Have We Finally Turned The Corner On The Neoliberal Consensus?

by Protect Democracy

I’d like to start with a fairy tale. I call it, Repealing the Law of Gravity:

Once upon a time in a distant land, people had to work hard, and long hours, to keep their families fed and sheltered.  One day, the people’s congress decided to make everyone rich.  They were going to do this by spreading gold coins all over the land.  

The congress gathered all of the gold coins in the treasury.  They decided they needed more gold coins to make everyone as rich as they ever imagined being.  So they borrowed billions more gold coins to spread across the land.  How happy the people would be! 

When the special day on which everyone would become rich arrived, the people’s congress sent up airplanes full of gold coins to spread all over the land.  When the planes’ doors opened and the coins started to fall, a strange thing happened.  A magical wind suddenly started to swirl and blow, and instead of falling down on the masses of hopeful people waiting on the ground, all the gold coins blew upwards, and landed on the top of the highest mountain, where only the royal family and their wealthiest friends lived.   Just a handful of copper pennies made it to the ground.  

The members of the people’s congress tried to reassure the anxious people waiting on the ground.  “Just be patient,” they said, “the gold will trickle down.”

A group of scientists decided to investigate what had happened.   After all, the gold coins are heavy, and surely gravity would make them fall to the ground.  After months of study and developing computer models of falling coins, the scientists concluded that there was only one possible explanation; thermal currents had to have lifted the coins up to the top of the mountain. You see, when the people’s congress released the gold coins, they also released a whole heck of a lot of hot air.  

From the post-WWII years until the 1970s, America, and much of the rest of the Western World, embraced a version of capitalism that created large profits for private corporations, while still keeping the working class fed, sheltered and financially secured. It was somewhat based on the theories of British economist John Maynard Keynes, who believed that government had a role to play in stabilizing economies and maintaining employment and consumer demand during periods of business down cycles. It wasn’t perfect; ethnic minorities were largely excluded and it didn’t include women in productive economy, but it built the largest and most prosperous middle class we’ve ever known. 

A number of factors changed business thinking and economic theories in the 1970s. The oil shock of 1973 caused slowing of economic growth coupled with inflation. The end of the Vietnam War brought an end to one of Wall Street’s all-time greatest cash cows. The social movements of the 1960s; civil rights, women’s rights, the beginnings of LGBT+ rights, and, of course, the anti-war movement, mobilized social conservatives to join the struggle of the business class against a growing progressive movement. The Powell Memo; a 1971 letter from soon-to-be Supreme Court Justice Lewis Powell, warning that market capitalism was under attack from an empowered and well-funded leftist movement (a warning that, as we know, had little basis in fact), mobilized corporate spending into elections and lobbying at unprecedented levels. In the decade following the Powell memo, corporate spending on elections grew by 500%, and the number of corporate lobbyists in Washington grew by 1500%.  

The result of this organizing and activism of the capital class created new ways of managing the economy, based on the theory that when the rich get richer, everyone prospers. This economic model had many names; supply side, shareholder capitalism, trickle-down, Reaganism, neoliberalism, Thatcherism, and a few more that involve the use of profanity.  It involved deregulation, privatization, globalization, and financialization of everything. I describe it as the theory that all human actions must involve transfers of wealth to the investor class.  From the time of the Powell memo to the time of the financial crisis of 2008, the incomes of the top 0.1% of earners had grown by nearly 400%, corrected for inflation, while the average wages of the bottom 90%, corrected for inflation, actually shrunk.  We learned that when the rich get richer, the rich get richer.

This new theory seemed to gain bipartisan support. President Carter deregulated the transportation sector, which resulted in lower costs for corporations, and long-distance drivers, once some of the best-paid among workers with high-school graduation or less education, losing 60% of their incomes; and consolidation in the airline industry began. Under President Reagan, we busted unions and lowered taxes on the rich, causing greater inequality and huge deficits. President Clinton accelerated globalization, giving us free trade agreements and normalized trade relations with China, and deregulated the banking sector; and middle-class jobs left the country as if they were in a race to leave. Bush gave us more cash-cow wars, and more tax cuts for the rich just in case the federal deficit needed help growing, and the rich got richer. President Obama had an opportunity to chart a new path, when the deregulated financial sector brought the economy to a crashing halt, but he followed the advice of his most Wall Street-friendly advisors, and cranked up the neoliberal engine again.  

And then came Trump, and the rich and corporations got more tax cuts, and the results were pretty much what the economists at the London School of Economics said they would be. The rich got richer, growth and job creation slowed, manufacturing employment shrunk, the federal budget deficit soared to unimagined heights; but the stock market boomed. Our trade deficit with China set new record highs, all while Trump told us that he was standing up to China.  The rich got richer, and the rich got richer. President Biden became the first president in more than 50 years to recognize that the economy grows, as he puts it, “from the bottom up and from the middle out.” Investments in American technology and American manufacturing grew rapidly, as did job creation and union membership. We actually adopted something that looked like industrial policy for the first time in a couple of generations, and our ability to make things in the US started to slowly trend back towards that of the good old Keynesian post-WWII days.  

But there were still problems. The tax code that favored the rich and large corporation remained in place. Wages were stuck at the bottom, as the federal minimum wage was still at 2009 levels. According to the annual Livable Wage Calculator published by the Massachusetts Institute of Technology (MIT), more than 40% of American workers have wages that are insufficient to support a single adult, and more than 70% of workers have wages that are insufficient to support one adult and one child. It was time for Congress to take action.  

Several members of both houses of Congress, and the President, proposed taxes on extreme wealth. Of course, these won’t pass as long as Republicans control at least one chamber; and the Supreme Court’s ruling in the Moore case gives legal scholars reason to question if wealth taxes, if passed into law, would survive court challenges. Congress had to act to create tax and wage plans that would survive in the current legal environment.  

We may have found an answer. A brilliant, progressive, forward thinking first term member of Congress, Rep Summer Lee of Pennsylvania, has proposed new economic legislation that addresses both taxes and wages, to create a more just economy and lift millions of people out of poverty. It’s called the American Stability Act. Its basic features are:

• Replace the minimum wage with a stability wage, which would assure that everyone who works full time would earn at least a livable wage, according to the annual MIT Study 

• Increase the current personal exemption with the livable wage exemption, so that no person earning less than a livable wage would pay federal income taxes, and we would stop taxing people into poverty (the increased exemption would gradually phase-out for people with higher incomes)

• Replace the tax revenue that would be lost as a result of the higher personal exemption with surtaxes on very high incomes, 3% on annual incomes over $1 million and an additional 5% on annual incomes over $15 million

• Index the Stability Wage to inflation or average wage growth, so the stability wage would adjust periodically to reflect actual economic conditions; without congressional intervention

This is simple, basic, common-sense legislation. There is nothing radical about it; but some economists and tax experts call it the biggest, most positive step towards alleviating poverty that this country has taken since the 1960s.  

This legislation is badly needed. The US has the highest real poverty rate in the industrialized world. We also have the shortest life expectancy, and studies show that poverty and short life expectancy are closely correlated. Anyone who calls themselves “pro-life” should be supporting this legislation. Anyone who cares about lifting families out of poverty should support this legislation. We ask that everyone reading this reach out to your members of Congress, and ask them to support The American Stability Act. Our futures and the futures of America’s children depend on it.