(published in Charleston Gazette-Mail Sunday, October 2, 2011)
What powers the American economy? Many folks have compared the U.S. economy to a vehicle out of control, in a ditch, or flying over a cliff. Let's examine this metaphor.
In the 1700's and early 1800's our economy was pulled by horse-drawn carts and sailing ships, though in the South, enslaved African-Americans were pulling as well. Most Americans fended for themselves on farms, feeding themselves and selling or bartering the surplus.
Steam power, industrialization, and immigration brought more of us into the cities to labor for wages and seek education, leading to more recognition of human rights, a Civil War that ended slavery. The economy was pulled into the 20th century by steam locomotives opening up land and opportunity in the great American West and booming trade exports to the world.
Many prospered, but rich industrialists prospered disproportionately. They drove the economy in luxury cars like tanks, often exploiting their workers, treating them like replaceable parts subject to long hours, low pay and unsafe conditions. They crushed labor movements and created monopolies. Teddy Roosevelt broke them up by ushering in the Progressive era of government, regulating industry, increasing competition, creating the Interstate Commerce Commission to ensure a level playing field among the states. Now the economy could hum along, pulled by millions of Model-Ts owned by Americans entering the middle class.
The American Dream was evolving from 40 acres and a mule to a good job within driving distance of a home with a yard. We began to have savings to provide for retirement and access to credit, which many used to invest in property or the rapidly rising stock market. At the end of the 1920's, credit flowed freely, speculation was rampant, and inflation was kept low by the recently created Federal Reserve.
The bubble burst and over-leveraged banks and investors could not pay their debts. Americans' savings were wiped out and they had no pensions. There was no Social Security, no unemployment insurance, no food stamps, and no FEMA to help when the Dust Bowl blew the very earth from farms.
The economy, like a crowded highway full of speeding cars, hit a freak patch of black ice and crashed, causing a chain reaction and backing up the road to world-wide recovery for miles and years. During the Great Depression, Americans abandoned the economy, hoarding what money they had or could earn as they lost their homes and jobs and farms and hunkered down or drifted around in survival mode. It took that "traitor to his class," Franklin Delano Roosevelt to buy Americans a ticket on the train back to the middle class, regulating the financial markets, creating employment opportunities, providing Social Security for the elderly and much more.
The juggernaut of spending and employment that was World War II put America's economy aboard a fleet of fighter planes, roaring to world leadership. We emerged from the war with no damage to our own industry from the millions of pounds of explosives detonated around the world to roll back the militaristic fascist corporatism that had pulled the Axis powers out of the Depression. We were in a great position to export products to the world as we coasted along our new Interstate highways in our gas guzzling cars, built increasingly bigger homes, with two- and three-car garages, and entered the grand age of consumerism.
This carried us through until the rest of the world began to catch up and compete, beginning with the Japanese, who learned how to make things not only cheaper, but better. Meanwhile, in our desire to fend off Communism, which threatened to close markets to us, we squandered much of our treasure in Vietnam. While all that spending kept a lot of people working, for the first time, our balance of trade tipped the other way. At the same time, oil-producing nations decided it was time to get their fair share. Rising oil and gasoline prices spurred inflation and put the brakes on the economy in the 1970's, crashing Jimmy Carter's presidency like a helicopter trying to rescue hostages in Iran.
Ronald Reagan led the Republican tax cutting charge in the 1980's with their first foray into "trickle-down economics." Tax cuts, especially for the wealthy, would spur a boom, he said. Helped by a glut of oil and a tightening of the money supply begun under Carter, inflation decreased, and the economy picked up. However, Reagan's economy was a rented Lincoln. The national debt tripled to over $1 trillion. The money didn't trickle down; it trickled out.
Bill Clinton refilled the tank, and bought us a strong pickup truck by raising taxes on those who could afford it. Helped by a boom in technology and the internet, he balanced the budget and began paying off the debt. And then along came George W. Bush. He came to office facing a small bumpy patch created by the bursting of the tech bubble, and steered the economy onto a side road, invited his friends to strip it with tax cuts for all, mostly the wealthy. He re-fit it as a military vehicle funding the Afghanistan and Iraq wars with deficit spending. At the same time, he weakened regulators and regulations.
He crashed the economy, and it would have been totaled in the form of another Great Depression had he not taken the now nearly crippled vehicle into the shop for repairs in the form of emergency loans to banks and other financial institutions.
When President Obama came to pick it up, the repairs had barely begun to fix the wreck. Early estimates did not account for the full damage. Credit was frozen, employment and tax revenues were down while the deficit was up. Business and consumer confidence was shattered. Spending stalled. Housing prices were sinking while foreclosures rose.
He got it fixed enough to get back and forth every day, returning to the shop each night, borrowing stimulus spending for repairs and passing it to local and state governments to keep their teachers and policemen employed, to fix roads and bridges and to supply unemployment insurance. He lent money to auto companies so they could get back on their feet and help with the repairs.
In 2010, John Boehner took over management of the garage and said Obama's debt was too high, and he'd have to cut back on plans for further repairs. Then, as Obama was getting gas one day, a gang of tea party teenagers threatened to hijack the car and refuse to raise the debt ceiling. They grabbed his credit card, insisting, "You'll have to give up health insurance and take money out of the retirement account. No asking your rich friends to pony up either." He promised to save some money by spending less on his kid's textbooks and a few other things, and they reluctantly released him.
Now, if you haven't been "driven crazy" by my metaphors, here's what we need to do. Obama has acknowledged this junker inherited from Bush is not worth fixing. He's proposed the American Jobs Act, a short-term rental, until we trade in for a new, more efficient hybrid four-wheel drive.
The drive wheels have to be a mix of industry, good education, a more equitable tax system, and energy and regulatory policies that will carry us into the future. We have to make it run more efficiently and give up a few luxury features we've enjoyed.
Some will grouse about spending the money for this new rig, but it will be more dependable getting us where we need to go. If we hit a slick spot or slide in a ditch, it could get us out again. We have always paid our debts, and we'll pay this one off, too. It just might take us a little longer.