80. Smeeding, Duncan, and Rodgers, “W(h)ither the Middle Class?” 24.

81. Bureau of the Census, Current Population Reports, Series P 60, table P-4, “Race and Hispanic Origin—Persons 15 Years Old and Over, by Median and Mean Income, and Sex: 1947–93,” 5–6. The ratio of median incomes for women of all races to men of all races over fifteen went from 36.9 percent in 1979 to 48.4 percent.

82. Mishel and Bernstein, State of Working America, 1994–95, 188.

83. Ibid., 189.

84. Ibid.

85. Ibid., 150.

86. ERP 1995, 321.

87. 1993 Green Book, 1405.

88. In 1979, American workers averaged 43.6 weeks per year of work and 38.6 hours per week. By 1989, those numbers had grown to 45.2 and 39.0 respectively (Mishel and Bernstein, State of Working America, 1994–1995, 112). Working wives’ contributions to the income of married couples increased from 26 percent in 1979 to 29 percent in 1989 (ibid., 62).

89. For details of the research as applies to 1969–89, see Juliet B. Schor and Laura Leete-Guy, “The Great American Time Squeeze: Trends in Work and Leisure, 1969–1989,” Briefing Paper, Economic Policy Institute, 1992. See also Juliet B. Schor, The Overworked American: The Unexpected Decline in Leisure (New York: Basic Books, 1992).

90. According to Schor,

A 1989 poll found nearly two-thirds expressing the desire to give up an average of 13 percent of their current paycheck for more free time. Eight of ten respondents indicated they would forego a faster career track for a slower one which would allow them more time to spend with their families. A second survey found that 70 percent of those earning $30,000 a year or more would give up a day’s pay each week for an extra day of free time. Surprisingly, even among those earning only $20,000 a year, 48 percent said they would do the same. . . . even a decade ago, only a very small percentage of Americans preferred to give up income for time. (Schor and Leete-Guy, “The Great American Time Squeeze,” 1)

The surveys were reported in Robert Half International, “Family Time Is More Important Than Rapid Career Advancement: Survey Shows Both Men and Women Support Parent Tracking,” press release, San Francisco, June 28, 1989; and Carol Hymowitz, “Trading Fat Paychecks for Free Time.” Wall Street Journal, August 5, 1991, B1.

91. See Schor, The Overworked American, 72–82.

92. Ibid., 60.

93. Ibid., 194.

Chapter 10

1. Actually, his election was pretty much guaranteed by the good economy in 1988. Except for 1952, 1968, and 1976, since World War II the party in power has lost the presidency only if there is a recession during the election year. The recession of 1960 appears to have cost Richard Nixon the presidency his first time around, and the recession of 1980 clearly was the cause of President Jimmy Carter’s failure to win reelection. In the years 1956, 1964, 1972, and 1984 the incumbent had no trouble winning—in fact we could characterize all four elections as landslides. In 1952, the candidate was General Eisenhower, a highly popular figure running against a relative unknown in the middle of an unpopular war. In 1968, the Democratic Party was considered the party of the unpopular Vietnam War. In 1976, Gerald Ford was running for reelection in the aftermath of both Watergate and the recession of 1975—and he had pardoned Richard Nixon.

2. His Council of Economic Advisers’ first Economic Report argued,

A key item on the Administration’s economic agenda, reducing the tax rate on capital gains, will enhance all types of investment. Cutting the capital gains tax rate will lower the cost of investment funds and thus stimulate investment. Much of the reward to entrepreneurial activity, such as generating new technology and bringing it to market, comes in the form of an increase in the value of businesses. Reducing the capital gains tax rate will thus reward these efforts and encourage invention and innovation. (ERP 1990, 25)

In his last State of the Union address (January 1992) Bush was still insisting that he “must” have a “capital gains tax cut” as part of his policy to stimulate growth (ERP 1992, 4).

3. ERP 1990, 7.

4. See chap. 7, table 10.

5. ERP 1991, 63. For details on the act, see pp. 64–65.

6. See table N-1.

7. The Bush administration’s assertions about a slight fall refer to fiscal years, not calendar years (ERP 1991, 66). The Congressional Budget Office calculation identifies a rise in the structural deficit from 2.8 percent of GDP in fiscal 1989 to 3.1 percent in fiscal 1990 and 3.3 percent in fiscal 1991 (Congressional Budget Office, Economic Outlook, 1998–2007, 105). Clearly, the administration was using a different standard for measuring the structural deficit than the CBO. Between fiscal 1989 and fiscal 1990, the actual federal deficit rose from 2.8 percent of GDP to 3.9 percent of GDP (ERP 1997, 390).

8. Bartley, The Seven Fat Years, 281.

9. Spending over which Congress has year-to-year control (discretionary spending) was grouped into three categories: domestic, defense, and international. Each of these areas of the budget was capped for 1991 through 1993, after which all three areas would be merged for fiscal 1994 and 1995. The law then reintroduced the G-R-H automatic mechanism. If discretionary spending were to exceed the caps, that would trigger a sequester in that part of the budget. If mandatory spending or tax cuts were voted that were not “paid for” elsewhere in the budget, that, too, would trigger a sequester (ibid., 66). When fiscal 1997 ended on September 30, the federal deficit had fallen to a minuscule $22 billion. In a news analysis published in January 1998, Robert Reischauer, who headed the Congressional Budget Office from 1989 to 1995, is quoted as concluding that the spending constraints and tax increases in this bill accounted for the largest single contribution to deficit reduction in the seven years from its passage until the middle of 1997 (see Pear, “Budget Heroes Include Bush and Gorbachev”).

10. Transcript, Federal Open Market Committee Meeting, March 28, 1989, 13, available from the Federal Reserve Board, Freedom of Information section.

