When George Washington lay dying, he instructed an employee to bleed him. When the doctor arrived, he bled him some more. When that did not help, the doctor removed still more blood so that Washington lost about half of his blood supply in the course of a day. The more that bleeding failed to do any good, the more they bled him. Then he died.
For over a century, the American economy was unstable, afflicted by repeated financial “panics”, ending in the crash in 1929. Under FDR, tight regulations were imposed on the financial system. Establishing what economists call “automatic stabilizers” in the form of Social Security and Medicare followed. For 30 years after the end of WWII, our country enjoyed financial stability and unprecedented growth. The middle class thrived.
Then, deregulation set in and instability returned. There was a “Savings and Loan Crisis” in the 1980s and 1990s. Under President Bush, deregulation proceeded even further, along with a reduction in the top income tax bracket to only 35%, contrasted to over 90% under Eisenhower. Middle class incomes declined. Then came the crash in 2008 and the worst recession since the Great Depression.
Like Washington’s doctors, politicians are trying to cure the economy by using the same counter-productive remedies that have consistently failed to work before. They are pursuing further deregulation and still lower taxes on the super-rich. They are attacking the automatic stabilizers that keep money flowing to those who will spend it even in a downturn. They have even threatened to violate the Constitution by making it impossible for our country to pay its debts.
Will the next election spell the end of the American middle class? Or, did the last one?