Is the Economy Doomed?
The title of radio host Thom Hartmann's latest book -- "The Crash of 2016: The Plot to Destroy America and What We Can Do to Stop It" -- is something of a misnomer. We can't actually stop this crash, he argues. In fact, the crash was set in motion with the 2006 meltdown; the Obama administration is holding back the rest of the disaster with "baling wire and bubble gum," hoping to make it through the 2016 elections. Sometime in that year we will see bank runs, the dissolution of major banking institutions, massive layoffs, and eventually economic collapse.
Hartmann says we are victims of a historical cycle of economic disasters, delivered at the hands of the "Economic Royalists." Who are these villains whose subversive agenda has all but sealed our economic fate? A term coined by FDR, "Royalists" refers to the forces of plutocracy, perhaps better known as "Loyalists" and "Tories" during the Revolution and "Robber Barons" during the Gilded Age.
This most recent Royalist movement began with the Powell Memo, Hartmann posits. In 1971, soon-to-be Supreme Court justice Lewis Powell wrote to U.S. Chamber of Commerce director Eugene Sydnor Jr., calling on corporate leaders to, as Hartmann writes, "launch an economic and ideological assault on college and high school campuses, the media, the courts, and Capitol Hill," with the objective of reviving the "Royalist-controlled so-called 'free market' system." The new Royalists injected their prodigious wealth into think tanks, educational institutions, the media, and politics, completing their coup with the Roberts Court's "gift" of Citizens United -- following the Powell Memo's insistence that the "judiciary may be the most important instrument for social, economic and political change."
Today the Royalist coalition is broad indeed. Hartmann describes the Tea Party as part of it, even though it is far from friendly with Sydnor's successors at the Chamber of Commerce: The Chamber is embarking on a $50 million effort against Tea Party influence, following a mantra of "No fools on our ticket." Especially on immigration, there have been decades of tensions between the GOP's conservative base and the prominent business lobby.
At any rate, in Hartmann's telling, these Royalist movements ignited the spark behind America's three great crashes: The economic disaster leading up to Tea Act of 1773, the Panic of 1857, and the Great Depression. The Tea Act was intended to raise revenue in response to economic distress, but as Hartmann sees it, not only was it "the largest corporate tax break in the history of the world," but it was also a prime example of crony capitalism, given that many in the British government were stockholders in the East India Tea Company. During the Civil War, "in a battle for supremacy over the national economy," the Royalists in the North and South "tore the union apart," after which time they ran "roughshod" over the economy. Then, Warren G. Harding paved the way for the Great Depression: He put an end to the Progressive Era, with its trustbusting and union organizing practices, while his Treasury secretary, Andrew Mellon, slashed taxes for the super-wealthy and rolled back financial regulations. And under Harding's successor, Calvin Coolidge, "the Royalist agenda was advanced," leading to a real-estate bubble caused by "hot (low-tax) money" and eventually the stock-market crash of 1929. After that, Hartmann writes, Republican austerity measures triggered the Great Depression.
As you might have noticed, those crashes are separated by 80-year time periods. Why 80 years? Hartmann says it's because societies enter periods of "Great Forgetting," in which the lessons of previous generations are lost. He says our most recent Great Forgetting started in the 1970s, as the American people started to have doubts about the New Deal, the Powell Memo organized the Royalist class, and the election of Reagan opened the door for Milton Friedman and the neoliberal "shock troopers."
To say that the author takes an unflattering view of Friedman and Friedrich von Hayek is to put it mildly. Hartmann argues that the neoliberal economic ideologies promulgated by Friedman and the "Chicago Boys" were maleficent, intended to eat away at the middle class and benefit the Royalists. In fact, he writes, "free-market reforms ... do not constitute a legitimate economic theory, as they've never worked anywhere they've been tried." Hartmann argues that the Chicago Boys "handed the millionaires in Chile the key to the country's treasury" through the privatization of government industries, spending cuts, free trade, and stifling of Keynesian economics. He cites an article by Chilean economist and diplomat Orlando Letelier from The Nation claiming that, as a result of Friedman's neoliberal economics, GDP contracted by nearly 15 percent, inflation reached 341 percent, and unemployment jumped at least three-fold.
