Robert B. Reich's Blog, page 154

New Years Prediction (II): The U.S. Economy in 2011

What will happen to the US economy in 2011?  If you're referring to profits of big corporations and Wall Street, next year is likely to be a good one.  But if you're referring to average American workers, far from good.

The two American economies — the Big Money economy and the Average Working Family economy — will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.  

The big disconnect between corporate profits and jobs is likely to continue because America's big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources: (1) growing sales in China, India, and other fast-growing countries, and (2) slimmed-down US payrolls.  

In a typical recovery, profits lead to more hiring. That's because in a typical recovery, American consumers head back to the malls — and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers' margins. In short, profits aren't coming from American consumers — and profits won't be coming from American consumers in 2011.

Most Americans don't have the dough. They're still deep in debt, can't borrow against their homes, and have to start saving for retirement.

The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.

Wal-Mart isn't doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the US.

General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China.

Corporate America is in a V-shaped recovery. That's great news for investors and everyone whose savings are mainly in stocks and bonds. It's also great news for executives and Wall Street traders, whose pay is linked to stock prices. All can expect a banner 2011.

But most American workers are trapped in an L-shaped recovery. That's bad news for the Main Streets and small businesses in 2011. It's also a bad omen for home prices and sales, and everyone whose savings are mainly in their homes.

Home prices in major metropolitan areas sank last month, the third straight month-to-month drop. I expect home price declines to continue next year. We're in a double-dip housing market, largely because unemployment remains so bad that millions of Americans can't pay their mortgages.

None of this bodes well for US employment next year. I expect the official unemployment rate to remain around 9 percent.

In other words, whether 2011 is a great year economically depends which economy you're in – the one that's rising with the profits of big business and Wall Street, or the one that will continue to struggle with few jobs and lousy wages.  

Sadly, the next Congress is unlikely to do much to reverse any of this. Most Republicans and too many Democrats are dependent on corporate America and Wall Street. Their version of tax reform is to cut taxes on the wealthy and on big corporations, and either raise them on everyone else (sale and property taxes are already on the rise) or cut spending on programs working families depend on.

At some point, perhaps, the disconnect between America's two economies will become so big and so obvious it can no longer be ignored. Progressives, enlightened Tea Partiers, Independents, organized labor, minorities, and the young form a new progressive movement designed to reconnect America.

One can always hope.

 

 

 

 

 

 

 

 

 

New Years Prediction (I): The Tea Party Conservative Strategy for 2011

Next week starts the new Congress, and with it the Tea Party conservatives. What's their strategy? What will they rally around?

They'll grouse endlessly about government spending but I don't think they'll use any particular spending bill to mobilize and energize their grass roots. The big bucks are in Social Security, Medicare, and defense, which are too popular. And their support for a permanent extension of the Bush tax cuts will make a mockery of any argument about  taming the deficit.

Nor will they focus on the debt ceiling. Their opposition to raising it will generate a one-day story but won't rally the troops or register with the public. Most Americans aren't particularly interested in the debt ceiling, don't know what it means, and don't feel affected by it.

Instead, I expect their rallying cry will be about the mandatory purchase of health care built into the new healthcare law. The mandate is the least popular, and least understood, aspect of that law. Yet it's the lynchpin. Without it, much of the rest of the law falls apart: It's impossible to cover all high-risk Americans, including those with pre-existing conditions, unless those at far lower risk are required to buy insurance.

Knowing they don't stand a chance of getting a direct repeal of the mandate (even if they could get a majority in the House for it, they won't summon 60 votes in the Senate, and have no possibility of overriding a presidential veto), they'll try to strip the federal budget appropriation of money needed to put the mandate into effect. This could lead to a standoff with the White House over government funding in general, and a possible government shutdown.

My betting is Tea Party conservatives wouldn't mind a government shutdown over the healthcare mandate. Unlike Bill Clinton's showdown with Newt Gingrich, which hurt the conservative cause, Tea Partiers believe this one could be helpful. In their view, it would enable them to stand on principle, dramatize their argument that the Obama administration overstepped with healthcare, and generate a particular event around which they can summon the energy and enthusiasm of their ground troops — all with an eye on mobilizing for the 2012 general election.

Advice to Obama White House: Get ready.

 

 

The Attack on American Education

Over the long term, the only way we're going to raise wages, grow the economy, and improve American competitiveness is by investing in our people — especially their educations.

