
Not only do Republican tax cuts account for much of the growing disparity in wealth that has taken place since Reagan took office, they are also largely responsible for the nation’s current $34 trillion deficit which continues to grow because Republican members of Congress, insofar as possible, routinely block the efforts of Democrats to raise the taxes on all Americans in the highest income quintile.
Alongside of the tax cuts for the wealthy, Republican members of Congress and Republican presidents (including Donald J. Trump) have systematically eliminated laws and regulations that protect working class Americans. These regulations targeted by Republicans include those designed to enhance the safety of work places, curb unfair business practices, assure a livable environment and prevent usurious lending practices by banks and finance companies. These regulatory changes shift cost burdens from corporations and their shareholders to working class Americans.
You should understand that Democratic efforts to expand the nation’s social safety net help to offset the costs being shifted onto working class Americans by those cuts in business regulations and that Democratic efforts supporting the education of children and helping young Americans to obtain higher education have been designed to enable them to increase their earning power in an economy that that is powered by technology.
You may have heard that changes in the tax code and government regulations put into place by Republican presidents were intended to facilitate the creation of jobs and increased wages and that they would not increase the nation’s deficit. These are fantasies intended to deceive working class Americans as each time Republicans have enacted tax cuts, there has been no noticeable increase ion the rate of growth in the nation’s economy and they national debt has grown by trillions of dollars.
So when Republican politicians tell you that your problems have been the result of immigrants stealing your jobs and your tax dollars are being wasted on supporting the less fortunate, you should know that these also part of the con job the Republican Party has been working on working class Americans over the past 40 years.
Biden should conclude his message by pointing out that when Donald Trump (who not only signed the 2017 tax cut law, but who is also promising to extend those tax cuts before the expire at the end of next year) tells you that the system is rigged, you should believe him because he is one of the people who has rigged it against you. And when he tells you that “he is your retribution,” you should understand that he’s simply laying the groundwork for his next big con job and that you are again his intended victims.