11. Ibid., 14. The report given by this staff member predicted that as a result of price pressures in the first quarter of the year, the Fed expected the consumer price index to rise more than 5 percent in 1989, justifying increased tightening of monetary policy. See Michael J. Prell, “FOMC Briefing—Domestic Economic Outlook,” appendix, Staff Papers to the Federal Open Market Committee meeting, 2.

12. Transcript, Federal Open Market Committee Meeting, 21.

13. Ibid., 28.

14. Transcript, Federal Open Market Committee Meeting, 42. In fact, the Fed hit the M2 target almost exactly; the increase between March and June was 2.97 percent on an annual basis. M3 grew slower than planned, at 3.23 percent (Money Stock: Federal Reserve Board). The Federal Funds rate stayed within the target range, rising from 9.65 percent in March to 9.84 in April and trending downward to 9.53 in June (ERP 1991, 369).

15. Bureau of Economic Analysis, Department of Commerce (per capita gross domestic product in chained 1992 dollars). The Bush administration identified the recession as beginning in the fourth quarter of 1990, contradicting the NBER, which dated it from the third. The Bush Council of Economic Advisers also tried to blame the recession on the “oil price shock, the sudden drop in consumer and business confidence, and the uncertainty about when the Persian Gulf crisis would end” (ERP 1991, 22) but then immediately acknowledged that the Federal Reserve had initiated a more restrictive monetary policy in the spring of 1988 to ward off an increase in the underlying inflation rate. The lagged effects of this policy also slowed the economy in 1989 and 1990, as higher interest rates discouraged spending (p. 23).

16. ERP 1997, 300.

17. ERP 1990, 187–207.

18. ERP 1991, 32–33.

19. ERP 1991, 97–98, 143–45.

20. ERP 1991, 158.

21. ERP 1992, chap. 5

22. ERP 1993, 175. The report noted that automobiles manufactured before the 1980 model year were only 29 percent of vehicles on the road but caused 53 percent of hydrocarbon and 51 percent of carbon monoxide pollution. Buying up old vehicles still on the road, therefore, was a fruitful way of reducing air pollution.

23. Note that this is the same argument exemplified by the conservative economists’ view that vigorous antitrust prosecutions are unnecessary anachronisms. The opposition, of course, argued that without regulation “free competition” would lead to a few giants winning and controlling unacceptably high percentages of the communications media. The Clinton administration agreed with the congressional majority on a telecommunications reform bill, which was finally passed in 1996 (ERP 1997, 200–202).

24. ERP 1993, 199.

25. See pp. 62–65.

26. ERP 1990, 176–77.

27. College and University Personnel Association, “The ADA and The Civil Rights Act of 1991,” tab 4, part 2, 1. Photocopy.

28. ERP 1993, 173.

29. ADA Compliance Manual, 2.

30. “The EEOC has estimated that 10,000–12,000 disability discrimination charges will be filed in the first year after the law goes into effect, an increase of 15–20 percent in its caseload” (Robert L. Duston, “What Every College and University Administrator Needs to Know about the ADA, and Why,” conference manual for the College and University Personnel Association conference on the Americans with Disabilities Act, April 11–12, 1992 [available from Robert L. Duston, Schmeltzer, Aptaker & Shepard, P.C., Washington, DC], table 4-2).

31. U.S. Equal Employment Opportunity Commission and the U.S. Department of Justice, “Americans with Disabilities Act Handbook,” EEOC-BK-19 (October 1992), 1–19.

32. Duston, “What University Administrator Needs,” 18–19.

33. Drew S. Days, “Civil Rights at the Crossroads,” Debating Affirmative Action, Race, Gender, Ethnicity, and the Politics of Inclusion, ed. Nicolaus Mills (New York: Delta, 1994), 267.

34. The vote was five to four, with the three Reagan appointees (O’Connor, Scalia, and Kennedy) joining Chief Justice Rehnquist and Byron White for the majority. See Wards Cove Packing Co. v Atonio 490 U.S. 642 (1989). For the previous precedent, see Griggs v Duke Power Co. 401 U.S. 424 (1971).

35. It is thought by many that this agreement was won due to the strong efforts of Senator James Danforth (R.-MO), who was Thomas’s principal supporter in the Senate and cosponsor of the Civil Rights Act of 1991.

36. Warren, “Mixed Message,” 25. There was a 15.2 percent increase in the Reagan regulatory budget between fiscal 1985 and 1989.

37. Melinda Warren, “Regulation on the Rise: Analysis of the Federal Budget for 1992,” Occasional Paper 89, Center for the Study of American Business, Washington University, St. Louis, 1991, 10.

38. The “Reagan Democrats” are longtime Democratic voters, blue-collar workers, and other middle-class people who voted in increasing numbers for Ronald Reagan in 1980 and 1984 and stayed with George Bush in 1988—this despite the fact that in state and congressional elections they continued to vote for Democrats.

39. ERP 1991, 71. They concluded by predicting that unemployment would decline in that year, a prediction that appeared almost foolproof since such a decline had occurred in all previous postwar recoveries.

40. The real GDP in 1976 ended up 5.6 percent higher than in the previous year. The real GDP in 1983 ended up 4.0 percent higher than in 1982 (ERP 1997, 302).

41. ERP 1997, 302.

42. In real dollars, GDP per capita was $24,033 in the first quarter of 1991, at the trough of the recession. In the first quarter of 1992, it was $24,280. For the first eight quarters after the trough in 1991, growth in real GDP per capita averaged 1.2 percent per quarter. By contrast, the first eight quarters after the trough in 1982 produced an average rate of growth of 5.3 percent. The first eight quarters after the trough in 1975 produced an average of 4.0 percent (Bureau of Economic Analysis, Department of Commerce, “Per Capita Gross Domestic Product—Chained (1992) Dollars,”) unpublished data.