Neoliberal economics have been key to destroying the middle class and funneling money to the elites here, too, Hartmann says. He writes that the Royalists knew (and know) what Thomas Jefferson knew: There can be no broad middle class without the government "setting the rules of the game of business and fair taxation." With government out of the way, the Royalists can pick apart the four cornerstones of a strong middle class: progressive taxation, a social safety net, protections for working people, and rules in the marketplace.
So, is Hartmann right -- are we repeating the very mistakes that led to previous crashes, dooming ourselves to one as well? There are indeed some eerie similarities between, for example, the Great Depression and the modern era. Reagan's Tax Reform Act of 1986 mirrors Secretary Mellon's tax cuts; a real-estate bubble burst in 1926, and one also burst a few years ago.
But if we're virtually guaranteed to have a crash in 2016, we ought to be teetering perilously on the brink by now, and it's hard to see evidence of that. Hartmann says the Obama administration will "tinker around the edges, inflate as many bubbles as possible, and try desperately to hold things off until the November 2016 elections." But in fact, the U.S. is not experiencing a housing bubble, and nor is there a stock-market bubble ready to burst. Sure, recent economic policies may not resemble FDR's New Deal, but it's not as if the New Deal has been done away with. In cutting such a wide swath in his economic history, Hartmann ignores many nuanced (and not-so-nuanced) distinctions between time periods.
At times, Hartmann's criticisms come off as imprecise, especially when he uses the terms "conservative" and "Royalist" interchangeably. But more specifically, the author's criticisms of right-leaning think tanks and policy groups -- such as the American Legislative Exchange Council, the Heritage Foundation, the American Enterprise Institute, the Mercatus Center at George Mason University, and the Cato Institute -- are somewhat unfair. Hartmann writes that these "Royalist think tanks were (and are) backed by millions of dollars from modern corporate Economic Royalists," and that they are devoted to espousing the Royalist platform of massive tax cuts, deregulation, and privatization -- which, he argues, are the very policies that led to the Great Depression. Of course, he singles out the Koch brothers for their involvement.
Certainly, those institutions have seen their fair share of criticism (a recent RealClearPolicy update featured a piece on ALEC's influence), but Hartmann's critique focuses on these groups' funding and policy positions rather than the quality of their scholarship. With the Cato Institute, for example, the extent of his objection is that it espouses "Libertarian -- or Royalist -- ideology."
Hartmann also overstates the effects of Reagan's economic policies. He highlights a 1966 Time article predicting the future of a "Leisure Society," in which the boom of automation and production would lead to higher and higher paychecks and fewer and fewer working hours. Some might think Time simply got the prediction wrong, but Hartmann writes that "if productivity is four times higher today than in 1950, then Americans should be able to work four times less, or just ten hours a week, to afford the same 1950s lifestyle when a family of four could get by on just one paycheck, own a home, own a car, put their kids through school, take a vacation every now and then, and retire comfortably." Reagan's income-tax cuts, he claims, stopped that from happening.
When that Time article was written, the top marginal income tax rate was 70 percent, and Hartmann argues that such a high tax rate "encouraged CEOs to keep more money in their businesses, to invest in new technology, to pay their workers more, to hire new workers and expand." If companies had become more profitable and efficient due to automation with such a tax rate in place, the workers would have seen gains (Hartmann does not mention the possibility of layoffs or reductions in working hours). Instead, Reagan's tax cuts, in conjunction with increased profitability, increased the incentive for CEOs to take money out of their companies and pocket it, meaning that the profits "that were supposed to go to everyone ... went to the top," breaking the strong connection between wages and productivity.
But it's hard to buy into a comfortable living from ten-hour work week. A 2012 Economic Policy Institute report confirms that real hourly compensation began stagnating around 1977; while productivity grew 254 percent between 1948 and 2010, hourly compensation grew just 113 percent. But others have argued that total compensation, including benefits, has actually kept up with productivity -- meaning that things like increasingly expensive health care (thanks in part to technology that did not exist in the 1950s) have eaten up the difference between productivity and wages. Other important factors have changed since the 1950s, too, such as consumption, real house prices, and the cost (and necessity) of going to college.
In the end, The Crash of 2016 is interesting, informative, and well-written -- but not quite convincing. Is it possible that we will see a crash in the near future? Sure. Inevitable, though? That is a sizable argumentative burden to take on, and I'm not sure Hartmann is able to lift it.
Joseph Fleming is a RealClearPolicy intern.
