Since the Reagan era, the mantra of supply-side economics boils down to this: Cut taxes, cut regulations, and cut social spending so people will be more motivated to work and less dependent on the government; then let the boom times roll. Been there, done that. The result has been a disaster.
The tenets of supply side unleashed a boom for plutocrats at the top of the economic pyramid. For the working class, it has meant losses of manufacturing jobs to overseas markets, rustbelt cities, wage deflation, and massive inequality. Among pandering politicians during an election cycle, the blame game — and the bullshit — has begun.
Donald Trump blames bad negotiators for making bad trade deals. Kasich and Rubio proscribe more supply side. And Ted Cruz wants to “awaken the body of Christ.” Caveat emptor!
“Tax the rich to level the playing field, raise the minimum wage, and invest in infrastructure,” claim the Democrats. Economic stimulus programs, although helpful, are mere bandaids unless we fix fundamental STRUCTURAL problems that have distorted our economy since the Reagan era. Rules of corporate governance are one example. Here is a look under the hood:
COMPENSATION. Before 1980, CEO pay was comprised of 95% in salary and bonuses and less than 5% in stock incentives. Today this ratio is reversed: 90-95% in stock incentives, the rest is chump change. Changes in CEO compensation have fundamentally altered the business culture.
STOCK BUYBACKS. Before 1980, less than 2% of corporate profits were invested in stock buybacks (a form of market manipulation now allowed after deregulation). Today, more than 75% of corporate profits are invested in buybacks. Why? CEOs use buybacks to inflate the value of their compensation portfolios. Before 1980, the ratio of CEO to workforce compensation was 45:1. Today, the ratio is a staggering 844:1 and rising.
PRODUCTIVITY. Since WWII, output per worker hour has grown dramatically, and workforce wages rose commensurately. Today, wages no longer reflect the value of rising productivity. Worker income has remained flat, and real buying power after inflation has declined. Thus, the equitable distribution of wealth from top to bottom has disappeared.
HEDGING BETS WITH DEBT. These days, corporate raiders and hedge fund traders record debt on the books of businesses they acquire. Simply explained: you borrow money to buy a car; the named borrower on record is the car; you strip the car of tires and hub caps and sell off those assets; then expect the car to pay off the loan. Until the 1980s, corporate America carried virtually no debt. Today, corporate debt has reached the $12 trillion mark, while $21 trillion in untaxed profits lay idle in offshore accounts.
HAVOC IN THE PUBLIC SECTOR. When corporate debt and offshore accounts go up, public tax receipts go down. Today, hedge fund billionaires pay less taxes than teachers. There are Fortune 500 companies earning billions in revenue but paying next to nothing in taxes (such as American Airlines, GE, GM, Hewlett-Packard, Loews, Xerox, and News Corporation to name examples). Corporate welfare in the form of subsidies, tax loopholes and other privileges have created a rigged economy. Meanwhile, the cost burdens of civilization have fallen on the middle classes, whose votes no longer count and whose voices are no longer heard.
We lament the passing of an era when capitalism meant small family-owned businesses on Main Street. In the post WWII era, small business was the province of the middle classes and the wellspring of upward mobility. Decades of acquisitions and mergers have created mega-cartels with concentrated market power that have enriched the few but destroyed the American Dream for the many. Economic stimulus programs will have little long-term effect unless we fundamentally change the rules of the game and democratize capitalism once again.
For a fanciful tale about the horrors of supply-side, please go to the preceding post below.