43. The same held for the prime rate and for the real Federal Funds and prime rates (calculated using the expected rate of inflation).

44. ERP 1995, 359.

45. ERP 1997, 332.

46.1993. Green Book, 521–22.

47. 1993 Green Book, 491.

48. Coughlin, Ku, and Holahan, Medicaid since 1980, 16.

49. 1993 Green Book, 1993.

50. 1993 Green Book, 1609.

51. 1993 Green Book, 815.

52. ERP 1995, 314.

53. There was a brief uptick in fiscal 1992. Table N-21 shows the trend in defense spending as a percentage both of GDP and of federal spending during this period. The Congressional Budget Office has a significant rise in defense spending in fiscal 1991, and some of its figures differ from the figures in the Economic Report. Perhaps the CBO included funds that were contributed by our allies toward the Gulf War, while the Economic Report did not. See Congressional Budget Office, Economic Outlook, 1998–2007, 114.

54. Coughlin, Ku, and Holahan, Medicaid since 1980, 38.

55. Ibid., 39. On the AFDC-UP program, see 1993 Green Book, 623–24.

56. See above, pp. 118–19.

57. Coughlin, Ku, and Holahan, Medicaid since 1980, 104.

58. Perot, United We Stand, 35.

59. In a more detailed description of what was wrong with the U.S. economy between 1980 and 1992, Perot seems to be blaming a decline in savings, the budget deficit, the national debt, and a decline in competitiveness. Carefully perusing the relevant pages in Not for Sale at Any Price provides lots of good information about the failures of the U.S. economy since the early 1970s but no real analysis of why that failure occurred. Losing out to foreign competition is mentioned, and there is a quote attributed to a “friend in Japan”: “In Japan we think ten years ahead, in the United States you think ten minutes ahead” (64). That hardly passes for explanation. See Not for Sale, 32–95.

60. United We Stand, 34–56.

61. Clinton would be expected to criticize the economic policies of the current administration. Mondale had tried the same in 1984, as had Dukakis and Bentsen in 1988. The combination of the recession and Perot’s criticisms made Clinton’s appear less partisan (that is, fake) and more accurate. For a Perot assault on “trickle-down economics” see Not for Sale, 69–77.

62. For some details, see Perot, United We Stand, 40–51, and Not for Sale, 101–10.

63. In fact, according to Bob Woodward’s “insider” account The Agenda: Inside the Clinton White House (New York: Simon and Schuster, 1994), the sign had three lines listing the “three-pronged message” of the Clinton campaign: “Change vs. more of the same. The economy, stupid. Don’t forget health care.” The version in the text and the public consciousness is in fact a slightly incorrect version of only one-third of the sign. See The Agenda, 54, and the accompanying note.

64. Office of Management and Budget, A Vision of Change for America (Washington, DC: Government Printing Office, February 17, 1993).

65. Ibid., 29. Details of the stimulus package are spelled out on pp. 29–39.

66. There are over twenty pages of proposed increases in public investment and education efforts, both with direct expenditures and tax incentives (ibid., 41–48, 61–63).

67. In addition, the 2.9 percent payroll tax for Medicare was extended to all wage, salary, and self-employment income instead of leaving it capped at $135,000 in 1993. Thus, for people paying the new 36 percent marginal tax rate on income plus the 10 percent surcharge (39.6 percent), if they received wages, salaries, and/or self-employment income in that bracket, the actual marginal tax rate would have risen from 31 percent to 42.5 percent. Note that the 2.9 percent payroll tax for Medicare does not apply to income from interest, rent, dividends, and, most importantly, capital gains.

68. Woodward, The Agenda, 69–71.

69. Blinder, The Great Stagflation. Anyway, measured as a percentage of GDP, the total government deficit was only above 1 percent from the first quarter of 1967 through the middle of 1968. For the six quarters from the end of 1968 through the first quarter of 1970, the total government was in surplus. To assert that these two years would produce the run-up in inflation in 1973 and 1974 is dubious indeed.

70. ERP 1996, 371. In calendar year 1978 the total government ran a surplus of $20.9 billion, while in 1979 that surplus totaled $33.8 billion.

71. For the Federal Funds rate, see Board of Governors, Federal Reserve System, table J1-1. For the thirty-year Treasury bill rate, see table J1-10. For the structural deficit, see W-1 at the web site, <mars.wnec.edu/~econ/surrender>.

72. See table W-9 at the web site <mars.wnec.edu/~econ/surrender> for the details.

73. The full projection in A Vision of Change for America involved a net increase of $13 billion in spending in 1993. In 1994 deficit reduction cuts and revenue increases would be $66 billion, but the rest of the stimulus coupled with the beginning of new public investments would reduce that, resulting in a net deficit reduction of $39 billion. Between 1993 and 1998, the plan called for an initial deficit reduction of $704 billion combined with increased public investments, tax reductions (and the stimulus package) totaling $231 billion, for a net deficit reduction of $473 billion. See p. 22 for details. As a percentage of GDP, the deficit was projected to fall from 5.4 percent in 1993 to 2.7 percent in 1997. Absent reform in health care, the Clinton administration predicted an increase in the deficit for 1998, which would increase the deficit as a percentage of GDP to 3.1. In fact the rapidly growing economy in 1996 and 1997 coupled with the August 1997 agreement led to a virtual disappearance of the deficit by the beginning of fiscal 1998 (see Pear, note 9 in this chapter).

74. Eisner, The Misunderstood Economy, 198–99.

75. A Vision of Change for America, 22; and ERP 1994, 32. The Reischauer analysis quoted by the New York Times (see Pear, note 9 in this chapter) gives significant credit for succeeding—in fact, improving on these targets—to the 1993 deficit reduction package but not as much as to the 1990 one.

