"We need true tax reform that will at least make a start toward restoring for our children the American Dream that wealth is denied to no one, that each individual has the right to fly as high as his strength and ability will take him."

These were the words used by Ronald Reagan - in his role as the mouthpiece for an incorporated plutocracy that envisions life as a giant game of Monopoly - to sell a far-reaching package of policies that would redraw the economic map of the planet over the subsequent three decades. It sounds so nice and inspirational, doesnt it? The American Dream! That is exactly what everybody wants, isnt it? All those millions of brown-coloured people braving the deserts of Arizona and the Straits of Florida to make it into this great country were after "The American Dream" In fact, the only people who didnt gaze in starry-eyed longing after for "American Dream" were those few sad brainwashed fools who were "jealous" of what we had - the sort that invaded embassies and held Americans hostage, or blew up our kind, friendly soldiers in their barracks, in ingrateful rejection of our efforts to "help" them.

Back in 1979, the meme of an "American Dream" still resonated with a lot of people. It would be twenty years before insightful minds like George Carlin's would finally realise that "they call it the American Dream, because you have to be asleep to believe it." It was a less sceptical era, even if we did have the experiences of Vietnam, Nixon, Watergate, Selma, Montgomery, JFK in Dallas, MLK in Memphis, RFK in Los Angeles, and a multitude of other tragedies and incidents to warn us that the myth was not the same as the reality. And yet, even in those innocent days, there were an awful lot of very smart, confident-sounding people who warned that the theoretical basis for Reaganomics was extremely shaky, and the ideological basis was by no means "democratic".

As I mentioned in my last essay, I dont want to delve too deeply into economic theories, pro and con, regarding Reaganomics. I will maake a few observations, but will try to keep them simple and general. This is not only because many people find economic theory boring or confusing, but because it is such an uncertain "science" that you can easily find someone who will insist that the truth is exactly the opposite of what I describe. Lets face it, there are even more jokes about economists than there are about lawyers . . . and most of the best ones are told by aging economists who see the folly of their own profession:

Q: What is an economist?

A: He's a guy who can construct a mathematical model tomorrow to demonstrate why what he predicted yesterday didnt happen today.

However, it is important to understand the underpinnings of Reagan-inspired economic theory because it is one of the biggest sources of conflict between US "conservatives" and "liberals" today. In brief, the stated aims of Reaganomics were: 1) to reduce marginal tax rates, 2) to reduce government spending, 3) to reduce regulation, and 4) to use money supply as the main policy tool to control inflation. Taken solely as philosophical principles, none of these points is objectionable, regardless of your perspective on economics (though the potential dangers of TOO MUCH deregulation are pretty easy to see). However, the manner in which the policies were implemented, from the very beginning, caused some economists to worry. Oddly enough (well . . . at least it seems odd to me), there is less criticism of the logic behind Reaganomics today than there was in 1979 and 80, despite the fact that the failure of these policies is staring us right in the face.

The first aim - that of reducing tax rates - is one that seems to have been swallowed gleefully by Americans across the political spectrum (even if conservatives feel more strongly about it than liberals). It seems that "average" Americans tend to support tax cuts even if you explain to them that most of the cuts will go to someone else. This is probably because the economic impact of taxes is hard to picture without a lot of economic theory and examples - and even then, you still have disagreement between the very best economists on what the net impact is. But Im sure it also reflects simple greed. Most people will choose instant gratification and long-term pain, rather than the reverse. Why else would someone borrow money on their credit card at 15% annual interest . . . for ANY reason whatsoever . . . unless the rate of inflation is at least 10 or 11%. It is the most illogical decision anyone can possibly make!!!! (as Ive said many times already . . . it is dangerous to get me started on these topics)

Getting back to tax policy - under Reagan the top marginal tax rate on personal income was cut from 70% to 28%. This was obviously a huge benefit to the 1%, and it helps to explain the widening of the wealth gap since 1980. But equally important, if not MORE important, was the decision to cut corporate income taxes from 48% to 34% (that applies to almost every US-based corporatioin, regardless of how high their income). Once again, I have to remind you that there is no "right" or "wrong" in economics. Just a difference between what works and what doesnt work. However, based on personal observation and 30 years of studying real-world examples, I perceive the impact of these changes as follows:

When a corporation has to pay high taxes on profits, there is less incentive to boost profits. Especially in the 1950s and 1960s, when a large percentage of companies were of the small and medium-sized variety and a good share of those companies were part-owned by their employees or management. Lets imagine a grocery store or small machine shop, with 25 employees, two partners/managers who owned 20% of the stock each, a local banker who owned 11%, and a bunch of other stockholders, some of whom might be employees. When taxes on corporate income are at 50%, the partners are likely to feel that they are better off making almost zero profit for the corporation, and paying their employees (including themselves) good wages. That ensures employee loyalty and efficiency, it makes the work environment more pleasant, and profitwise, the owners make about the same amount of money (via their own salary as managers, and their stake in an increasingly valuable company).

