Introducing the era of Obamanomics
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.