Rethinking Reagan

I've been posting a lot lately about tax rates and wealth inequality, in part because the debt ceiling issue has dominated the news, but also because I view these issues as critically important.

My thinking is largely Keynesian, which explains my frequent reliance on Paul Krugman as a source. Briefly, Keynesian economics refutes the laissez-faire concept, arguing that public involvement -- particularly from the government in the form of fiscal policy -- is critical to economic growth as it can help correct irregularities in the private sector business cycle.

Keynes fell out of favor during the 1970s when the economy came to a standstill and inflation rates soared, largely due to the energy crisis at that time.

Enter Reagan and supply-side (or trickle-down) economics, which aimed to reduce inflation, cut taxes, decrease government spending and limit regulation.

Reagan unquestionably presided over a period of intense economic growth and he, along with his policies, has been deified to some degree by the modern Republican Party.

So now, when I question Reagan Almighty, several figures get thrown back at me to which I would like to add a bit of needed context.

Here are some commonly highlighted statistics from the Reagan years that I've seen praised by conservatives:

1. The top marginal individual income tax rate dropped from 70% to 28%
2. Unemployment fell from 7.1% to 5.5%
3. The growth rate in America's GDP rose from -0.3% to 4.1%
4. The federal deficit decreased from around 6% of GDP to 2.9% of GDP

These numbers are all true, and to some extent remarkable, but they don't tell the whole story.

Since America was founded by wealthy aristocrats who didn't want to pay taxes, we'll start there first -- out of respect. First, it's questionable how much tax cuts led to economic growth considering the effects of other policies.

That point aside, however, it's also important to remember that the 42% decrease in the highest tax rate didn't happen overnight. In 1981, Reagan cut the rate from 70% to 50%. The cut to 28% didn't happen until 1986, meaning that for the bulk of his administration -- including the worst Reagan recession years of 1982 and 1983 -- the highest marginal tax rate was 50%.

That 50% is well above the current rate of 35%, an increase to which is apparently off the table and unconscionable because we're currently in a recession. Go figure.

On to unemployment and the GDP. While Reagan did cut unemployment 1.6% during his two terms, it's important to remember that unemployment initially increased to around 9.5% in 1982 and 1983. Most economists credit this spike in unemployment to increased interest rates imposed to control inflation.

I actually have no problem with this policy since controlling for inflation was critically important. Once that problem was under control, interest rates were lowered which in turn led to an economic upturn, job growth, and the subsequent swelling of GDP.

I would, however, like to point out two things. First, statistical regression to the mean is pretty common. In other words, things can only get so bad until, eventually, the only way to go is up. Still, point Regan.

Second, and perhaps more importantly, increasing interest rates to control inflation in order to provide an environment for job growth is a Keynesian approach. It's a good idea, but not Reagan's. Point Keynes.

Finally, there's the deficit. First, it's worth noting that a deficit can be relatively meaningless. It's simply the annual difference between what the government takes in and what the government spends -- and notably negative. Deficits only really become problems when they are consistent as they add to the national debt.

All debt come with interest, and it's a bitch. It really eats at your income, and in the case of America, our annual interest payments on our debt total 6% of the budget. As a reference, consider that education spending accounts for only 3%. That's half for those of you who went to public schools.

I guess what I'm saying is that debt is the bigger issue, and Reagan created a lot of that. During his two terms the national debt rose from $712 billion to $2.05 trillion. Again, for the public school grads, he tripled it.

And how do you accrue so much debt? By spending a hell of a lot of money, particularly in the Department of Defense. Again during Reagan's two terms, government spending averaged 22.4% of GDP compared to the 20.6% average from 1971 to 2009 -- and remember that last number takes the Reagan years into account.

So looking back on what supply-side economics is supposed to achieve, it looks like Reagan got 3 out of 4. He lowered taxes, controlled inflation, and decreased regulation. Government spending, on the other hand, went through the damn roof.

I, however, am not against government spending -- particularly during recessions. Recessions typically occur when private sector funds dry up, causing economic stagnation that can in turn be offset by increased public spending for a limited period. This is the Keynesian approach.

Reagan followed this approach to a degree, but the greatest problem with Reaganomics is that our national love affair with it never really ended. The dual cycle of ever-decreasing taxes and ever-increasing expenditures creates a crippling debt. Raising taxes and limiting certain expenditures during times of prosperity creates a surplus that can be used to pay down debt accrued during recessions. Point Clinton.

