Time to give up failed ideas

Barack Obama may be a liberal Democrat, but his economic policies are to the right of Richard Nixon’s. In 1969, Nixon proposed a guaranteed minimum income for every American and it almost was signed into law. How far we have come. These days, even the most left wing Democrat Congress would not dare favour a policy that was once easily advocated by a conservative Republican. If they did, they would certainly be denounced as socialists. “We are all Keynesians now,” said Tricky Dick.  Not anymore.

In Nixon’s day, one man working full time could support a middle class lifestyle for his entire family. Today, mum and dad both work, and they are still in debt.  By 1970, American median wages had more than doubled in 20 years. In the subsequent 40 years, they have barely gone up at all. If you were middle aged in 1970, your job was generally safe until you retired. Today, lifetime employment is a thing of the past—our income peaks in our forties and if we lose our job, we may well be unable to find another.

It isn’t just the middle aged who have it tougher. Back in the day, you could go off to India and meditate in an ashram for seven years in your twenties and still come home and get a good job at Oglivy & Mather. Today, kids need to weasel their way into a series of summer internships at high profile firms to have any chance at a job with a future.

We have been told, ever since the 1980s, that for an economy to prosper we need fewer regulations, weaker unions, and lower marginal tax rates for government to get out of the way and let markets decide. We have heard this for so long that we have come to believe it.  Empirical data suggests the reverse is true.  We grew faster, with fewer recessions, and no financial crises when top marginal tax rates were over 90 per cent, when the financial sector was tiny and labour unions were mighty.

During the early postwar era, both Republicans and Democrats, Labour and Tories agreed that the central goal of economic policy should be full employment. As workers felt safe in their jobs, they were willing to spend. And that demand buoyed the profits of firms, who felt confident to invest in increased productive capacity, allowing even higher wages, and creating a virtuous circle. During that golden age, not only did our societies become fairer and more equitable, they also grew faster than they ever have since.  Even the 1970s, maligned by conventional wisdom as the decade of stagflation, saw faster economic growth both here and in the US than we have seen since.  The post 1982 Reagan-Thatcher era has seen slower GDP growth, higher unemployment, and stagnant wages. There seems to be a correlation between the dominance of conservative ideology and economic stagnation. I suspect there is causality as well.  Perhaps we should rethink our devotion to failed ideas.