76. Between January and December 1993, the thirty-year Treasury bond yield fell from 7.34 percent to 6.25 percent. The gap had fallen to 3.29 by December, despite continued declines in the Federal Funds rate (Board of Governors, Federal Reserve System, table J1-10).

77. ERP 1997, 303.

78. Ibid., 300. For productivity growth, it is necessary to ignore the data in the 1997 economic report and utilize the industry analytical ratios for the nonfarm business sector from the Bureau of Labor Statistics because they recalculated productivity data during 1997.

79. ERP 1994, 35.

80. Ibid.

81. The thirty-year Treasury bond yielded 6.25 percent in January and reached 8.08 percent in November. Thereafter it began to fall, though it did not get below 6.25 percent till December 1995 (Board of Governors, Federal Reserve System, table J1-10). In real terms, it was at 3.75 percent in the first quarter of 1994 and rose to almost 5.5 percent by the end of the year before beginning to fall slowly in 1995.

82. See U.S. Department of Commerce, Bureau of Economic Analysis, “Per Capita Gross Domestic Product—(Chained (1992) Dollars.”

83. ERP 1994, 34.

84. Ibid., 38.

85. Ibid., 38.

86. ERP 1995, 27.

87. ERP 1995, 27. This was exactly the point I made above (see pp. 174–75) about the inability to give the economy a fiscal stimulus to fight the 1990 recession due to the high deficits that had persisted during the 1980s.

88. ERP 1995, 30.

89. For the details, see tables W-10 through W-12 at the web site, <mars.wnec.edu/~econ/surrender>. They present quarterly data from 1991 to the present and will be updated from time to time.

Chapter 11

1. In terms of regulatory burdens, the Center for the Study of American Business estimated that Clinton’s first budget proposal reversed a slight reduction in federal regulatory spending that had occurred with the last Bush budget (fiscal 1993) and continued to increase actual staff in the various regulatory agencies. See Warren, “Mixed Message,” 4.

2. The misery index, we should recall, sums the unemployment rate and the rate of inflation. Taking the rate of inflation in the consumer price index, we see a misery index of 9.9 percent in 1993, 8.7 percent in 1994, and 8.4 percent in 1995 and 1996. The last time the index had been that low was in 1968 (ERP 1997, 370, 346).

3. ERP 1995, 314; ERP 1996, 318.

4. ERP 1997, 352. In 1995 the fall resumed, leaving average weekly earnings less than one-half dollar above the 1993 figure in purchasing power.

5. The proposed Health Security Act is described in detail in ERP 1994, chap. 4.

6. Historian Theda Skocpol has written a postmortem on the failure of Clinton’s health care reform. In the following passage she stresses the point we have made herein:

Historically, Americans have been perfectly happy to benefit from federal government spending, and even to pay higher taxes to finance spending that is generous and benefits more privileged groups and citizens, not just the poor. Such benefits are especially appealing if they flow in administratively streamlined and relatively automatic ways. But Americans dislike federal government regulations not accompanied by generous monetary payoffs. (Boomerang: Clinton’s Health Security Effort and the Turn against Government in U.S. Politics [New York: Norton, 1996], 167)

7. Ibid., chap. 5.

8. The opposition to the Canadian system produced significant amounts of propaganda by anecdote to make it appear that Canadians were all flocking to the United States for operations that the Canadian system routinely refused to perform. This despite the fact that Canadians routinely expressed high levels of sat-isfaction with their health care system, in much higher percentages than did Americans.

9. Skocpol argues that the political constraints under which Clinton operated precluded his offering a single-payer proposal. Particularly she argues that such a proposal “could easily have been caricatured by fiscal conservatives . . . as a ‘budget buster,’ a new ‘entitlement’ that was bound to get out of control. . . . threatened stakeholders and the populist right would . . . have carried on a devastating scare campaign about a ‘government takeover’ of medical care” (Boomerang, 179). While she is no doubt correct that support for a single-payer plan would have gone against Mr. Clinton’s pro-private-sector instincts, the ability of the groups mentioned to caricature and misrepresent any comprehensive reform suggests that supporting an easily described, easily defended system would have been better than the overly complicated proposal that was also labeled “socialized medicine” by the opposition.

10. It was estimated that the original Clinton proposal would have added approximately $10 billion to the cost of welfare (Todd S. Purdum, “Clinton Remembers Promise, Considers History, and Will Sign,” New York Times, August 1, 1996, A22).

11. Contract with America, 66–67.

12. See pp. 96–97.

13. Advisory Commission on Intergovernmental Relations, Changing Public Attitudes on Governments and Taxes, 1981 (Washington, DC: Government Printing Office, 1981).

14. The 1996 Green Book provides this account:

According to an HHS compilation, by mid-February 1996, all but 10 States . . . had approval to test departures from specified provisions of AFDC. . . . AFDC waiver projects can be classified broadly as restricting or liberalizing some elements of the program. Examples of the former include:

• Place time limit on benefit duration (24 States);
• Tighten work requirements (31 States);
• Link benefits to school attendance/performance (26 States)
• Limit benefits for additional children (14 States);
• Reduce benefits based on relocation (2 States);
• Require fingerprinting as a condition of eligibility (1 State).

Major waiver provisions that liberalize some terms of the program include:

• Treat earnings more generously (30 States)
• Expand eligibility for 2-parent (unemployed) families (25 States)
• Increase resource limit (28 States);
• Increase vehicle asset limit (25 States);

Expand transitional medical and child care benefits (21 States).

(434–45)

15. Purdum, “Clinton Remembers Promise.” See also “Points of Agreement, and Disagreement, on the Welfare Bill,” New York Times August 1, 1996, A22.