It also "just so happens" that when employees are well paid, they tend to spend their money on other goods in the same local area - that is to say, other businesses with much the same structure. This in turn generates more business for the original company (because employees of the other companies also have money to spend). Economists call this the multiplier effect. Keynsian economics, which was popular prior to Reagan, put a heavy emphasis on increasing the multiplier effect and trying to keep employment high.

But when corporate taxes are low, company owners find that they earn more for themselves by trimming wages to the bone, keeping all costs low, and enjoying the income from their dividends (the left-over profit from their business, after taxes). As the percentage of equity held by employees and "family interests" declines, and the percentage held by institutional investors rises, there is an even stronger incentive to maximize corporate profits and minimize employee benefits, capital investment and productive capacity. This was a process that many economists in 1979 feared, and warned about. But the Reaganauts insisted that this would be offset by what they called a "trickle-down effect". OK, its true that the employees might end up with less disposable income. But rich people would have more disposable income, and they would spend it at an even higher rate than middle and worker-class individuals. Corporations, meanwhile, would use the extra income not to enrich their owners, but to invest in expansion of the business. This would make US businesses more competitive, help increase exports, boost GDP and thus provide a broader tax base. The tax cuts would end up paying for themselves. . . .

. . . anyway, that is what they claimed.

As you know, the scenario did not play out that way. Instead, bigger companies used the large profits they were accumulating to buy up smaller companies (especially competitors), then dismantle them, sell off the pieces to earn capital gains (which received further tax breaks), pare staff to the bone, and increase their economies of scale. Lather vigourously. Rinse. Repeat. Oh yeah . . . and all that spending that the rich people were going to do, to generate demand for US products? Well oddly enough they decided to instead use their money to increase their holdings of securities, purchase other companies, buy real estate (which has very little multiplier impact), and if they couldnt thing of anything else to use the money for, then buy luxury goods from overseas, which had absolutely no beneficial impact on US worker incomes.

During this period, a number of very bright folks at a consultancy company that I cant name due to nondisclosure agreements, but I will call "McBoston Booze", was hired to do a consultancy project for a now-nonexistent brokerage that I will call "Decrepit Burnedout Lambroast", to reorganize their mergers and acquisitions business. As part of this project, they had the idea of launching a large-scale assault on small and "inefficient" businesses in the US, carving them up, and creating a more oligarchical economy. In a plot that Hollywood could hardly resist (and would eventually be used to make numerous late-80s movies, from "Wall Street" to "The Secret of My Success") the consultants managed to make the demolition of century-old, generally well-run private enterprises sound like a cool concept. They even coined the term "creative destruction" to describe the process of leveraged buyouts and infrastructure dismantling, and somehow managed to convince Americans that by putting all the little stores on main street out of business and handing over the retail economy to the likes of Walmart and Amazon, the service economy to McDonalds and Kinko's, and the industrial sector to Japan and China, everybody would benefit.

As this was happening, a few faint voices tried to point out the fact that corporate America was essentially cannibalizing itself, and that this would not be good for "average people" in the long term. However, very few listened to these crackpots. The media and the government did a very good job of convincing people that what they were seeing was not as decline in "the general welfare" of Americans, but on the contrary, an increase. Hey, look! GDP is rising. Stock prices are higher than ever! Isnt it great? OK . . . if you insist, it is true that the main components of income-based GDP that are rising are things like corporate dividends, capital gains, corporate retained earnings, interest income, rents and subsidies on products - all elements that accrue to rich people and the companies they own, rather than to Joe Plumber. But heck . . . who has time for all that complicated economic stuff anyway. Just pour your meager income into IRAs and you too can enjoy "the American Dream".