You've probably seen the reports. American students rank low on international standards of educational performance. Too many of our schools are failing. Too few young people who are qualified for college or post-secondary education have the opportunity.

I'm not one of those who thinks the only way to fix what's wrong with American education is to throw more money at it. We also need to do it much better. Teacher performance has to be squarely on the table. We should experiment with vouchers whose worth is inversely related to family income. Universities have to tame their budgets, especially for student amenities that have nothing to do with education.

But considering the increases in our population of young people and their educational needs, and the challenges posed by the new global economy, more resources are surely needed.

Here's another reason why the $858 billion tax bill — including a continuation of the Bush tax cuts to the richest Americans and a dramatic drop in their estate taxes — is so dangerous. By further widening the federal budget deficit, it invites even more budget cuts in education, including early-childhood and post-secondary. Pell Grants that allow young people from poor families to attend college are already on the chopping block.

Less visible are cuts the states are already making in their school budgets. Because these cuts are at the state level they've been under the national radar screen, but viewed as a whole they seriously threaten the nation's future.

Here's a summary:

    * Arizona has eliminated preschool for 4,328 children, funding for schools to provide additional support to disadvantaged children from preschool to third grade, aid to charter schools, and funding for books, computers, and other classroom supplies. The state also halved funding for kindergarten, leaving school districts and parents to shoulder the cost of keeping their children in school beyond a half-day schedule.

    * California has reduced K-12 aid to local school districts by billions of dollars and is cutting a variety of programs, including adult literacy instruction and help for high-needs students.

    * Colorado has reduced public school spending in FY 2011 by $260 million, nearly a 5 percent decline from the previous year. The cut amounts to more than $400 per student.

    * Georgia has cut state funding for K-12 education for FY 2011 by $403 million or 5.5 percent relative to FY 2010 levels. The cut has led the state's board of education to exempt local school districts from class size requirements to reduce costs.

    * Hawaii shortened the 2009-10 school year by 17 days and furloughed teachers for those days.

    * Illinois has cut school education funding by $241 million or 3 percent in its FY 2011 budget relative to FY 2010 levels. Cuts include a significant reduction in funding for student transportation and the elimination of a grant program intended to improve the reading and study skills of at-risk students from kindergarten through the 6th grade.

    * Maryland has cut professional development for principals and educators, as well as health clinics, gifted and talented summer centers, and math and science initiatives.

    * Michigan has cut its FY 2010 school aid budget by $382 million, resulting in a $165 per-pupil spending reduction.

    * Over the course of FY10, Mississippi cut by 7.2 percent funding for the Mississippi Adequate Education Program, a program established to bring per-pupil K-12 spending up to adequate levels in every district.

    * Massachusetts has cut state education aid by $115.6 million, or 3 percent in its FY 2011 budget relative to FY 2010 levels. It also made a $4.6 million, or 16 percent cut relative to FY 2010 levels to funding for early intervention services, which help special-needs children develop appropriately and be ready for school.

    * Missouri is cutting its funding for K-12 transportation by 46 percent. The cut in funding likely will lead to longer bus rides and the elimination of routes for some of the 565,000 students who rely on the school bus system.

    * New Jersey has cut funding for afterschool programs aimed to enhance student achievement and keep students safe between the hours of 3 and 6 p.m. The cut will likely cause more than 11,000 students to lose access to the programs and 1,100 staff workers to lose their jobs.

    * North Carolina cut by 21 percent funding for a program targeted at small schools in low-income areas and with a high need for social workers and nurses. As a result, 20 schools will be left without a social worker or nurse. The state also temporarily eliminated funding for teacher mentoring.

    * Rhode Island cut state aid for K-12 education and reduced the number of children who can be served by Head Start and similar services.

    * Virginia's $700 million in cuts for the coming biennium include the state's share of an array of school district operating and capital expenses and funding for class-size reduction in kindergarten through third grade. In addition, a $500 million reduction in state funding for some 13,000 support staff such as janitors, school nurses, and school psychologists from last year's budget was made permanent.

    * Washington suspended a program to reduce class sizes and provide professional development for teachers; the state also reduced funding for maintaining 4th grade student-to-staff-ratios by $30 million.