16. “Excerpts from the President’s News Conference at the White House,” New York Times, December 14, 1996, A1.

17. $9.5 billion was restored in SSI benefits to legal immigrants, $2 billion in increased Medicaid for these individuals, and $2.7 billion in increased grants to states to help people receiving welfare under the two-year limitation find work. See O’Neill, letter to Raines, 54–55.

18. These are Congressional Budget Office estimates made in December 1995 based on the provisions of the Balanced Budget Act that President Clinton had vetoed. See CBO Memorandum, “The Economic and Budget Outlook: December 1995 Update,” 27–28.

19. Congressional Budget Office, Economic Outlook, 1997–2006, chap. 3. It was this readjustment that had so impressed the reporter from the Wall Street Journal in early February 1996 (Calmes, “Clinton’s Fiscal ’97 Budget”).

20. Defenders of the Clinton administration will no doubt point out that they had rallied virtually the entire Democratic congressional caucus to support their proposed minimum-wage increase and that their drumfire of support for the proposal and scorn for the Republicans who opposed it ultimately led to enough Republican defections from the leadership to pass a $.90 per hour increase in the summer of 1996 (Jared Bernstein and John Schmitt, “The Sky Hasn’t Fallen: An Evaluation of the Minimum-Wage Increase,” Briefing Paper, Economic Policy Institute, 1997, 1). The first thing to note about this is that when the Democrats had the majority in Congress, the Clinton administration never made mention of the need to raise the minimum wage. The second is that this increase will still leave the minimum wage 20 percent below its level in 1979 in purchasing power. It is too early to tell if the increase in the minimum wage has helped reverse the increasing inequality among wage earners. That will be the key issue.

21. ERP 1998, 314.

22. ERP 1998, 312–13.

23. For a particularly useful visual picture, see Krugman, “The Right, the Rich.”

24. “[L]evels of wage inequality for men have been greater in recent years than at any time since 1940. Women received wage increases throughout the wage distribution, but the gains were concentrated at the top” (ERP 1995, 176).

25. ERP 1995, 181.

26. Ibid.

27. ERP 1995, 184–95.

28. For families, the Gini ratio had peaked at .401 in 1989, fell slightly to .390 in 1991, rose to .401 in 1992. and jumped to .429 in 1993 before falling slightly to .421 in 1995. See Bureau of the Census, Incomes Statistics Branch/HHES Division, Current Population Reports, Series P-60, Table F-4, “Gini Ratios for Families, by Race and Hispanic Origin of Householder: 1947–1995.” For Households, the peak of inequality in 1989 was at .431. The Gini ratio then fell to .428 in 1991, rose to .434 in 1992 and jumped to .454 in 1993. It fell slightly to .450 in 1995. See ibid., table H-4, “Gini Ratios for Households, by Race and Hispanic Origin of Householder: 1967 to 1995.” We should note that in 1993, the method of collecting the census information was expanded, and much of the measured increase in inequality is probably due to the changed method of data collection. The most crucial point of all this information is that the increase in inequality between 1979 and 1989 was not been reversed despite the long recovery and despite the Clinton administration’s alleged efforts. For the most recent information (as this book goes to press), see ERP 1998, 127.

29. “Job Creation and Employment Opportunities: The United States Labor Market, 1993–1996,” report by the Council of Economic Advisers with the U.S. Department of Labor, Office of the Chief Economist, April 23, 1996, 1.

30. Ibid., 4. This is not definitive evidence about the actual nature of the jobs created because though the “job category” paid “on average” above-median wages, there is a wide variation in wages within each job category. It is possible the newly created jobs would pay less than average for that job category.

31. Ibid., 7–8.

32. Robert J. Samuelson, The Good Life and Its Discontents (New York: Times Books, 1995), esp. chap. 4.

33. ERP 1996, 23. It is interesting to note that one of the results of the revision in how the Department of Commerce’s Bureau of Economic Analysis computed the gross domestic product was to substantially reduce the initial rates of productivity growth for the 1990s. For a quick comparison, check out the Economic Report of the President for 1995 and 1996, table B-46, productivity.

34. ERP 1996, 22.

35. According to the Congressional Budget Office analysis of the combined tax cut and balanced-budget plan passed in the summer of 1997, the Taxpayer Relief Act will increase expenditures under the earned-income tax credit and the (smaller) child care credit by a total of $11.5 billion through fiscal 2002. See O’Neill, letter to Raines.

36. ERP 1996, 33.

37. ERP 1998, 304. These are percentages of government purchases. It does not include transfer payments.

38. See table W-9 at the web site, <www.mars.wnec.edu/~econ/surrender>.

39. ERP 1996, 45.

40. ERP 1997, 359.

41. ERP 1997, 346.

42. ERP 1996, 361. We might note that such a reduction in the Federal Funds rate was accompanied by an actual shrinkage in M1 throughout 1995, once again demonstrating that the rate of growth of M1 was an unreliable guide to monetary policy. M2 growth was accelerated during 1995 (ERP 1996, 355).

43. For the actions of the Fed in 1997, see ERP 1998, 44. For the unemployment rate month to month, see ibid., 330. By the middle of 1997 the reason for the Fed’s behavior became apparent as insider newsletters were reporting a rising fear that the economy might “overshoot” the target of zero inflation and experience deflation. By the end of 1997, with the Asian financial crisis making investors nervous, there was even talk that the Fed might have to lower interest rates despite the fact that unemployment had fallen below 5 percent and that the economy had been growing faster than 3 per cent for much of 1997.

