Stephen Moore: That '70s Horror Show
[Stephen Moore is a member of the Wall Street Journal editorial board.]
Many economists have been warning that the policies of the last few years under the Bush administration followed by the coming economic populism of Barack Obama will lead the U.S. back into a 1930s-style Great Depression. That group includes my friend and coauthor Arthur Laffer. I wouldn't go so far. Our current constellation of policies—bailouts, a weak dollar, rising tax rates, windfall profit taxes, bloated economic stimulus bills, and reregulation of markets— looks to me more like a reprise of the 1970s. That decade wasn't the Great Depression, but the economic results were plenty rotten, delivering the worst performance for the stock market and family incomes since the 1930s. Are we going to see a repeat?
The story actually begins on January 18, 1966. That was the day America hit a gold-plated economic milestone, celebrated as a symbol of post–World War II industrial might and productivity. On that red-letter day, the Dow Jones industrial average (briefly) climbed over 1,000 for the first time in American history.
The Kennedy tax cuts of the 1960s had helped fuel this stock market rally. The Vietnam War had not yet fully escalated or become unpopular, American manufacturing was at its peak, firing on all eight cylinders. Smokestack industries—autos, trucks, steel, chemicals, apparel—were global leaders. The "Made in Japan" label was a tipoff that you were buying an inferior product. Cities like Cleveland, Detroit, and even Newark and Gary, Indiana, were prosperous places and beehives of economic activity.
The American middle class was buying up Zenith color TVs (this was when TVs were still made in America), dishwashers, washing machines, electric garage door openers, and air conditioning for the first time—because it could finally afford such luxuries. John Kenneth Galbraith's "Affluent Society" had come into its own. And no society had ever experienced such affluence for the great preponderance of the population.
In the late 1960s growth seemed to be unlimited— even preordained. But here's how far America would slip. In 1966 the Dow stood at 1,000. In July 1982 the Dow hit its low point of just below 800. This meant that over 16 years the stock market lost 20 percent of its value. Adjusting for inflation, stocks lost more than 60 percent of their value. The era of America's post–World War II economic and military preeminence seemed to have vanished overnight. All you had to do was go back to Cleveland and Detroit and Newark and Gary to see the devastation— the boarded-up houses, the closed factories, the panhandlers, the public housing war zones, the unemployment lines, the drug use. And, perhaps the low point, the Cuyahoga River, which funnels into Lake Erie, caught fire due to residue of industrial waste—much to the delight of late-night comedians.
THE DECLINE STARTED UNDER Lyndon Johnson, who, for the first time in American history, spent more on both guns and butter simultaneously. While escalating the Vietnam War, LBJ unleashed the Great Society welfare state "to end poverty in America." These programs would go on not just to spend more than $2 trillion over the next two and a half decades, but to depreciate the value of work and family cohesion and create several generation of a permanent American underclass sucked into a cycle of welfare dependency. Poor families on welfare were pushed into 100 percent-plus effective tax rates, because they could lose more money in government benefits from working than they could earn on the job.
LBJ also began the reversal of the supply-side effects of the Kennedy tax cuts. In 1968 he signed a 10 percent income tax surcharge to finance the growing cost of the war in Vietnam. The top tax rate went back up to 77 percent.
At the end of the LBJ presidency came the infamous Alternative Minimum Tax. The Johnson Treasury Department discovered in 1968 that 155 tax filers with adjusted gross income of $200,000 ($1.2 million in today's dollars) were exploiting loopholes in the tax code to avoid paying any income tax. The Democrat-dominated Congress passed a new shadow tax system called the AMT—which remains a thorn in the side of millions of families today. After four years of the Great Society, by 1968 America wasn't feeling so great. Next came the Nixon years. Known mainly for Watergate and his foreign policy, Richard Nixon is less well remembered for his catastrophic economic policies. He launched the modern era of the regulatory state with passage of the Clean Air and Clean Water statutes. However well intentioned, they were heavy-handed blows to the solar plexus of American industry, with costs far exceeding benefits from the cleanup legislation.