    * State education grants to school districts and education programs have also been cut in Alabama, Connecticut, Delaware, the District of Columbia, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Nebraska, Nevada, Ohio, Oregon, Pennsylvania, South Carolina, and Utah.

      Meanwhile, at least 43 states have implemented cuts to public colleges and universities and/or made large increases in college tuition to make up for insufficient state funding.

   * Alabama's fiscal year 2011 cuts to higher education have led to 2010-11 tuition hikes that range from 8 percent to 23 percent, depending on the institution.

    * Arizona's Board of Regents approved in-state undergraduate tuition increases of between 9 and 20 percent as well as fee increases at the state's three public universities. Additionally, the three state universities must implement a 2.75 percent reduction in state-funded salary spending and plan to do so through a variety of actions, such as academic reorganization, layoffs, furloughs, position eliminations, hiring fewer tenure-eligible faculty, and higher teaching workloads.

    * The University of California has increased tuition by 32 percent and reduced freshman enrollment by 2,300 students; the California State University system cut enrollment by 40,000 students.

    * Colorado funding for higher education was reduced by $62 million from FY 2010 and this has led to cutbacks at the state's institutions. The University of Colorado system will lay off 79 employees in FY 2011 and has increased employee workloads and required higher employee contributions to health and retirement benefits.

    * Florida's 11 public universities will raise tuition by 15 percent for the 2010-11 academic year. This tuition hike, combined with a similar increase in 2009-10, results in a total two-year increase of 32 percent.

    * Georgia has cut state funding for public higher education for FY2011 by $151 million, or 7 percent. As a result, undergraduate tuition for the fall 2010 semester at Georgia's four public research universities (Georgia State, Georgia Tech, the Medical College of Georgia, and the University of Georgia) will increase by $500 per semester, or 16 percent. Community college tuition will increase by $50 per semester.

    * The University of Idaho has responded to budget cuts by imposing furlough days on 2,600 of its employees statewide. Furloughs will range from 4 hours to 40 hours depending on pay level.

    * Indiana's cuts to higher education have caused Indiana State University to plan to lay off 89 staff.

    * Michigan has reduced student financial aid by $135 million (over 61 percent), including decreases of 50 percent in competitive scholarships and 44 percent in tuition grants, as well as elimination of nursing scholarships, work-study, the Part-Time Independent Student Program, Michigan Education Opportunity Grants, and the Michigan Promise Scholarships.

    * In Minnesota, as a result of higher education funding cuts, approximately 9,400 students will lose their state financial aid grants entirely, and the remaining state financial aid recipients will see their grants cut by 19 percent.

    * Missouri's fiscal year 2011 budget reduces by 60 percent funding for the state's only need-based financial aid program, which helps 42,000 students access higher education. This cut was partially restored with other scholarship money, but will still result in a cut of at least 24 percent to need-based aid.

    * New Mexico has eliminated over 80 percent of support to the College Affordability Endowment Fund, which provides need-based scholarships to 2,366 students who do not qualify for other state grants or scholarships.

    * New York's state university system has increased resident undergraduate tuition by 14 percent beginning with the spring 2009 semester.

    * In North Carolina, University of North Carolina students will see their tuition rise by $750 in the 2010-2011 school year and community college students will see their tuition increase by $200 due to fiscal year 2011 reductions in state higher education spending.

    * South Dakota's fiscal year 2011 budget cuts state support for public universities by $6.5 million and as a result the Board of Regents has increased university tuition by 4.6 percent and cut university programs by $4.4 million.

    * Texas has instituted a 5 percent across-the-board budget cut that reduced higher education funding by $73 million.

    * Virginia's community colleges implemented a tuition increase during the spring 2010 semester.

    * Washington has reduced state funding for the University of Washington by 26 percent for the current biennium. Washington State University is increasing tuition by almost 30 percent over two years. In its supplemental budget, the state cut 6 percent more from direct aid to the state's six public universities and 34 community colleges, which will lead to further tuition increases, administrative cuts, furloughs, layoffs, and other cuts. The state also cut support for college work-study by nearly one-third and suspended funding for a number of its financial aid programs.

    * Other states that are cutting higher education operating funding and financial aid include Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Nebraska, Nevada, New Jersey, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, and Wisconsin.

Have we gone collectively out of our minds? Our young people — their capacities to think, understand, investigate, and innovate — are America's future. In the name of fiscal prudence we're endangering that future.