This story was actually swallowed by a lot of "liberals" as well as "conservatives", so beware the urge to make fun of the Reagan-worshippers. At the same time, the media was saturating people with the idea that the eroding tax base wasnt the big problem, it was "government spending". If only we can shrink the government, we will be able to cut taxes even more. And this time YOU will be the one benefitting. Just like the folks you see on "Lifestyles of the Rich and Famous" did. But we can only cut your taxes if we can figure out some way to shrink government.

This was the second plank in the Reagan administration's grand scheme to realize "the American Dream". And it would turn out to be an even bigger shell game than the measures to reorganise the tax code. The economic principles at work here are so simple that they hardly need explanation - if taxes are lowered (and lets face it, we all know that wont generate higher tax revenue, as originally claimed) then spending has to be lowered as well. The psychological and strategic "sales pitch" principles are a bit more intricate - indeed, so deviously brilliant that they established the reputation of folks like Bruce Bartlett, Lee Atwater, Ed Rollins and Carl Rove. But the general idea is still pretty simple and straightforward: no SINGLE social spending programme benefits more than a handful of people, so we build a meme of self-interest and sell the cuts by telling people "Do you want YOUR money used to help SOMEBODY ELSE?" . . . . and as long as we never target more than 10-20% of the population at a single time, we will always have "the majority" behind us on the cuts.

Naturally, the first few targets should be those who enjoy the least sympathy from the general public and who are easiest to demonize as "freeloaders" - welfare moms, criminals, the mentally ill, or middle class students who "were too lazy" to save enough money for college. But as everyone knows by now, once the snowball gets up some speed, it rolls faster and faster, taking more and more away with it as the progress continues.

The last two factors - deregulation and Federal Reserve policy - are issues that have been widely dissected on this website in the past, so I will not discuss them further unless someone wants to do so in the comments section. The foregoing discussion has been a bit lengthy, and perhaps not terribly informative to many of you readers, since most of you actually had to live through the process. However, the discussion was necessary as a way of laying out the changes that were taking place in the 1980s, and establishing the fact that government was trying to do a lot of things that were not in the best interests of its citizens. Even if those actions were difficult for the avearge layperson to fully understand without help, sooner or later some clever economic, political and social analysts were bound to come along and start explaining the dynamics to people in terms they could understand. That could be a real problem, and it might even stall the programme of reshaping US infrastructure to better benefit the country's owners.

Therefore, something had to be done, to ensure that the lower 90% would not get in the way of "progress" (Im assuming that at this time, around 9% were still sufficiently wealthy and upwardly-mobile to share the general goals of the 1%). The biggest danger, of course, arises if the tribe sometimes referred to as "Ivy-League Liberals" is able to explain the situation sufficiently well to the tribes known as "White-Collar Centrists" and "Labour Leaders" to mobilize them in support of a backlash, and these groups in turn can capture enough mainstream acceptance to get "Soccer Moms" and "Nascar Dads" to jump on the bandwagon.

The easiest way to prevent that from happening, of course, is to ensure that each of those groups distrust and dislike the others enough to prevent them from joining forces. Indeed, the more internal friction could be generated between the many tribes that make up America's still-incompletely-melted Melting Pot, the easier it would be to keep the programme of restructuring on track.

The above synopsis - and I admit it is extremely superficial - should be enough to give readers a clear picture of where we are headed. The reason I am skipping most of the details, here, is that my real interest is to discuss the campaign to divide and conquer the American public. That is where we are headed next. . .

However the underlying folly of Reaganism (and the fact that few people even on "the left" really want to discuss how cruel and carefully calculated it was) is an intriguing issue in itself, and if anyone is interested in discussing it further, they should definitely feel free to jump in with comments or questions.

A blessing can become a curse

If you keep it to yourself

our own exaggeration

Is not so good for your health

It's the prophecy of the unattainable dream

If you take one look behind the shine

It doesn't always gleam

Everyday he lives in fascination

This is not an everyday temptation, no

It's the diamond as big as the Ritz

What you gonna do with this

Tell me, who's goin' to save you

When you're a slave to a

Diamond as big as the Ritz

Greed can crumble your castle walls

Greed can purchase you thrills

Power is a dangerous drug

It can maim, it can kill

It's the prophecy of the unattainable dream

If you take one look behind the shine

It doesn't always gleam

_______



I dont feel safe in this world no more

I dont wanna die in no nuclear war

I wanna sail away to a distant shore

And live like an apeman