I guess what I'm saying is that I prefer a "tax and spend" approach to the Reagan "don't tax and spend like a drunk teenager" approach as a sustainable economic model. Also, I'm wondering how drunk we must be as a nation to consider such a model fiscally responsible.

Trickle-dumb economics

The debt is dominating economic news lately, and despite accusations of rampant spending, it seems as though the Democrats are the only ones taking debt reduction seriously.

This weekend Republicans scaled back their debt reduction efforts, pulling out of the bipartisan talks. House Speaker John Boehner listed Republican reasoning as follows:

Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.

The most interesting part of Republican reasoning is its complete lack of reason.

Taking tax increases off the table only leaves spending cuts as a means of deficit reduction. And although the Republican Party has done an excellent job of selling "tax and spend" as a Democratic plan of unjust wealth redistribution, they forgot a critical point: you can't redistribute wealth where it does not exist.

Fighting against the so-called tax hikes does not provide security for the middle class; rather, it represent a crusade against it. Nobody would feel the effects of most Democrat-proposed/Republican-opposed tax increases. Notice I said feel. Those with modest incomes would not see tax increases. Wealthy individuals would see tax increases, but I doubt it would meaningfully affect them.

Let's consider a few examples. First, we could eliminate the carried interest loophole. As of late, the stock market has become as much a place to make short-term profits as it is to make long-term investments. In the spirit of encouraging investing, capital gains are taxed at 15% as opposed to the rate in one's typical tax bracket -- 35% for the wealthiest among us. Translation: hedge fund managers like John Paulson, who made nearly $5 billion last year (not to mention his massive profits from betting against the market during the crash) has much of his income taxed at 15% rather than 35%. Nice to see the government looking out for the little guy.

Republicans oppose closing this loophole because...not sure. But my guess is they default to the idea that taxing the wealthy inevitably stunts job growth. Corporations and wealthy Americans must be protected from tax increases so they are free to invest in job creation, so sayeth the mighty theory of trickle-down economics.

My good friend, Stephen Colbert, once said that if the "trickle-down" were a cocktail, the recipe would go like this:

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The bartender keeps giving your drink to the rich guy next to you until he vomits in your glass.

Trickle-down economics is certainly excrement of some kind. Republicans are fighting for corporate tax breaks and tax holidays, the argument being that businesses are strapped for cash and freeing up revenue will create jobs.

Horseshit.

First, the premise of this argument is false. Businesses don't exist to create jobs, they exist to turn a profit. If creating jobs leads to profit, they do it. If it doesn't they don't. Tax breaks typically don't lead to job creation, or at least they haven't in the past.

Second, most large corporations are sitting on large cash reserves. Without government or consumer support in economic growth, they likely won't spend it. So giving them more money to do nothing is moronic.

Finally, why do we have such a hard-on for the middleman -- or more precisely the corporate middleman? American workers need our help, so let's give money to big business and let them help America workers.

Why? Couldn't we help both? Why not invest in strengthening national infrastructure via works projects. Programs to better national communication and transportation efforts would provide jobs in the short term while laying a foundation for long-term economic growth, helping both American workers and corporations.

I could throw out ideas all day and someone would probably have a valid counterpoint, but one thing is indisputable: unwavering dedication to a single class of people is detrimental to the whole. The middle and lower classes will likely take a hit in the "spirit of solidarity" and the hope for recovering, while the privileged among us will remain undeservedly privileged. Putting arguments of fairness aside, this approach is just plain dangerous.

U.S.A. number 1?

If Mario Kart has taught me anything, being number one is a mixed bag. You get first dibs on the latest swag and you can drop trash in the path of other contenders, but everyone is always gunning for you. And then there's the damn blue shell, seeking out first place like a socialist wrecking ball.

I guess I've never really cared if America was, in the words of Sean Hannity, "the greatest, best country God has ever given man on the face of the earth." Since I never cared, I don't suppose I ever asked myself if I believed it. PEW recently asked that question of Americans, and it seems most of us don't.

Just under 38% of Americans believe the United States stands alone at number one. Most respondents (53%) believe America stands among the greatest countries in the world. Then there's the pessimistic 8% who believe other countries are flat out better. Also, as you might expect, conservatives tend to hold the "U.S.A. number 1" view while liberals tend to be more pluralistic with their praise.

