While promoting her new book, This Fight Is Our Fight: The Battle to Save America’s Middle Class on “Real Time with Bill Maher,” Senator Elizabeth Warren (D-Mass.) explained why America’s middle class was disappearing. In Warren’s view, the reason is simple: it’s all Ronald Reagan’s fault.
The crux of Warren’s argument is that from 1935 until 1980, the country’s gross-domestic product increased exponentially and “90 percent of America—everybody outside of the top 10 percent got 70 percent of all income growth.” After 1980, Warren says, although GDP continued to increase, 90 percent of Americans got “zero percent of the new income growth. One-hundred percent of the new income growth in this country goes to the top 10 percent.”
Warren and her comrades on the Left are simply wrong about the cause of today’s middle-class decline. The reason has little to do with Reagan-era tax cuts. If anything, those tax cuts bought the middle class some time before the bottom fell out on the neoliberal project of the last century. Stated simply, the neoliberal globalist policies of the Democrats are to blame for the decline of the middle class.
The senator’s narrative suggests that economic opportunity did not exist in the United States before 1935. This is a patently absurd claim. Fact is, a middle-class life as we understand it today did not really exist in human history until the industrial revolution was well underway. So, it’s a bit disingenuous to pick 1935 to prove her point.
It sets up a false narrative: according to the Left, President Franklin D. Roosevelt saved the middle class when he created the New Deal to combat the Depression. And then, of course, that greedy Republican, Ronald Reagan, came in and killed the middle class. But this is demonstrably false.
After all, in 1939, then-Treasury Secretary Henry Morgenthau, Jr. (a close friend and confidant of FDR’s) testified to the House Ways and Means Committee that, despite the Roosevelt Administration’s best efforts, the Great Depression was not abating. Morgenthau explained,
We have tried spending money. We are spending more than we have ever spent before and it does not work […] We have never made good on our promises…I say after eight years of this Administration we have just as much unemployment as when we started…And an enormous debt to boot!
As Burton Folsom, Jr. concluded in his phenomenal book, New Deal or Raw Deal? “Average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover.” To be sure, there were some good things to come out of that era—notably the Glass-Steagall Act, which separated commercial banking from investment banking. And Warren is right to point out the growing income gap.
align=”right” As you can see, these long-term trends have more to do with the decline of America’s middle-class than the Reagan tax cuts did. In targeting the policy of tax cuts and laying the blame for that decline at Reagan’s feet, Warren and her Leftist cadre miss the real trends driving this decline. Worse, they are advocating dangerous and self-destructive policies.
But if Leftist policies were so effective, then why didn’t unemployment decline between 1935 and 1939? Why did joblessness worsen? If increasing government spending, taxation, and regulations were the way out of an economic downturn, why didn’t Obamanomics return America’s economic prosperity to pre-2008 levels?
Warren makes the claim that more people did well under higher tax and regulatory regimes than they do today. Not true. In fact, these policies likely exacerbated the crisis. Not even the government’s massive spending to fight World War II saved America from the Great Depression, as so many claim today. What ultimately saved the economy was when Republicans (and some Democrats) in 1945 insisted on tax cuts and spending reductions.
As Folsom argues in his book, FDR could have twiddled his thumbs from 1934-41 and the economy would have done just as poorly (although financial writer and publisher James Grant would argue that doing nothing actually would have been better for the economy).
The real damage to the middle-class came about during the 1960s and ’70s—well before Reagan was president.
What happened during this period?
First, the sexual revolution, simmering since the early 1900s, exploded with the invention of the birth control pill. Virtually overnight, the conventional male-female dynamic in society was upended. Over time, women started going to college and working at increasing rates, while men started to work and go to school less. Also, beginning in the 1970s, the American fertility rate began to decline precipitously (as it did in much of the rest of the Western world). This is important, because native-born Americans having fewer children means a decline in human capital (which, by definition, means a decline in overall demand and, therefore, productivity). If not for immigration, the U.S. economy would have ground to a halt. Of course, increasing immigration further exacerbates the employment issue for non-college-educated American workers.
Alongside the sexual revolution emerged the revolution in information technology. The first silicon-based computer chips went into production and the Internet began taking shape in labs funded by the Pentagon. Before long, people were buying personal computers, then smart phones. This set the long-term trend for the disruptive effects of the World Wide Web and automation.
Third, President Richard Nixon opened China up to the West. What began as a short-term strategic initiative to help turn the Cold War in America’s favor ended up evolving into a full-blown economic pact (“Chimerica,” as Niall Ferguson dubbed it). This pact ultimately saw the beginnings of globalization and the long march of middle class, blue-collar jobs out of the United States and into China (and other developing economies). These jobs never returned. America’s middle-class declined, as China’s grew.
Lastly, with the sharp decline in readily available, well-paying blue-collar manufacturing jobs for most Americans, middle-class parents did what their parents in the Great Depression had encouraged: they sent their kids to college. Most middle-class parents were savvy enough to recognize that their way of life was deteriorating. They assumed that a college degree might allow their children to do better in the world than they had done. They reasoned that their children needed to compete in the new “knowledge” economy and that this was the way of the future.
Unfortunately, over time the cost of college increased with the rising demand (a paradoxical phenomenon, perpetuated by the presence of the U.S. government in the student loan business). This, coupled with globalization—where our kids had to compete with all other children in the world—meant that standards became almost impossible for all but a handful of students to surmount.
Education was once seen as the great equalizer. It was the road to true freedom. Today, however, it has become one of the surest paths to poverty as students become mired in debt for degrees that promise the world (at a premium) but fail to provide adequate training for the jobs most students are seeking.
What’s more, the formation of the post-industrial “knowledge” economy has created a bifurcated class system. In today’s America, primarily because elementary and secondary education have so deteriorated, one cannot usually find gainful employment without having a college degree—even when the justification for said degree is dubious. What’s more, if that degree is not in a technology or business field, one’s chances of financial success drastically decrease. This is not equality. It is also not freedom. This fact has also helped undermine the middle class.
As you can see, these long-term trends have more to do with the decline of America’s middle-class than the Reagan tax cuts did. In targeting the policy of tax cuts and laying the blame for that decline at Reagan’s feet, Warren and her Leftist cadre miss the real trends driving this decline. Worse, they are advocating dangerous and self-destructive policies.
The path to economic freedom does not reside in increased levels of taxation and regulation. That is the road to serfdom. What America needs to do is to make better trade deals that put Americans first, protect critical industries for American producers, and get rid of government involvement in higher education. Americans also need to comprehend the link between Leftist social policies and economic decline (since social policies determine the health of human capital). In addition, Americans must understand how science and technology are fundamentally altering the way that our economy works and seek to adapt.
This is the right fight. This is also the fight that President Trump has been waging since he announced his candidacy for president.