In January, Republicans take over the House and its appropriations committees. What would it take for them to reinstitute counter-cyclical revenue sharing that would help the states restore some or all funding for education? Can you imagine the White House and Senate Dems putting this at the top of their 2011 agenda? Is it possible this could be a bi-partisan effort?   

Why Obama Wins on Foreign Policy and Gays but Loses on Economics and Taxes

Two important victories for President Obama this week — the New Start anti-ballistic missile treaty with Russia to reduce weapons and re-start inspections, and the end of Don't Ask Don't Tell after a 17-year ban on gays in the military.

Why have Senate Republicans been willing to break ranks on these two, while not a single Republican went along with Obama's plan to extend the Bush tax cuts on the first $250,000 of income? Why has Obama consistently caved on economic and taxes, but held his ground on foreign policy and issues like gays in the military?

A hint of an answer can be found in another Senate defeat for Obama over the last few weeks that got almost no attention in the media but was a big one: Republicans blocked consideration of the House-passed Disclose Act, which would have required groups that spend money on outside political advertising to disclose the major sources of their funding.

The answer is this. When it comes to protecting the fortunes of America's rich (mostly top corporate executives and Wall Street) and maintaining their strangle-hold on the political process, Senate Republicans, along with some Senate Democrats, don't budge.

Bipartisanship is possible on foreign policy. It's even possible on certain social issues, such as gays in the military. But it's not possible when it comes to the core economic and political reality of the United States today — the almost unprecedented concentration of income and wealth at the top, and the way it's being used to corrupt our democratic system.

In this respect, Democrats are better than Republicans, but not much better. Both parties have rejected efforts to close tax loopholes that would treat much of earnings of hedge-fund and private-equity managers as ordinary income rather than capital gains (taxed at 15 percent). Both parties have refused to cap the size of Wall Street's major banks or force the banks to aid of distressed homeowners whose mortgages they hold.

Neither party has had the intestinal fortitude to suggest that taxes should be permanently raised on multi-millionaires. Neither will take the initiative on significant campaign finance reform.

Not even Democrats in Washington will talk about the degree to which the nation's income and wealth are now concentrated in the hands of a relatively few people, who have more power over our democratic system than since the days of the robber barons of the late 19th century.

Republicans have sold out completely to big corporations, their executives, and Wall Street. But when it comes to money for elections, many Democrats drink at the same trough.

Yet until and unless America's vast middle and working classes gain a larger share of the gains of economic growth, our economy will never fully emerge from the doldrums. Top earners can't and won't spend enough to keep everyone else employed.

The New Start treaty is a big and important victory for the Obama Administration, as is the end of the ban on openly gay soldiers in the military. But neither signals a new start to cleaning up Washington and turning this economy around.

The Real Reason Why Republicans Don't Want the "New Start" Treaty

Has the President's olive branch on extending the Bush tax breaks for the rich opened a new era in bi-partisanship? Doubtful.

Anyone who isn't worried about loose nukes – nuclear warheads that can travel long distances, and could find their way into terrorist hands – should have his head examined. Russia and the U.S. still have thousands from the Cold War days. The old Start treaty began the job of reducing that number, with mutual inspections to verify both sides were following through. But it lapsed last year. So right now there's nothing – not only no treaty to continue the process of de-nuking, but no inspection system to make sure Russia isn't (and to assure Russia that the U.S. isn't) re-nuking.

Fortunately, Russia and the U.S. have negotiated a New Start treaty that would cut the number of warheads down to about a third, and resume inspections.

But Senate Republicans are balking.

Let's be clear: The choice isn't between adopting a New Start treaty or just keeping the old one. The old one ran out a year ago. The choice is a New Start treaty or back to the old days when both sides could build more nukes under a cloud of secrecy.

It's a no-brainer. But many Republicans, led by Mitch McConnell and Jon Kyl, now say they won't support New Start.

Why? Six months ago their excuse was the U.S. wasn't doing enough to make sure our remaining stock of nuclear warheads would be up to par. Now that $84 billion has been allotted to upgrading our nuclear weapons, they can't make that argument. A month ago they said they didn't have enough time to consider the treaty. When it was pointed out to them there had been dozens of hearings and briefings, they said they needed more time to think about the inspections built into the treaty. Now they say they don't like the language in the treaty's preamble.