Now that I ask myself where I stand, I suppose I don't really know. When you talk about wealth and military might, we're certainly near or at the top. Consider things like education, health care or even happiness indexes, not so much. But does that mean other countries are better than us?

I think the best answer is, "Yes, at some things." Maybe such a statement is blasphemous so near Independence Day, but I don't see it as unpatriotic. Patriotism is simply the love and support of one's country.

I love and support a great many people and things in my life, and with love comes honesty. Looking at the world as it is rather than as you hope it would be allows you to transform those hopes into reality. If we got past the platitudes we could do it.

Thankfully, according to the same PEW study, well over half of Americans believe we can solve the problems we face. I am among those individuals, but recognizing the shortcomings comes first.

Anxious as I am sitting in first place, it's a good place to be because it means your getting something right. In the end, I guess a part of me misses looking over my shoulder for the blue shell.

Is bin Laden still winning?

I spent most of last month traveling in the South and Northeast, which explains the lack of posts recently, but also prompted this one.

While at an airport in Boston, I experienced the infamous full body scanners. I was not a fan -- probably because I accidentally left a quarter in my pocket, which won me the prize of a figurative and literal groping of my coin purse.

As I sat on the plane on my way back home, I wouldn't say that I felt violated, but I didn't feel any safer.

Before I had even arrived in Boston, I spent several days in New York. While there I took the subway most everywhere I couldn't walk. Also, to save money I decided to take a train to from New York to Boston rather than fly. Once in Boston, I walked most places, but used the train and transit bus system for longer trips.

At no point on either the subway, the bus or the commuter train was I or my belongings inspected. The most I ever needed was a ticket and a drivers license. If someone had the desire, he or she could easily blow any of those transit cars to hell and back.

I'm not saying I want all travel to be like it is in airports or that I want to blow anything up (talking to you government employee who reads every blog), but it did get me thinking about how selective we are in our screening. Airport travel is a bitch because of 9/11 -- or more of a bitch now anyway -- but that's a seemingly random selection.

Many people fear flying naturally, but bin Laden enhanced that fear and scarred our collective memory. But then again, that was the point.

Terrorism, as defined by the American Heritage dictionary, is "the unlawful use or threatened use of force or violence to intimidate or coerce societies or governments, often for ideological or political reasons."

Some people might say that bin Laden's actions failed, that his death marks a victory and that we were not coerced, because as every action movie buff knows, we don't negotiate with terrorists.

I, on the other hand, could care less about negotiating with terrorists. I'm more concerned about how we negotiated with ourselves.

Freedom and security exist in an inversely proportional relationship. As we increase one, we sacrifice from the other. Maintaining that balance is tricky, but we've swung too far in favor of security following 9/11. Hell, even the fact that "post-9/11 America" is a commonly used phrase speaks to some kind of change anyway.

Think of the costs in money, liberty and lives that came from two botched wars, the Patriot Act, illegal wiretapping, Gitmo, etc. And still we aren't safe -- and never will be. There are too many contingencies and dangers we simply can't prevent without sacrificing the very ideals that make us who we are.

I'm not arguing for a security free-for-all. All I'm saying is that without liberty, it's the pursuit happiness in this life may not be worth it. Also, taking off our fucking shoes before we board a plane doesn't make us safer, it just makes us look stupid.

The golden outhouse

I have a distinctly postmodern view of the world. I don't really believe we interact with the environment around us as it exists; we interact with the environment around us as we perceive it to exist.

It only makes sense, then, that perception is everything -- or maybe the only thing. It truly governs our behavior.

Consider, for example, how much time we spend projecting our own desired personae. The cars we drive say something about us beyond the fact that we go from A to B. Our clothing communicates different messages beyond the fact that we don't like being naked. Basic hygiene aids in courtship as much as it prevents disease.

So are institutions any different from individuals? Probably not considering that institutions are comprised of individuals.


What you see above is the newly renovated Freedom Park, between Second and Third Streets on the University of Louisville campus. This is one part of several beautification projects the university has undertaken over the past year, the total cost of which is about $7 million.

U of L argues that these projects are "designed to improve student safety and provide more convenient access onto and around campus." That, of course, is untrue. A brick sidewalk is so safer to cross than one made of asphalt, and I never found the campus difficult to access -- at least by foot.

