Sunday, November 02, 2008

"Spreading the Wealth Around": Just What Ailing Economy Needs by Robert S. McElvaine

The latest shift of wind direction in the campaign of John McCain finds him staking his waning hopes for winning the presidency on attacks on Barack Obama for saying, "I think when you spread the wealth around, it's good for everybody."

"When politicians talk about taking your money and spreading it around, you'd better hold onto your wallet," the Republican nominee now says in his stump speech. He and fellow Republicans have taken to equating the progressive income tax with "socialism."

Few among McCain's very variable comments on economics reveal as much as this assertion does about how far out of touch he is with the realities of the current crisis. He is, in what seems like an SNL parody, actually saying that "Joe the Plumber" is his role model, and McCain's campaign people are encouraging Joe to give his economic views at rallies.

As an historian who has spent much of my career researching and writing about the Great Depression, it is clear to me that Obama is right and McCain's position is exactly the wrong prescription for our sick economy.


What we really need to worry about--indeed, what got the economy into the current mess--is the opposite of what Sen. McCain warns of. The time when most of us need to hold onto our wallets is when politicians talk about allowing corporations to take our money and concentrate it among the wealthiest people. And leading figures in Mr. McCain's party have not only been talking about that for the past three decades; they have been doing it, especially during the current presidency.

Look in your wallets (and your 401-Ks and stock portfolios, if you have them). You'll find that much of the money you thought you had is already gone. That cannot be the result of policies advocated by those who favor spreading the wealth around. It has happened while the people running the government were those who, like Mr. McCain, are perfectly content with policies that concentrate wealth and income among the superrich.

An economy based on mass production requires mass consumption, and mass consumption is only possible when income is "spread around." That was the lesson of the Great Depression, a lesson that was unlearned by Republicans and Market-worshipping conservative economists from around 1980 onward.

Tax cuts for the highest income brackets and opposition to labor unions and to any government regulation of the market were the orders of the day under the Republican governments of the 1920s, as they have been under the Republican government of the 2000s.

Those policies accomplished the opposite of "spreading the wealth around." By 1928, the richest 10 percent of Americans was taking in almost half of the nation's income. The economy was kept going only by the extension of credit to middle-class buyers. When the credit bubble burst in 1929, the economy collapsed.

Very much the same thing has happened in the present decade. By 2005, income concentration had actually become somewhat greater than it had been just before the 1929 collapse. In 2005, the richest 1 percent of Americans took in 22 percent of the national income, while the top 10 percent made off with more than 48 percent.

Should anyone still be tempted to think that "spreading the wealth around" has been the problem, consider the following trends:

  • In 1964 the ratio of executive to employee compensation in the United States was 24:1. In 2005, it was 262:1.
  • Between 2000 and 2005, median CEO compensation increased by 84 percent, while median worker pay was stagnant, actually falling slightly, by 0.3 percent.
  • Between 1970 and 2003, the compensation of the top 100 CEOs in the United States increased 83 times faster than did the average wage.
Hold onto your wallets, indeed.

It is true that the economic problems of "Joe the Plumber" have been caused by policies that transfer income. But the vast bulk of the money has been transferred neither to "Joe Six-Pack" nor to "Josephine the Welfare Queen"; it has been transferred to "Joseph the Plutocrat."

And "John the Republican" wants to continue the Bush Administration's policies of taking from the middle class to give more to the very rich.

"Spreading the wealth around" is good for everyone. That's what was done, through higher taxes on the rich, strong labor unions, and sensible regulation of the market, during the middle decades of the twentieth century, when the United States enjoyed widespread prosperity.

"Concentrating the wealth," on the other hand, is bad for almost everyone, because it undermines the economy.

Spreading the wealth around is the best medicine for our ailing economy, while treating the patient with an increased dose of the drugs that caused the illness is every bit as foolish as it sounds.

The American public has been fooled twice, in the 1920s and 2000s, on the fundamental economic question of concentration vs. spreading. To allow John McCain to fool us thrice, while we are in the midst of the terrible consequences of the policy he wants to continue, would be something beyond "shame on us."

[Historian Robert S. McElvaine is Elizabeth Chisholm Professor of Arts & Letters at Millsaps College and the author of The Great Depression: America, 1929-1941 (Random House). His latest book is Grand Theft Jesus: The Hijacking of Religion in America (Crown).]

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