Here are the real reasons:

1. Deny Obama a victory. Mitch McConnell has said his number one priority is making sure Barack Obama is a one-term President. He'll sacrifice the security of Americans in order to rob the President of anything that could be interpreted as a victory, including New Start.

Forget bi-partisanship. To Senate Republicans, it never existed and never will. They went along with the tax deal because it gave them and their supporters everything they wanted and more. They didn't consider it a victory for Obama; they're claiming it as a victory for themselves.

2. Stoke up defense spending. I don't even think Senate Republican leaders mind loose nukes. Failure of New Start would give them an excuse to increase defense spending – the one area of the budget they want enlarged.

Remember: We're back to Reaganomics. Cut the taxes on the rich, cut government programs for the middle class and poor, and spend lots more on defense.

3. Generate more fear of what's "out there." Republicans trade in fear. They've mastered the art of turning fear of what's "out there" into Republican political gains – whether it's fear of terrorists, immigrants, Russia, China, or communists who may still be lurking somewhere in the shadows. They're looking to 2012 and stoking up the fear.

Today is the showdown on New Start. Senate Dems will move to cut off debate (they'll need 60 votes). Final ratification will require two-thirds of the senators present.

We'll soon discover whether President Obama bought anything with his cave-in to Republicans on tax cuts for the rich.

The real reason for fear isn't what's lurking "out there." It's what's lurking on Capitol Hill.

****

Latest nose-count looks promising.

As of noon EST, GOP Senators Bob Bennett of Utah, Johnny Isakson of Georgia, and Lamar Alexander of Tennessee backed ratification. Sen. Bob Corker of Tennessee is expected to announce his support for ratification later today. Sens. Richard Lugar, Susan Collins, Scott Brown, Olympia Snowe, and George Voinovich have also stated they'll vote to approve the treaty.

Democrats must pick up at least nine GOP votes to ratify the treaty, assuming every Democrat votes for it.

The Year Washington Became "Business Friendly"

History will record 2010 as the year Washington became "business friendly."

Not that it was all that unfriendly before. Some would say the bailouts of Wall Street, AIG, GM, and Chysler were about as friendly as it can get. In addition, Washington gave windfalls to drug companies and health insurers in the new health bill, subsidies to energy companies in the stimulus package, and billions to domestic and military contractors.

But for corporate America it still wasn't friendly enough. Before the midterm elections, Verizon CEO and Business Roundtable chair Ivan Seidenberg accused the President of creating a hostile environment for investment and job-creation. In the midterms, business leaders overwhelmingly threw their support to Republicans.

So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the President recently told a group of CEOs, the choice "is not between Democrats and Republicans. It's between America and our competitors around the world. We can win the competition."

There's only one problem. America's big businesses are less and less American. They're going abroad for sales and employees. That's one reason they've showed record-breaking profits in 2010 while creating almost no American jobs.

Consider one of most popular Christmas products of all time – Apple's iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple's profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers.

Even old-tech American companies made big money abroad in 2010 – and created scads of jobs there. General Motors, for example, is now turning a nice profit and American investors bullish about its future.

That doesn't mean GM will be creating lots more blue-collar jobs in America, though. 2010 was a banner year for GM's foreign sales — already two-thirds of its total sales, and rising. In October, GM became first automaker to sell more than 2 million cars a year in China. The company is now making more cars in China than in the United States.And GM has just signed a deal with its Chinese partner to try to crack India's potentially huge auto market.

Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM's U.S. suppliers have also cut their payrolls.

It's much the same even for America's biggest retailers. 2010 wasn't an especially good year for Wal-Mart in the United States. Its third-quarter sales fell, as U.S. shoppers continued to hold back.

But Wal-Mart International is contributing mightily to its bottom line. Its UK business, Asda, will be adding 7,500 new jobs next year. Wal-Mart is also doing well in Japan and Brazil, and hiring like mad in both countries.

So when President Obama tells American CEOs our biggest challenge comes from abroad, you've got to wonder. The leaders of American business are already abroad, and doing quite nicely.

Just after the midterm elections, the President's chief  economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a "rejection of elites…that were seen as more citizens of Davos than of their countries." American CEOs, Summers warned, should "think very hard about their obligations as citizens of this country."

Yes, they're citizens. But first and foremost they're CEOs. And CEOs have to show profits – wherever those profits come from. Under American-style capitalism, profits matter. Jobs don't.  