44. The 1998 Economic Report of the President actually attempted to reconcile the existence of a NAIRU (nonaccelerating inflation rate of unemployment) of approximately 5.5 percent with the experience of 1997 when inflation actually fell while unemployment dived below 4 percent (see ibid., 54–63). The council also forecast that the economy would snap back from its “unsustainable” high growth rates of 1996 and 1997 to 2.0 percent from fourth quarter to fourth quarter in 1998, 1999, and 2000 (see ibid., 78–87). The Congressional Budget Office makes a similar prediction:

Despite low unemployment and high output, which CBO estimates exceeded its potential (the amount that can be produced without accelerating inflation), the rate of inflation . . . fell . . . CBO believes that factors such as falling import prices have masked the inflationary pressures that have built up over the past two years. CBO expects that inflation will begin to increase during 1998 . . .

The rise in inflation, together with low unemployment is expected to lead to slightly tighter monetary policy in 1998. Along with the effect of the Asian financial crisis on U.S. exports, an increase of 0.2 percentage points in short-term interest rates is expected to slow economic growth to a sustainable pace by early 1999. (Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1999–2008, xvii–xix)

45. See above, pp. 1–2.

46. The federal deficit as a percentage of GDP rose from less than 0.5 percent in fiscal 1974 to 3.4 percent in fiscal 1975 and 4.3 percent in fiscal 1976. By contrast the rise from fiscal 1989 to fiscal 1992 was from 2.8 percent to 4.7 percent. Remember, the key to using the government to raise aggregate demand is in the rise in deficit spending (ERP 1997, 389).

47. The unemployment rate was 5.6 percent in 1974. It fell to 7.7 percent in 1976. Unemployed receiving compensation fell to 67 percent in the same year. For unemployment, see ERP 1997, 346. For the percentage of the unemployed receiving compensation, see 1996 Green Book, 332.

48. 1996 Green Book, 332.

49. In 1974, the Federal Funds rate rose to 10.50 percent. In 1975, the Central Bank pursued a vigorous policy to cut that rate down to 5.82, and the rate continued to fall till the first quarter of 1977. By contrast, in 1991 the rate was only cut from 8.10 the previous year to 5.69. In 1992, however, the Federal Reserve did push that rate even lower; it fell below 3 percent in the last month of that year (ERP 1997, 382–83). See also table W-1 at the web site, <mars.wnec.edu/˜econ/surrender>.

50. The rate of growth of real GDP was 5.6 percent in 1976, 4.9 percent in 1977, and 5.0 percent in 1978. In 1979 that rate fell to 2.9 percent. In 1991, the rate of growth was –1.0 percent. In 1992, 1993, and 1994 it was 2.7 percent, 2.3 percent, and 3.5 percent. In 1995 it fell back to 2.0 percent (ERP 1997, 307). For the creation of jobs, see ERP 1997, 340. In 1997 close to three million jobs were created (see ERP 1998, 324), but remember, that is “unsustainable.”

51. For the percentages of the population in poverty see 1996 Green Book, 1226. For the total population receiving AFDC, see p. 467. For the percentage of poor children receiving AFDC, see p. 471.

52. Remember that according to the Reischauer study referred to by the New York Times (Pear, “Budget Heroes Include Bush and Gorbachev”) the Bush changes were more significant than the Clinton changes in contributing to the virtual disappearance of the deficit by the end of 1997.

53. ERP 1997, 383.

54. In 1993, the House of Representatives Ways and Means Committee projected federal spending on AFDC for fiscal 1996 at $1.5 billion, approximately 1 percent of all federal expenditures and 6.6 percent of the total federal expenditure on “income security” (1993 Green Book, 679; ERP 1997, 391). In fact the expenditure for fiscal 1996 was actually closer to $1.3 billion, an even lower percentage of the federal budget (1996 Green Book, 459). The projected reductions in expenditures between fiscal 1997 and 2002 as a result of the abolition of AFDC and other aspects of welfare reform come mostly from cuts in SSI and food stamps, not the AFDC replacement called Temporary Assistance for Needy Families (TANF) (1996 Green Book, 1332–33). As mentioned above, some of these cuts have since been repealed. See O’Neill, letter to Raines, 58–61.

55. For investment, see ERP 1998, 280; for the federal deficit, see ERP 1998, 374.

56. ERP 1997, 390.

57. ERP 1995, 359.

58. Federal revenues actually rose as a percentage of GDP in fiscal 1997, a year in which GDP itself grew quite rapidly (see ERP 1998, 373). Federal spending did not quite keep pace with GDP, but total government purchases of goods and services did (ibid., 280–81).

59. Recall that the budget that was passed in 1995 provided for over $1.5 trillion in spending cuts between 1996 and 2002.

60. By its own admission, Congressional Budget Office projections do not incorporate business cycle impacts on revenue and expenditures beyond the next two years. Thus, in the spring of 1996, seeing no sign of a recession in either 1996 or 1997, they developed their 1998–2006 projections without attempting to estimate the impact of a recession.

[T]he projections are designed to approximate the level of economic activity on average, including the possibility of above-or below-average rates of growth, inflation and interest. CBO uses historical relationships to identify trends in fundamental factors underlying the economy, including growth of the labor force, the rate of national saving, and growth of productivity. The projections of variables such as real GDP, inflation, and real interest rates are then based on their historical norms (Congressional Budget Office, Economic Outlook, 1997–2006, 12).

In 1997, the CBO was able to revise upward their revenue estimates based on strong economic growth so far that year. That also permitted projecting rates of growth of real GDP of 2.2 percent for 1997 and 1998 (Congressional Budget Office, Economic and Budget Outlook, 1998–2007, 1, 12–16). Even these projectious proved too pessimistic, and in 1998 they again raised their predictions of real growth for 1998 (Congressional Budget Office, Economic and Budget Outlook, 1999–2008, p. 2).

61. The Emergency Unemployment Compensation Act of 1991 temporarily extended benefits. This act was amended a number of times, and extended benefits ended up being available through October 2, 1993 (1993 Green Book, 521–22).

