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History teaches, but only if you pay attention and learn

September 27, 2011
By Tom Wallace

Doug Hoffman's article once again brings into question whether aspiring politicians and office holders either don't know any history or, for political purposes, just pretend they don't. His history lesson should begin with exploring Will Durant's observation that "the fall of Rome, like her rise, had not one cause but many, and was not an event but a process spread over 300 years." So it is with the nation's current financial crisis.

The Great Recession was the culmination of a four-decade socio-economic process, a repeat performance of the Great Depression, only with new actors. Unfortunately, American society has forgotten the mistakes that led up to the Great Depression and how the country rebounded. From the 1870s to the 1930s, workers were denied an equitable share of the nation's productivity, a recognized fundamental cause of the Great Depression, which was then repeated during the period from the late 1970s to the present.

Over the last four decades, the nation's income distribution has dramatically and inequitably shifted to the wealthiest Americans. An important initial reference point is the period of great prosperity between 1947 and 1973, during which income rose at the same annual rate of about 10 percent for all income quintiles. However, from 1977 to 1989, the wealthiest 1 percent increased their income by 78 percent and, by 1989, owned 40 percent of American wealth. During this period, the two lowest-income quintiles, 40 percent of the population, suffered a decline in income equivalent to $275 billion per year being shifted from the middle class to the richest Americans. As a result, the income of the wealthiest 1 percent increased from 9 percent of the nation's total in 1976 to 24 percent in 2010, while the nation's hourly wage increased by only 7 percent. This data should be digested in the context of American productivity increasing by 80 percent from 1980 to 2009.

This dramatic shift in the inequitable sharing among those who created the wealth was compounded by four decades of gradually evolving income tax policy, whereby the tax rate for the wealthiest 1 percent declined from 48 percent in 1970 to 33 percent in 2004, and for the wealthiest 0.1 percent from 64 percent to 33 percent. Thirty-six percent of the nation's household income in the period from 1979 up to the Great Recession went to the top 1 percent of earners.

Consequently, the severity of this inequitable sharing of the enormous wealth created in America since the late 1970s has steadily and significantly eroded the purchasing power for a large majority of Americans, who have also become saddled with an historic level of consumer debt. As with the 1920s leading up to the Great Depression, this 21st-century economic condition of declining middle-class purchasing power has resulted in declining consumption of goods and services, which has reduced production levels and business activity in general. Wisely, business will not invest capital to expand production, offer new goods and services, and undertake new construction if potential consumers do not possess the necessary financial means to spend. If the middle class, as the engine of any national economy, is not equitably earning, adequately spending and socially satisfied, the economic system will continue to self-destruction.

Historically, economic recessions and excessive budget deficits have been effectively resolved by political compromise - while protecting the most vulnerable of our citizens - by adequate government stimulation and a combination of selective budget reductions and tax revenue increases. In 1990, President George H.W. Bush was willing to compromise with the opposition in his deficit-reduction agreement which combined budget cuts and tax increases. The unhappiness with such "liberalism" ignited the Gingrich ultra-conservative revolution of the last three decades, resulting in the "politics of organized combat," which attempts to repeal the 20th century. Oddly enough, many middle-class Americans support this movement and today's version of the Gingrich agenda, which degrades organized labor, the public education system, and the health and welfare of the nation's less fortunate citizens. Essentially, this amounts to the middle class inflicting pain of an economic recession on themselves and thereby enriching a new aristocracy. They should review the history and concepts of "sharing" a society's productivity, the social contract, social justice and common cause, as they are rooted not only in the fundamental ideals of democracy that extend back to the Founding Fathers but also in their origins by the founders of democracy in ancient Greece.

Finally, all of this has been, but should not be, confused with the subject of socialism, but that is another lesson for another time.


Tom Wallace lives in Loon Lake and Virginia Beach, Va.



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