2010 was the year Washington became even more "business friendly." The result has been more and better jobs – but not in America.

The New Tax Deal: Reaganomics Redux

More than thirty years ago, Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense.

The new tax deal embodies the essence of Reaganomics.

It will not stimulate the economy.

A disproportionate share of the $858 billion deal will go to people in the top 1 percent who spend only a fraction of what they earn and save the rest. Their savings are sent around the world to wherever they will earn the highest return.

The only practical effect of adding $858 billion to the deficit will be to put more pressure on Democrats to reduce non-defense spending of all sorts, including Social Security and Medicare, as well as education and infrastructure.

It is nothing short of Ronald Reagan's (and David Stockman's) notorious "starve the beast" strategy.

In 2012, an election year, when congressional Democrats have less power than they do now, the pressure to extend the Bush tax cuts further will be overwhelming.

Worse yet, the deal adds to the underlying structural problem that caused the Great Recession in the first place.

Since Ronald Reagan was president, median hourly wages have barely budged, and America's vast working and middle classes have taken home a steadily smaller share of the nation's income (adjusted for inflation). The typical male worker today is earning less than the typical male worker thirty years ago.

Yet the richest 1 percent of Americans is now taking home a larger percentage of the nation's income than at any time since 1928. And we recall what happened in 1929.

Unless the vast majority of Americans has enough purchasing power to keep the economy going without going ever more deeply into debt, the economy will eventually go over a cliff.

That's what happened in 1929 and 2008.

By the late 1990s the middle and working classes could keep spending — and thereby keep the economy moving — only by adding debt. This strategy ended when the housing bubble burst in 2007.

Without their spending, there can be no buoyant recovery.

Yes, the pending tax bill will give America's middle and working classes slightly more cash next year. But only for one year. They won't spend it. They'll use it to help pay down their debts.

Will lower taxes on the rich spur them to create more jobs? Not a chance. Since 1980, Reagan's supply-siders have said lower taxes on the rich will trickle down to everyone else. Nothing could be further from the truth.

Look at history.

During the almost three decade spanning 1951 to 1980, when the top rate was between 70 and 92 percent, the average annual growth in the American economy was 3.7 percent.

Between 1983 and the start of the Great Recession, when the top rate ranged between 35 percent and 39 percent, average growth was 3 percent.

Supply siders are also fond of claming that Ronald Reagan's 1981 tax cuts caused the 1980s economic boom. There is no evidence to support this claim. In fact, that boom followed Reagan's 1982 tax increase. The 1990s boom likewise was not the result of a tax cut; most of it followed Bill Clinton's 1993 tax increase.

Nor did George W. Bush's tax cuts trickle down. Between 2002 and 2007 the median wage actually dropped. And Bush's record of job creation was pathetic relative to Bill Clinton's, when taxes were higher. Under Clinton, America added 22 million net new jobs. Under Bush, barely 8 million.

So why are Democrats voting for Reaganomics?

They say they have no choice — either vote for this or watch taxes rise on everyone starting January 1.

That Democrats have allowed themselves to get into this fix is a testament to either their timidity, obtuseness, or dependence on the campaign contributions of those at the top.

The New Era of Cooperation Between the White House and Big Business

Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., praises the President's agreement with Republicans to extend the Bush tax cuts.

"If we're going to strengthen our economy and grow jobs, this type of outreach — and cooperation between the administration, Congress, and the private sector — are critical," says Dimon.

Dimon met last week with the President. Thirty other CEOs are meeting with him today.

Dimon's compensation over the last three years has averaged $21,991,394 a year. The tax deal agreed to between President Obama and the Republicans will give Dimon and extra $1,179,000 next year, according to an analysis by Citizens for Tax Justice.

The bank Dimon heads was also the beneficiary of the giant Wall-Street bailout of 2007 and 2008. JPMorgan Chase & Co, along with other Wall Street banks, also poured millions of dollars into a lobbying campaign to water down the financial reforms Congress considered earlier this year.

Why America's Two Economies Continue to Drift Apart, and What Washington Isn't Doing About It

America's two economies are getting wider apart.

The Big Money economy is booming. According to a new Commerce Department report, third-quarter profits of American businesses rose at an annual record-breaking $1.659 trillion – besting even the boom year of 2006 (in nominal dollars). Profits have soared for seven consecutive quarters now, matching or beating their fastest pace in history.