The 1970s was to be the era of economic strangulation by regulation...
Read entire article at American Spectator
Many economists have been warning that the policies of the last few years under the Bush administration followed by the coming economic populism of Barack Obama will lead the U.S. back into a 1930s-style Great Depression. That group includes my friend and coauthor Arthur Laffer. I wouldn't go so far. Our current constellation of policies—bailouts, a weak dollar, rising tax rates, windfall profit taxes, bloated economic stimulus bills, and reregulation of markets— looks to me more like a reprise of the 1970s. That decade wasn't the Great Depression, but the economic results were plenty rotten, delivering the worst performance for the stock market and family incomes since the 1930s. Are we going to see a repeat?
The story actually begins on January 18, 1966. That was the day America hit a gold-plated economic milestone, celebrated as a symbol of post–World War II industrial might and productivity. On that red-letter day, the Dow Jones industrial average (briefly) climbed over 1,000 for the first time in American history.
The Kennedy tax cuts of the 1960s had helped fuel this stock market rally. The Vietnam War had not yet fully escalated or become unpopular, American manufacturing was at its peak, firing on all eight cylinders. Smokestack industries—autos, trucks, steel, chemicals, apparel—were global leaders. The "Made in Japan" label was a tipoff that you were buying an inferior product. Cities like Cleveland, Detroit, and even Newark and Gary, Indiana, were prosperous places and beehives of economic activity.
The American middle class was buying up Zenith color TVs (this was when TVs were still made in America), dishwashers, washing machines, electric garage door openers, and air conditioning for the first time—because it could finally afford such luxuries. John Kenneth Galbraith's "Affluent Society" had come into its own. And no society had ever experienced such affluence for the great preponderance of the population.
In the late 1960s growth seemed to be unlimited— even preordained. But here's how far America would slip. In 1966 the Dow stood at 1,000. In July 1982 the Dow hit its low point of just below 800. This meant that over 16 years the stock market lost 20 percent of its value. Adjusting for inflation, stocks lost more than 60 percent of their value. The era of America's post–World War II economic and military preeminence seemed to have vanished overnight. All you had to do was go back to Cleveland and Detroit and Newark and Gary to see the devastation— the boarded-up houses, the closed factories, the panhandlers, the public housing war zones, the unemployment lines, the drug use. And, perhaps the low point, the Cuyahoga River, which funnels into Lake Erie, caught fire due to residue of industrial waste—much to the delight of late-night comedians.
THE DECLINE STARTED UNDER Lyndon Johnson, who, for the first time in American history, spent more on both guns and butter simultaneously. While escalating the Vietnam War, LBJ unleashed the Great Society welfare state "to end poverty in America." These programs would go on not just to spend more than $2 trillion over the next two and a half decades, but to depreciate the value of work and family cohesion and create several generation of a permanent American underclass sucked into a cycle of welfare dependency. Poor families on welfare were pushed into 100 percent-plus effective tax rates, because they could lose more money in government benefits from working than they could earn on the job.
LBJ also began the reversal of the supply-side effects of the Kennedy tax cuts. In 1968 he signed a 10 percent income tax surcharge to finance the growing cost of the war in Vietnam. The top tax rate went back up to 77 percent.
At the end of the LBJ presidency came the infamous Alternative Minimum Tax. The Johnson Treasury Department discovered in 1968 that 155 tax filers with adjusted gross income of $200,000 ($1.2 million in today's dollars) were exploiting loopholes in the tax code to avoid paying any income tax. The Democrat-dominated Congress passed a new shadow tax system called the AMT—which remains a thorn in the side of millions of families today. After four years of the Great Society, by 1968 America wasn't feeling so great. Next came the Nixon years. Known mainly for Watergate and his foreign policy, Richard Nixon is less well remembered for his catastrophic economic policies. He launched the modern era of the regulatory state with passage of the Clean Air and Clean Water statutes. However well intentioned, they were heavy-handed blows to the solar plexus of American industry, with costs far exceeding benefits from the cleanup legislation.
The 1970s was to be the era of economic strangulation by regulation...