In reality, I believe the university was trying to impress the Phi Beta Kappa Society, whose members -- coincidentally -- appeared on campus this spring for a site visit. If you want the prestige that comes with a PBK chapter, you have to look like you warrant it. The perception becomes important.

But the perception doesn't become the reality.

Looking as though you deserve prestige is not the same as actually deserving it. I don't think the University of Louisville is a bad educational institution. Quite the opposite actually. Still, we could be doing more.

My perception of these beautification projects is that we are wasting money. Imagine what else we could do with $7 million beyond some aesthetic face lift. We could invest in research, technology, extracurriculars, career training, travel, TEACHING or any number of other things that add true value to the institution.

Is upkeep of the campus important? Yes. But is it $7 million important? For four small projects? Probably not.

I could take a dump in an outhouse made of wood or one made of gold. No matter how nice the gold one looks, it's still full of shit.

I'd rather focus on the educational core and build real value at the university, allowing the exterior to merely reflect the learning housed within. Instead, I worry that we're becoming just another golden outhouse, and that stinks.

I can't get no satisfaction guaranteed

I spent Saturday replacing my 1970s Maytag dishwasher with a new Whirlpool. Apart from the nightmare that is installing anything remotely related to plumbing, I'm largely satisfied with the product.

What frustrates me is the purchase.

I bought the dishwasher from Lowe's, and all in it was about $400. I'm okay with that. What I wasn't okay with was the offer to extend my one year limited warranty to cover me for an additional 2 years. These maniacs wanted another $200 for that privilege.

I was angry for two reasons. First, at that price I'm better off rolling the dice. The added warranty was half the cost of the appliance, which is a ridiculous mark up. What are the odds I'll have repairs totaling more than $200 in the next three years? Slight I would say, especially considering that the average lifespan of a dishwasher is about 10 years.

That brings me to my second point: Why should I have to pay you to stand behind your product? If dishwashers are expected to last a decade, shouldn't some sense of integrity drive you to guarantee my product for at least three years? Apparently not. Instead I have to pay you to be a responsible manufacturer.

And where does Lowe's factor into this equation? Shouldn't you, as a retailer, stock your shelves with products in which you have confidence? I wouldn't want to sell junk to my customers. In fact, many of the local stores that I frequent refuse to stock certain brands because they know them to be shoddy.

I guess I'm just offended by the disrespect manufacturers and retailers routinely show their customers, who are the very people they should respect most. Still, regardless of whether you stand behind your products, your products inevitably stand for you. If this dishwasher falls apart within the next few years, I won't be buying Whirlpool again, and I won't be buying appliances from Lowe's again either.

The deficit of "me"

With the increasing deficit dominating policy on both sides of the aisle, it's only natural that PEW would have something to say about the debate.

There's been a great deal of discussion concerning budget cuts, but tax increases have been a taboo subject. As of December, however, 65% of Americans favored not only cuts to major programs but also tax increases to combat the deficit.

My guess is that these opinions stem from simple input/output calculations: if you want to balance a budget, limit what goes out and increase what comes in. Makes sense.

Still, what interests me most is the following:

The public's view of the deficit is often summarized as follows: Yes, Americans agree that the nation's finances are in a precarious state and, yes, something needs to be done. Yet they overwhelmingly reject any specific ideas for reducing the deficit -- particularly when it comes to changes in entitlement programs.

In essence: we need to cut back on spending, and by we I mean you.

I can't say I'm surprised. As the "me generation" of baby boomers approaches retirement, it's only natural for self-interest to kick in. I'd like to say that as the millennials age into adulthood that we'd be more selfless, but I don't see it. I'm constantly thinking of ways to trim my budget and I don't even want to give up cable TV; imagine how hard I'd fight for social security.

I think it's only natural that in times of overt selfishness we look back nostalgically to the traditionalists, the so-called "greatest generation." Somehow they seemed more collectivist, more selfless.

Really, though, I think they just had a better understanding of how to make selfishness work. They seemed to focus more on us than me, but consider that definitionally I am a part of us. Therefore, benefiting the whole means I sacrifice for others in some way and others sacrifice for me in another way. In this manner we advance the interest of the self by consistently advancing the interests of the whole.

Some call that selflessness. I'd call it enlightened self-interest. Either way I think it would work. We might all fair better if we understood the numerous and intricate ways that all the "mes" are connected to create the "us." Maybe then we -- and by we I do mean we -- could dig ourselves out of this mess.