Thursday, September 9, 2010

GOP revisionist history (cont.)

President Obama's declaration yesterday that he would not accept any extension of the Bush tax cuts for the top 2% of income earners was not just a bit of ceremonial populism: it was a step to address the fundamental, structural precariousness in the economy that helped cascade us into the Bush recession.

Republicans have been coming up with some imaginative history lessons lately about the Great Depression and its causes — here's a howler from Rep. Michele Bachmann (R-Mars). Although many factors exacerbated the Great Depression — highly leveraged financial markets, overextended consumer credit (sound familiar?) — its overwhelming cause was the growing income inequality of the Roaring Twenties and the resulting imbalance in demand for what the economy could produce. From 1923 to 1929 manufacturing output per worker hour — productivity — soared by 32 percent. But wages grew by only 8 percent during the same time. Simply, that meant the economy was producing more and more stuff that wage earners lacked the money to buy. (For an excellent historical account, see Robert S. McElvaine's The Great Depression.) The shift of income to the wealthy was accelerated by Republican tax policies (sound familiar?) of the 1920s that slashed the taxes paid by millionaires by more than two-thirds.

During the 1950s wages grew in step with productivity, and the result was one of the greatest sustained periods of prosperity and growth in U.S. history. But the gap has been again widening precipitously since the 1970s, as shown on this chart I made using data from the Bureau of Labor Statistics:

index 1947=100

Some of the increased revenues that result from productivity gains justifiably go to R&D and capital investments in new technology. But as the following chart (which uses the BLS data plus additional data from the Commerce Department's Bureau of Economic Analysis) shows, more and more of the returns generated by increased productivity during the Bush years went simply to feed corporate profits, which shot ahead of wages at a rate scarcely equaled in the Coolidge and Hoover years:

Reversing this unprecedented upward redistribution of income isn't populist pandering nor is it "socialism": it's basic economics.