Dear America,
I happened upon an invitation in the New York Times from the Bay Ridge United Methodist Church to submit entries for "The Economic Wellbeing Award." The entry must be in the form of an explanation of the disparity between our economic success from 1946-1971 to that from 1972-2012, and in the course of proffering the invitation to make a submission they have provided several statistics that are interesting in themselves. Average unemployment, budget deficits, national debt as a percentage of GDP and inflation rate were all up from the earlier period to the latter while numbers of budget surpluses and average GDP were down. Of course the explanations that economists might offer the ostensible decline in our economy's health would vary according to dogmatic affiliation, but it is safe to say that supply-siders would attribute the adverse trends indicated by the chosen statistics to the amount of taxes we paid along with the allocation of government resources dedicated to social well-being while the Keynesians would attribute the poor performance of our post Vietnam economy to taxes that were too low and diminishing public works spending coupled with hawkish defense budgeting. But there was one other statistic in the mix that tells the real story; the average number of people on the federal payroll was5.8 million during the earlier, more prosperous period and only 4.7 million in the later, less prosperous period. If we assume an inflation-adjusted average annual salary of $60,000 per employee, that 1.1 million employee disparity represents $66 billion less spent by the federal government per year--good for deficits and the national debt but concomitantly bad for the economy in general because that decrement in payroll expenses is also $66 billion less spent by consumers, which has a profound effect on GDP as consumer spending represents 70% of it.
So, if we look at the Obama administration's economic stimulus package passed in 2009, we see that $480 billion has been taken out of the economy by reduced employment while only $600 billion was put back since of the $1 trillion in the stimulus package, $400 billion was in the form of tax cuts that disproportionately benefited business and the top 20% of households by income relative to the effect on the bottom 80% of us. Put concisely, the net stimulus The Act provided was about $120 billion effectively spread over 6 years for the economy as a whole on the consumer end of the economic spectrum. But that is only a narrow depiction of the effect of reduced federal employment for two reasons. First, that diminution of gross household earnings for the nation occurred not just for six years, but annually over the course of four decades. Thus, during the period of our economic decline from 1972-2012, we removed $2.2 trillion worth of consumer spending from our economy, but even that isn't the full dimension of the impact of this particular form of austerity. States and municipalities have had to remove similar numbers of employees from their payrolls because of the emphasis on parsimony in federal budgets, effectively doubling the impact of government payroll reductions on the nation's economy. We have taken probably $4 trillion out of circulation over the course of that period from the end of the Vietnam War to the present, and the impact of that figure has to be profound regardless of your philosophical affiliation. While the Picketty theory seems intuitively accurate, though far too obvious and simple to justify a 700 page tome on the subject in my opinion, the real answer to the question of what caused our economic decline and the accompanying increase in the stratification of wealth is as simple as this: government austerity is not monolithically healthy. It has an impact far afield of the desired budgetary effect of cutting federal payroll--assuming that there really is one in the case of payroll reduction once one considers the reduced federal revenue that is an ineluctable bi-product of reduced payroll spending--not just in terms of the economy directly, but in terms of the things that only government can do, like develop vaccines for rare illnesses like Ebola and cures for rare forms of cancer that are not sufficiently profitable to merit the attention of our bloated pharmaceuticals industry.
Economics is little more than mass-psychology with an overlay of discipline-specific jargon and ersatz dogma. When economists have been able to effectively diagnose problems, explain the past or predict the future, it has been an aleatory effect of persistent exaltation of a questionable "science," and never do economists agree on them because economics is not empirical once you get past the collection of raw data. The reality is far more obvious than economists would have us believe, and perhaps it is even as simple as addition and subtraction; but it is nowhere near the enigma that those who would make it so would have us believe. If you take massive amounts away from one side of an equation, you lose the cognate amount on the other. It isn't calculus. It's arithmetic. And that's what happened to our economy.
Your friend,
Mike
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