62. ERP 1996, 65–69; ERP 1997, 45–61, 74–85, 87–91; and ERP 1998, 85–87.

63. The Clinton Council of Economic Advisers devoted a chapter in the Economic Report of the President for 1998 to “The Economic Well-Being of Children.” They noted that between 1993 and 1996 the number of children in poverty had declined by over two percentage points. However, the chart they present (92) shows that the current level is much higher than before the Volcker-Reagan revolution and isn’t quite as low as it was at the end of the Reagan recovery in 1989. At the end of 1996, 13.7 percent of the entire population lived in poverty, still well above the figures for 1980 and 1988 (320). They also acknowledged that overall inequality has increased since the 1970s (127).

Coda

1. When Professor Vickrey won the Nobel Prize for economics in 1996, he was ecstatic because he believed he could use that “bully pulpit” to present his strong arguments to the general public against single-minded pursuit of budget balance. Unfortunately, he died within a week of receiving the prize, and the public is left only with his writings to support his and others’ position against the current policy consensus. For a summary of his views, see Fifteen Fatal Fallacies of Financial Fundamentalism, October 5, 1996, available on the Columbia University Department of Economics web site at <www.columbia.edu/cu/economics>.

2. National Conference of Catholic Bishops, Economic Justice for All: Pastoral Letter on Catholic Social Teaching on the U.S. Economy (Washington, DC: U.S. Catholic Conference, 1986).

3. There has been a long debate in the specialist literature as to which group actually controls the behavior of corporations, the shareholders who are the legal “owners,” or the managers who carry out the day-to-day activities of the business. See Adolph A. Berle and Gardner C. Means, The Modern Corporation and Private Property (New York: Commerce Clearing House, 1932), for the argument that by 1929, a high percentage of corporations were effectively controlled by their top managers. In 1966, in The New Industrial State, John Kenneth Galbraith identified the middle-level “technostructure” that, due to its monopoly on the expertise (accounting, marketing, engineering) necessary to make the business run successfully, effectively controlled corporate decision-making. In the discussion of the value to society of a vigorous market for corporate control (see pp. 127–28) the Council of Economic Advisers argued in 1985 that managers are forced to act in the interest of their shareholders by credible threats of outside takeovers. The bishops’ view has recently gained significant currency in the literature on the appropriate form of corporate governance, most prominently in the work of Margaret Blair (Ownership and Control [Washington, DC: Brookings Institution, 1995]). Blair supports the view that “corporate policies that generate the most wealth for shareholders may not be the policies that generate the greatest total social wealth” (p. 13). This is actually nothing more than a variation on the view that private rates of return and private costs do not always reflect social benefits and costs, a fact acknowledged by the 1982 report of the first Reagan Council of Economic Advisers (see above, pp. 39–41). Blair concludes, as do the bishops, that longtime employees bear significant risks, perhaps more than the shareholders, when they commit themselves to a particular company and should therefore have some say in corporate decision-making (see particularly chaps. 7 and 8).

4. A less benign version of this point is that political and intellectual leaders are very well aware of what the public wants and spend all their time giving the public false impressions of policies designed to help the very richest at the expense of everyone else (how the supply-side tax cuts and other elements of Reaganomics were sold as a way to raise economic growth and employment, when in the end all they did was redistribute income upward) while warning (falsely as well) that the proposals of reformers are “impossible.” For an analysis of how public opinion is thwarted by the capture of the political process by big money, see Thomas Ferguson, Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems (Chicago: University of Chicago Press, 1995).

5. Let us recall that when it came to subsidizing business, Reagan was perfectly happy to spend billions on the Star Wars defense system even though the scientists assured the Department of Defense that it would never work, and perfectly happy to force the Japanese to restrain auto exports to protect Detroit producers. Both of these activities overruled “the market” for some “greater good.” Recall the summary statement by the editor of Foreign Affairs and the argument about the role of the Pentagon in directing investment spending (see chap. 6, n. 76 and chap. 9, n. 18).

6. For an argument that it is, indeed, possible for the economy to grow faster than the 2.3 percent identified in the 1997 Economic Report of the President as the long-term sustainable rate (pp. 85–87), see Barry Bluestone and Bennett Harrison, “Why We Can Grow Faster,” American Prospect 34 (September–October 1997): 63–70. For a contrary view that supports the administration, see Alan Blinder, “The Speed Limit: Fact and Fancy in the Growth Debate,” American Prospect 34 (September–October 1997): 57–62.

7. See Munnell, “Public Infrastructure,” and Aschauer, “Output and Employment Effects.” For an argument that high wages and a new approach to labor-management relations also can increase productivity, see Perelman, Pathology of American Economy, chap. 8.

8. One such proposal is contained in National Jobs for All Coalition, “A Growth Agenda That Works: A Program for Sustainable Economic Growth and Development” (available from National Jobs for All Coalition, 474 Riverside Drive, Suite 832, New York, NY 10115, email: njfac@ncccusa.org), 27. For their discussion of public capital expenditure, see pp. 8–12.

9. Buckley v. Valleo, 424 U.S. 1 (1976).

10. Scott Turow, “The High Court’s 20-Year-Old Mistake,” New York Times, October 12, 1997, sec. 4, 15. Turow continues, “As long as politicians must approach the well-to-do on bended knee to secure their chances for election, it is inevitable that the concerns of that narrow segment of the society will have a disproportionate influence on national policy.”

11. The Supreme Court argued that one could not abridge someone’s First Amendment rights in order to assure someone else’s First Amendment rights (see Buckley v. Valleo). If this logic were applied to actual speech, an individual who monopolized the floor at a public meeting and continually shouted down the efforts of everyone else in the room to be heard could not be silenced!

