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"Are We Drifting?"
As I was preparing to publish The Puck Newsletter this morning, I was listening to Rachel Maddow on The Ezra Klein Show and was struck by an exchange early in the interview. Maddow and Klein discuss the fact that since the 2008 financial crisis the middle class continues to question why the economy does not seem to be working for the average American. So, the question remains, how are we going to improve our economy to restore faith and fairness for most Americans?
As we focus on where the world is going, let’s stop and ask ourselves, “what can we do as a nation to help our middle class?” It has, by every major metric, been shrinking for decades, in both size and economic footprint. So, we can harken back to the famous question asked by Ronald Reagan in his final debate with Jimmy Carter in 1980 . He asked, “Are you better off today than you were four years ago?” This shrinking middle class is yet another indicator of whether both young and old believe that the next generation will live better than their parents.
As Scott Galloway contends in his book Adrift – America in 100 Charts, while Reagan’s tax and budget reductions helped grow the economy overall, they suppressed the upward mobility of the middle class. Those gains were not distributed evenly among all, or even most, Americans. Using graphs, Galloway illustrates the large gulf in wage growth between the top 1% of American workers and the rest of the country. He demonstrates how corporations avoid taxes by shielding larger and larger shares of their profits overseas. He highlights some 45% of Americans without access to public transportation due to declines in infrastructure spending.
On the other hand, Galloway provides data to illustrate how globalization over the past 40 years has materially decreased global poverty and infant mortality rates. Yes, a rising tide raises all boats, but what has been the cost at home? Domestically, we have neglected our middle class, contributing to polarization and a lack of faith in our institutions. We shouldn’t have to choose between supporting balanced globalization and sustaining the American middle class. But is it possible that, in addition to all the wonderful strides we have made abroad, we have perhaps taken our eyes off the “domestic ball” and have left some Americans behind?
As we intensify our efforts to grapple with our post-pandemic future, with political extremism on the rise, and the continued changes to our economy caused by supply-chain issues, we are faced with daunting questions. How will our democracy survive? How will technology continue to change our lives? As we are on the brink of massive change, how will our middle class be affected?
In Adrift, Galloway surveys nearly the past 100 years to explain how tragic events such as World War II, Jim Crow and the Stock Market Crash of 2008 entrenched white patriarchy, and how the challenges of the pandemic created today’s perfect economic storm. He then offers solutions such as simplifying our tax code, rebuilding our regulatory system (including reforming Section 230 governing social media companies), enacting a one-time wealth tax, looking at how we incarcerate people, rebranding nuclear power, offering more support for children and encouraging family formation, reforming higher education, and investing in national service.
His ideas are not new, but they are worth considering and debating. I hope that these ideas continue to capture more and more of our attention, sparking thoughtful and sophisticated discussions, in order to build a strategy to bring real change to our political process. Material positive change can take place. The challenge, however, is that in our democracy paying taxes is not something anyone enjoys doing. We have, as a society, come to terms with a progressive income tax in general, and yet what role government should play in our lives and to what degree taxes should be progressive are judgment calls subject to a broad range of opinions.
In order to deal with complex issues like this, we need honest and thorough debate. Unfortunately, our news falls generally into two camps -- conservative and liberal. The conservative bias skews towards lower taxes and less government spending, while the liberal bias skews towards higher taxes on the wealthy and greater government spending. We have lost the ability to build consensus because both sides simply complain about the other side, as opposed to critical deep analysis that weighs the pros and cons of both issues.
As a result, far too often we kick the can down the road, and instead the federal government borrows money, which doesn’t increase anyone’s taxes and doesn’t require cutting anyone’s budget. We risk a real economic (or constitutional) crisis if both sides don’t stop blaming one another and refuse to come together for constructive dialogue. Sadly, human nature usually requires a crisis to enact drastic change. At worst, crisis breeds authoritarianism; at best, it can mobilize a nation and foster unity. For the sake of lasting economic discipline, we may, in the short term, require a bit of discomfort as we get our financial affairs in order.
For instance, raising interest rates will cause pain. And yet, as Chairman of the Federal Reserve Jay Powell recently explained, we will have worse pain if we don’t break the back of inflation. We now need to see whether our politicians and the Federal Reserve can hold the line on breaking inflation and charting a financially sustainable path of balanced governmental spending and taxes. If not, I fear our economic fallout may only worsen, when the check, albeit slightly delayed, finally comes.