Reversing a disastrous experiment (once it has surrounded itself with entrenched interests) turns out to be very difficult. Reagan's incentivized greed has proved especially impervious to facts, although the recent Wall Street protests indicate that reality may finally be seeping through.
A 2009 study by former International Monetary Fund chief economist Simon Johnson showed that in the years before Reagan's deregulatory frenzy took effect, banks accounted for no more than 16 percent of domestic corporate profits. Yet by the middle of the last decade, that number had risen to 41 percent -- and with those bigger profits, Wall Street compensation soared.
However, the greed was not confined to Wall Street. Across the landscape of corporate America, compensation for chief executives and other top officials skyrocketed while pay for their employees stagnated.
Median CEO pay jumped from around $1 million in the 1970s and early 1980s to around $2 million by 1990 to around $5 million by the middle of last decade, according to data compiled by the Bureau of Labor Statistics.
It also didn't seem to matter much that many CEOs were mediocre in their performance. As the Washington Post's Peter Whoriskey wrote, corporate boards often applied a "Lake Wobegon Effect" that raised their CEO's pay by pegging it to the overall rise in CEO pay.
For instance, Amgen CEO Kevin W. Sharer got a raise last March from $15 million annually to $21 million although shareholders in the biotech firm had lost 3 percent on their investment in 2010 and 7 percent over the past five years. [Washington Post, Oct. 4, 2011]
Yet, as bankers, CEOs and the occasional heiress feathered their luxurious nests, Reagan's economic experiment had disastrous consequences for middle- and working-class Americans. Wages slumped, unions shrank, factories closed, jobs grew scarce and proud industrial cities endured rising poverty and worsening decay.
Though it should now be clear what Reagan wrought with his social experiment in incentivized greed, those lessons have not been accepted by many leading politicians and pundits. The prevailing "conventional wisdom" remains that taxes on the rich must stay low. Politicians approach this "third rail" of higher taxes very gingerly.
Even as President Obama called for a new jobs program, he recommended paying for it, in part, by raising taxes on some rich Americans so they don't pay a lower tax rate than their secretaries. Yet, Republicans responded to even that modest proposal by accusing Obama of "class warfare."
Missing a Great Opportunity
It is another bitter irony of history that Reagan's ascension in 1980 coincided with a moment when the United States was on the cusp of what could have been a golden age. Federal investments in transportation, technology and science had brought the country into sight of a new horizon where a broad prosperity was possible for the entire population.
Through the tax structure of the 1950s, 1960s and 1970s, Americans had footed the bill for a wide range of advancements. However, some temporary economic reversals in the 1970s -- from the Vietnam War's inflationary hangover to oil shocks in the Middle East -- created a national malaise that Reagan promised to cure with his cheery personality and tax policies.
So, instead of the country profiting from all those government investments -- from the highway system under Eisenhower to microprocessors from Kennedy's space program to the Pentagon's early development of the Internet -- the profits went almost entirely to big corporations and the rich who devised ways to take advantage of this taxpayer-financed progress.
Some of the new rich, who piggybacked onto government-funded projects like the Internet, claimed they were the worthy ones who deserved their sudden wealth. Republicans continue to warn that it is wrong to punish society's "winners," even though many online moguls might be delivering pizzas today if it weren't for the taxpayer money used to create the Internet.
Meanwhile, average Americans lost out in two ways: first, the higher productivity from the technological breakthroughs eliminated many middle-class jobs, from factory work to accounting, and second, the adoption of "free trade" policies shipped many jobs overseas to lower-wage countries.
Those two developments alone ensured super-profits to multinational corporations and their wealthy owners. However, instead of a large chunk of that money going to pay back the nation for the crucial investments and for the global security that made the "free trade" possible, the money mostly went to buy expansive mansions and expensive baubles.
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