12. National Jobs for All Coalition, “Growth Agenda That Works,” 21.

13. For details of such a reform of the Fed, see Robert Pollin, “Public Credit Allocation through the Federal Reserve: Why It Is Needed; How It Should Be Done,” in Transforming the U.S. Financial System, ed. Gary Dymski, Gerald Epstein, and Robert Pollin (Armonk, NY: M. E. Sharpe, 1993), 321–52. More generally, the organization devoted to analyzing and reforming the way monetary policy is conducted today is the Financial Markets Center (PO Box 334, Philomont, VA 20131, email: finmktctr@aol.com). Their key reform strategies involved “leveling the regulatory playing field upward—by evenly applying prudential standards, financial guarantees and reinvestment standards across the entire financial system.” On the Federal Reserve, they argue that “the Fed must be far more accountable to the citizenry” (Tom Schlesinger, “A Financial Market Strategy for Working Americans,” presented to the National Consumers League Conference, May 7, 1996, Los Angeles, 5; see also Sheldon Friedman and Tom Schlesinger, “Fed Follies: Why Alan Greenspan Won’t Let American Workers Get a Raise,” WorkingUSA, July–August 1997, 30–36). The vehicle for many of their proposals is the idea of a National Reinvestment Fund to “build a financial infrastructure for businesses and communities lacking access to affordable credit and capital.” See National Reinvestment Fund and Key Federal Reserve and Credit Guarantee Reforms Achieved through the National Reinvestment Fund (Philomont, VA: Financial Markets Center, 1996). See also Jane D’Arista and Tom Schlesinger, “The Emerging Parallel Banking System,” in The Financial Services Revolution, ed. Clifford Kirsch (Chicago: Irwin, 1996), 500–501.

14. By January 1864, $449 million of these had been issued. By 1867, greenbacks in circulation represented close to one-third of all currency (Friedman and Schwartz, Monetary History, 15–25, especially the table on p. 17). There is nothing mysterious or magical about this process. Instead of creating government bonds that are then sold to banks or the Fed, increasing the Treasury’s accounts with Federal Reserve banks, the Treasury would merely order the Fed to increase their account balances. The difference is that after the Treasury writes checks to pay government workers and suppliers and recipients of transfer payments with borrowed funds, the government must allocate interest payments to bondholders, even if the bonds are merely held by the Federal Reserve System.

15. If these deposits had merely been created without the issuing of a bond, once the money is spent and circulating in society, the government owes no interest to anyone. Between 1940 and 1946, the national debt of the United States rose from $42.9 billion to $269.4 billion (1979 Report of the Secretary of the Treasury, 63). Ten percent of that increase is $22 billion. Even a 1 percent interest rate translates into a saving to the Treasury of $220 million a year through the entire life of those bonds.

16. See Pollin, “Public Credit Allocation,” 347–48, on ways of preventing financial intermediaries from evading Federal Reserve control by using foreign-controlled assets.

17. See, for example, Robert Kuttner, “Managed Trade and Economic Sovereignty,” in U.S. Trade Policy and Global Growth, ed. Robert Blecker (Armonk, NY: M. E. Sharpe, 1996), 3–35. See also Gerald Epstein, James Crotty, and Patricia Kelly, “Multinational Corporations and Technological Change: Global Stagnation, Inequality, and Unemployment,” mimeo, University of Massachusetts, Amherst, February 1997, 30–34.

18. The simplest of these latter proposals has come to be known as the “Tobin tax,” after Nobel Prize winner James Tobin. The proposal is to place a rather small (say 1 percent) tax on unproductive speculative security transactions in order to discourage large movements of funds in and out of particular stocks or particular currencies just to capture a tiny short-term advantage. Even a relatively small tax will discourage these highly speculative activities. For the specific proposals to cut down on destabilizing international currency movements, see James Tobin, “A Proposal for International Monetary Reform,” Eastern Economic Journal 4 (1978): 153–59, and “A Tax on International Currency Transactions,” United Nations Human Development Report (1994).

19. For the vigorous aggregate demand management of the Ford administration see pp. 1–2, 255–56. For the expansion of the specifically redistributionist aspect of federal spending see Michael B. Katz, In the Shadow of the Poorhouse: A Social History of Welfare in America, rev. ed. (New York: Basic Books, 1996), 269–82.

20. This later became the basis of ERTA. Much of this story can be traced in Bartley, The Seven Fat Years, chaps. 2–6. See also Sidney Blumenthal, The Rise of the Counter-Establishment: From Conservative Ideology to Political Power (New York: Times Books, 1986), for a discussion of the role of conservative foundations and think tanks in developing and disseminating the conservative critique of what Speaker Newt Gingrich later called the “Great Society redistributionist model.”

21. The Economic Policy Institute’s work has been referred to and quoted throughout this book. The institute is located at 1660 L Street, NW, Suite 1200, Washington, DC, 20036. Their web site is <http://www.epinet.org>. The Levy Institute’s work has also been quoted in this book. It can be reached at Blithewood, Annandale-on-Hudson, NY, 12504; the web site is <http://www.levy.org>. The Center for Popular Economics can be reached at Box 785, Amherst, MA, 01004. Their e-mail address is cpe@econs.umass.edu. The center collaborated with the Labor Relations and Research Center at the University of Massachusetts at Amherst on a curriculum for internal education at the AFL-CIO, Common Sense Economics: A Study Group Manual (Washington, DC: AFL-CIO, 1997). For information about this manual, call the AFL-CIO education department at 202–637–5142. The Financial Markets Center is referred to above in note 13. The left wing of the Democratic Party has also attempted to bestir itself. See, for example, Stanley Greenberg and Theda Skocpol, eds., The New Majority: Toward a Popular Progressive Politics (New Haven, CT: Yale University Press, 1997).