Executive pay is linked to profits, so top pay is soaring as well.

Higher profits are also translating into the nice gains in the stock market, which is a boon to everyone with lots of financial assets.

And Wall Street is back. Bonuses on the Street are expected to rise about 5 percent this year, according to a survey by compensation consultants Johnson Associates Inc.

But nothing is trickling down to the Average Worker economy. Job growth is still anemic. At October's rate of only 50,000 new private-sector jobs, unemployment won't get down to pre-recession levels for twenty years. And almost half of October's new jobs were in temporary help.

Meanwhile, the median wage is barely rising, adjusted for inflation. And the value of the major asset of most Americans – their homes – continues to drop.

Why are America's two economies going in opposite directions? Two reasons.

First, big profits are coming from overseas sales of goods and services made abroad, not here. The world's fastest-growing markets are China and India, whose inhabitants are eager to buy "American" products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.

Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.

Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.

In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply.

 

So what is Washington doing about all this?

Making the tax code more progressive so more Americans reap the benefits enjoyed by those at the top? Increasing the bargaining power of American workers? Forcing Wall Street banks to reorganize under bankruptcy mortgage loans that are dragging down the housing market? Expanding early childhood education, hiring more teachers, putting fewer kids into each classroom, and making higher education more affordable – so more working and middle-class kids can become tomorrow's high-priced "talent"?

No. None of this. In fact, Washington is busily separating the two economies even further.

It's extending the Bush tax cuts – the lion's share of which go to the very wealthy; reducing the reach and rate of the estate tax; and giving corporations additional tax breaks for investing in software and equipment. Meanwhile, the states are cutting back on pre-schools, firing teachers, and yanking up tuitions and fees at public universities.

Oh, and yes, Washington is also extending unemployment benefits for the long-term jobless. Which is the least it can do, given that their ranks continue to swell.

The Why-Should-I-Get-Out-Of-My-Chair Gap in 2012

In the 2010 midterm elections Democrats suffered from a so-called "enthusiasm gap."

If Dems agree to the tax plan just negotiated by the White House with Republican leaders, they'll face a "why-should-I-get-up-out-of-my-chair" gap that will make 2010's Dem enthusiasm seem like a pep rally by comparison.

It's a $70,000 gift for every millionaire, financed by a gigantic hole in the federal budget that will put on the cutting board education, infrastructure, and everything else most other Americans need and want.

Some Dem apologists say the deal is a $900 billion stimulus. Not true. The rich spend a smaller share of their incomes than everyone else, so the huge benefits going their way will barely stimulate the economy. (Their savings will move around the world wherever they can get the highest return.)

And while middle and working class consumers will get a small break from payroll taxes, they'll use most of it to help pay down their debts because they know the tax break isn't permanent while their debt payments and penalties are growing. Again, very little stimulus.

An extension of unemployment benefits for the long-term jobless will surely help them and the economy overall. But a new WPA to put the jobless to work would have been far better. The longer they're out of work the harder it will be for them ever to get back in, even if and when jobs return. But apparently a new WPA wasn't even considered.

It's not just the Dem base that worries about the deal. Independents who believe the dice are increasingly loaded in favor of the privileged and powerful are also concerned. (Just the latest example: The New York Times today reports on a small cabal of bankers from the biggest Wall Street houses who meet regularly to maintain their lock on the lucrative multi-trillion dollar derivatives trade. The Times story could have gone further and revealed how much the big banks are spending on lobbyists to gut provisions of the financial reform act aimed at regulating derivatives trading.)

Even Tea Partiers are convinced big government, big business, and Wall Street colluding against the rest of America. Only instead of blaming the powerful and privileged, the Tea Partiers are more comfortable taking aim at America's so-called cultural and intellectual elites.

The point is that with income and wealth more concentrated at the top than it's been since 1928, with money flooding politics as never before (much of it secret), and with cynicism about government at a post-World War II high, Obama's tax deal couldn't come at a worse time.

Enthusiasts on the right want to shrink government, and the deal sets them up nicely.

Most Democrats, many Independents, and everyone else who still sees government as our last bulwork against privilege and power, are aghast by the deal. They ask: How could it have come to this? And when 2012 rolls around, why should I get out of my chair?