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Introducing the era of Obamanomics
Robert Reich
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TEXT OF COMMENTARY
Bill Radke: Observers on both the right and the left are calling President Obama's new budget plan the end of an era. Obama's call for the rich to pay more to ease the burden on the middle and lower classes is the opposite of the philosophy established by Ronald Reagan. Commentator Robert Reich says Reagan's approach didn't exactly work out as planned.
Robert Reich: After more than a quarter century, the era of Reaganomics is over, replaced by Obamanomics.
The first principle of Reaganomics was that lower taxes on the wealthy made them work harder and invest more, and the benefits trickle down to everyone else. Rarely in economic history has a theory been more tested in the real world and proven so wrong. Nothing trickled down. After the Reagan tax cuts, the median wage slowed, adjusted for inflation. After George W. Bush's tax cuts for the wealthy, the median wage actually dropped.
Meanwhile, most of the income went to the top. In 1980, just before the Reagan revolution, the richest 1 percent took home 9 percent of total national income. But by 2007, the richest 1 percent was taking home 22 percent. Obamanomics, by contrast, will increase taxes on the top, and it will use these proceeds to raise the living standards of average Americans by giving them lower taxes, better schools, and more affordable health insurance.
Reaganomics' second principle was that deregulated markets function better. Well, energy markets were deregulated and we wound up with Enron. Carbon emissions weren't controlled, and now we face global warming. Financial markets were deregulated and we have a global meltdown. Obamanomics, by contrast, accepts important roles for government: Creating incentives for non-fossil based energy, setting an overall cap on carbon emissions, and ensuring the solvency and security of financial companies.
The third and least well-known principle of Reaganomics is that government can keep the economy moving full tilt by spending like crazy and not worrying too much about budget deficits. Reagan's big spending was on national defense. Some of us called it "military Keynesianism." Problem was, it didn't stop when the economy got to capacity, thereby threatening inflation. Obama's stimulus intends to avoid this by reducing deficits as the nation moves back toward full capacity.
Under Reaganomics, government is the problem. It can still be a problem. But Obanaomics at least recognizes there are even bigger problems out there that can't be solved without government.
Radke: Former Labor Secretary Robert Reich teaches public policy at the University of California Berkeley.
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I cannot believe all of the vitriol against people who have worked hard to earn a little more money.
I started in 1985 as a burger flipper at McDonalds for 3.25 per hour. I am now a general manager of a steel mill. I crossed the 250,000 dollar mark a while back. Believe me, my tax burden has stepped up tremendously after each promotion. If there are tax loopholes that keep me from paying my fair share, my tax accountant can't find them.
I am in a tax bracket where increasing my gross income really doesn't do much to my net income. Unluckily for me, my responsiblities continue to increase.
I understand the common ideal is that the wealthy are anyone who is richer than the speaker, but I ask those who are making these comments to remember who makes a bigger difference in the economy- the income earner who gives to charity, buys cars, buys homes and spends in the private sector. These help employ auto workers, car dealers, construction workers, plumbers and electricians, restaraunt staff etc. If that money is confiscated by the government, it feeds beauracrats.
Gudrun,
Stiglitz is a Keynesian just like Krugman and Bernanke and all the other guys at the FED. Remember that these same Keynesians said that the economy was fine before the bubble burst. Before you blindly believe the flawed and unsustainable Keynesian model read up on Nobel prize winners like F.A. Hayek from the Austrian school of economics.
What makes more sense to you? Keynesian theory which says take on more debt to get out of debt? Borrow trillions of dollars to jumpstart your economy? Look at it on a personal level. If you were in debt, would you take on more debt to sustain your ways? How would that help? The sensible thing to do would be to work hard and pay off your debts and not make the same mistake again.
Austrian theory says, Let companies that are bankrupt fail, have sound money, let the market dictate interest rates, keep a balanced budget, and with the capital you have saved re-invest it in the economy.
If you consider yourself an objective person you must read Austrian theory before you support these bailouts and massive spending plans. Austrian theory in no way supports the wreckless spending of Bush or Obama. The Federal Reserve is the real culprit here and the sooner people recognize that the sooner the economy will recover.
Economic Nobel price winner of 2001 who wrote the book "the Trillion Dollar War" which by the way Bush kept off the budget along with the Afghan war, Mr Stiglitz he said that those folks who complain about spending money now should have taken Economics 101. You have to prime the pump at these unprecidented times only inherited not created by Obama.
Also Did you know that in 1976 51% of the Americans wealth was owned by regular non-wealthy folks, in 2005 - only 27%?
It didn't take me twenty years to figure out Reaganomics would fail to produce sustainable wealth, that wealth and opportunity do not trickle down. Some people still believe the private sector including corporate decision-makers, agribusiness, and the wealthy few will somehow begin to make good decisions with our shared resources, but that is snake-oil.
Obamanomics, if given more than a few days to actually begin to work, is exactly the philosophy that will cure the world of trickle-down devastation.
Bob,
That's a shame because I spoke the truth about our economic problems. Basically, we spend too much money that we don't have. The Fed is an unregulated agency that manipulates interest rates and the money supply which leads to bubbles like the one we are witnessing. Both Democrats and Republicans are part of this broken system. We are getting no "change" under Obama. We all will pay for these bailouts and over spending through inflation. Watch out for the coming dollar crisis. Read Austrian economics. Peter Schiff and Jim Rogers if you want to protect your wealth. And read Ron Paul's "The Revolution" if you want to know how WE THE PEOPLE can return this country to prosperity.
Marketplace, I feel sorry for you, you can't win for loosing. You put one commentator on the air and they say he's to far right, put another on the air and he's too far left. I don't thank Mr. Reich is saying Obama's plan is a hundred percent right but, Reganomics was a failure and most consider me conservative (I consider myself neither but...). How you can spend 1 trillion in 1980's dollars on a country that was falling apart from the start (Russia) and say that brought us out of debt because you created more defense jobs is well beyond me. My only fear is with Obama, government gets to big. As Americans we go total left or total right, seldom do we think about making an even split (left house, right senate, and one exhausted president).
I nearly spit out my coffee this morning when I heard the line, "Obama's stimulus intends to avoid this by reducing deficits as the nation moves back toward full capacity." Are you kidding me? Does mathematics work different on Mr. Reich's planet than it does on mine? Under Obama's plan, we have sky-high, trillion dollar deficits for as far as the eye can see. Reagan's defense spending was a pittance by comparison.
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