When the economy crashed in 2008, the markets on Wall Street went into panic. Big banks and investment companies started pulling their hair out, not knowing what the next day would bring. Despite backlash, President George W. Bush signed a bailout of the banks on wall street for over $700 billion, paid for by the taxpayers. The economy across the board, from the auto industry to the housing market, was in disarray. The question needed to be asked: What caused this mess?
The blame game came fast and furious. Democrats were quick to point their finger at President George W. Bush, blaming massive unpaid tax cuts, deregulation on businesses and two wars for the bad economy. Republicans blamed the Democrats in congress for not cooperating with them and pushing too much regulation on business. There are three men who need to be identified for the economic downfall and to find these men, you have to go back over three decades, to election night in November of 1980.
1. Ronald Reagan - It happened on November 4th, 1980. The United States was at a crossroads, with high oil prices hurting the economy and the Iran hostage crisis making the front page of all the newspapers, Ronald Reagan defeated incumbent president, Jimmy Carter, in a landslide. Reagan was sworn into office on January 20th, 1981 and the "Reagan Revolution" was under way. Reagan implemented supply side economics, or Reaganomics, which was the idea of drastically lowering the tax rates, primarily on the wealthy, so they could have extra money to create jobs. In theory, the wealth would "trickle down," but the reality was much different. As Reagan lowered the top tax rate from 70% when he entered office, to 28% by the time he left eight years later, Reagan had tripled the national debt because of the lack of revenue brought in by the government. In order to make up for massive losses, Reagan raised taxes eleven times, but the taxes that were raised hit the middle class the hardest.
In 1982, Reagan implemented a five cent per gallon gasoline tax and also increased taxes on the trucking industry. The following year in 1983, Reagan increased the tax on Social Security, which was designed to keep the program solvent for many years to come as the baby boomer generation entered their retirement years. The issue that the program ran into was that when the 1983 Social Security tax plan was passed, it was designed to hit close to 90% of all wage and salary incomes, but as the richer became richer and low and middle class Americans began to struggle, the amount of taxable income lowered. By the time the economy crashed in 2008, only 83% of wages and income were eligible to be taxed for Social Security. The tax hike hit the middle class hard, as the wealthy ran all the way to the bank.
Of all the pieces of legislation that Ronald Reagan desecrated during his time in office, the Sherman Antitrust Act might be the most important. The Sherman Antitrust Act was passed in 1890 and prevented businesses from reducing competition in the marketplace and even required the federal government to investigate companies that were in violation of the law. Ronald Reagan decided to stop enforcing the Sherman Act and within a few years, local businesses started to dry up and big companies began to take over. Local convenient and hardware stores were disappearing while Walmart and Target stores began popping up more frequently. Ronald Reagan's policies catered towards the wealthy and put the economic weight on the shoulders of the middle class and the poor.
2. Alan Greenspan - While Reagan's policies were disastrous, it was the men who were around him and in his ear that are just as much to blame. In 1987, Ronald Reagan named Alan Greenspan as the chairman of the Federal Reserve, but Greenspan's influence has been felt within the Republican party for years. Greenspan was the chairman and president of a major economic consulting firm in New York City, Townsend-Greenspan & Co. Inc, but between the years of 1974 and 1977, Greenspan was the chairman of the Council of Economic Advisers for
President Gerald Ford.
Greenspan had a major influence in 1983 when Reagan decided to alter Social Security. Knowing that Reagan needed to make up the debt he was piling up, Greenspan suggested that money be taken from the Social Security trust fund, and replaced with IOUs. While the 1983 Social Security bill helped the program in the short term, its long term effects were
damaging.
Today, Greenspan is best known for the massive deregulation he put on banks and other financial companies and the low interest rates he would enact in the early 2000s. Alan Greenspan's love of low interests was shown in even more detail in the 1980s. According to his book, "Rebooting the American Dream," Thom Hartman points out that over a 25 year period, CEOs saw their compensation rise from 30:1 in 1980 to 500:1 by 2004. The trickle down theory of Reaganomics was proving to be false, the money went to the top and stayed there. As the wealthy saw their pay increase, wages for low and middle class Americans stayed stagnant. Americans could no longer earn a living wage and spend to provide for their family, they instead were given a life line. In order to fill in the "wage gap" created by income inequality and low wages in the 1980s, Greenspan led the charge to open up the credit line to Americans who couldn't really afford it. Instead of working, earning a paycheck and paying for goods, Americans were borrowing, buying and maxing out credit cards they couldn't afford to pay off.
If Greenspan opened the credit lines in the 1980s, he opened the floodgates in the early 2000s by letting Americans use their home equity as their own private bank. Sub prime mortgages were given out, giving people the impression that they could afford a home they really couldn't. When the housing bubble finally burst, Greenspan spoke at a congressional hearing stating that he "made a mistake" in thinking financial firms could regulate themselves.
3. Jude Wanniski - While Reagan and Greenspan are more recognizable, Jude Wanniski was just as instrumental in how the United States moved forward. Wanniski was a conservative commentator and economist who was the associate editor for the Wall Street Journal from 1972 to 1978, until he was caught promoting a Republican candidate for senator which was considered an ethics violation. He gained success as an economic advisor for Ronald Reagan in the 1980s. It was in 1976, however, that Wanniski began toting his "Two Santa Claus" theory to prominent Republicans.
The "Two Santa Claus" theory states that while Democrats are often looked at as a "Santa Claus" for creating such important programs through government spending like Social Security, Medicare and Medicaid, the Republican party needed to find a way to force the Democrats to also be an "Anti-Santa". Forcing Democrats to raise taxes, Republicans could appear to be the party that not only cuts taxes on the American people, but also gives Americans the same benefits, not by the federal government, but instead by the private sector.
The theory sounds nice, but in reality, the goal of business is to make a profit, not create jobs or give benefits to Americans, especially those who don't have enough income to increase the profit of the business. Today, the "Two Santa Claus" is alive in well in the Republican party and the American people continue to fight it.
Whether it's President Ronald Reagan, Alan Greenspan, Jude Wanniski or other prominent
conservative advisors like Art Laffer, the seed of economic destruction is deeper than just blaming President Bush. George Bush might have knocked the pins down, but the Reagan administration set the pins up and got the ball rolling.
Lois Lerner, IRS Official, On Leave Of Absence: Reports
- nanaofsix531
on Jun. 16, 2012 at 5:39 PM