The Fruits of the "Reagan Revolution"

By Ron Beasley

Our current economic woes are the result of Reaganomics.  Until Ronald Reagan entered the White House 28 years ago the United States had followed an industrial policy outlined by Alexander Hamilton in 1791.  Thom Hartmann explains:

Alexander Hamilton, in 1791, proposed to the United States our first true industrial policy. We adopted it over the next few years, Abraham Lincoln reaffirmed it fourscore years later, and it was again affirmed by every President of the United States until Reagan began his now-28-year "Reagan Revolution" which has disassembled America's industrial base and impoverished our nation. For over 200 years, Hamilton's policy made America the most powerful industrial nation in the world; now – after just 28 years of Reagonomics and Clinton/Rubinomics – we are the largest importer of other people's industry, and the most indebted nation in the world.

The entirety of Hamilton's paper is easily found on the web. The first third of it deals with Jefferson's objections to it (which Jefferson withdrew later in his life), as Jefferson favored America being an agricultural rather than an industrial power in 1791. Once you cut past that, though, Hamilton gets right to the rationale for, and the details of, his 11-point plan to turn America into an industrial power and build a strong manufacturing-based middle class. Ironically, his policies are exactly – EXACTLY – what Japan, South Korea, and China are doing today. And what we have ceased to do.

Hamilton had it right. We must reject Reagan/Bush/Clinton/Bush-onomics and return to what the Founders knew worked.

As we have shipped manufacturing jobs overseas we have become a service economy. The problem is that service economies don't create any wealth.

Hamilton points out that real wealth doesn't exist until somebody makes something. A "service economy" is an oxymoron – if I wash your car in exchange for your mowing my lawn, money is moving around, it's a service economy, but no real and lasting wealth is created. Only through manufacturing, when $5 worth of iron ore is converted into a $2000 car door, or $1 worth of raw wool is converted into a $1000 Calvin Klein suit, is real wealth created. He also notes that people being paid for creating wealth (manufacturing) creates wages, which are the principal engine of demand, which drives an economy. And both come from a foreign trade policy.

"The expediency of encouraging manufactures in the United States," Hamilton started out, "which was not long since deemed very questionable, appears at this time to be pretty generally admitted."

Explaining why manufacturing was importing to America, he continued: "It merits particular observation, that the multiplication of manufactories not only furnishes a Market for those articles, which have been accustomed to be produced in abundance, in a country; but it likewise creates a demand for such as were either unknown or produced in inconsiderable quantities."

Real wealth is not created by rubbing money together to make more money as they do on Wall Street it is created when value is added to raw materials through manufacturing.  Hamilton advocated "protecting duties" on imported goods and limitations on the export of raw materials to protect US industries - a policy that was followed from 1791 to 1980 when the US became to economic powerhouse it was.  In 2008 the economy to the United States looks more like a third world country - deeply in debt and a major exporter of raw materials.  

My advice to Obama if he wants to fix the US economy - listen to Alexander Hamilton not Robert Rubin.

Much more in the original. 

Comments

[Peter G.]

That is perhaps the most simple-minded foolish argument I have ever heard from someone who purports to understand economics. If every country in the world subscribed to it there would be a worldwide economic collapse that would make our current difficulties seem pale. It would ultimately lead to economic stagnation on a truly epic scale. Does anyone seriously believe that the big three would have made the slightest effort to improve their products if it weren't for that foreign competition. The imported steel that made hundreds of thousands of jobs possible would not have existed if the manufacturers had to rely on the moribund and archaic domestic steel industry. Would US steel have gotten any better if it weren't for that competition. One could make the argument that the trade imbalances are the result of unfair currency manipulation on the part of the US trading partners but the idea that this could be cured be erecting tariff barriers would very likely result in the reduction of the US to an island of perpetual mediocrity. I find it very unlikely that the rest of the world would be content to be reduced to raw material suppliers to the US.

[Kat]

Balloon Juice's bloggers posted some interesting thoughts on the same topic today.

John Cole - Blaming The Unions

Interesting segment on Larry King Live with Ford Executive Chairman Bill Ford last night that I thought would get more attention today (http://transcripts.cnn.com/TRANSCRIPTS/0812/16/lkl.01.html):

KING: What about the UAW in all of this?

FORD: Well, the UAW obviously has been our partner through all of this. Have they made mistakes and have we made mistakes? Of course. The UAW has come a long way. I think their leader, Ron Gettelfinger, is an excellent leader and he really understands our business. In this last contract, he gave up a lot. He’s also indicated they’re willing to come to the table to do more. And so for anybody to blame the UAW as the sole reason for this is frankly wrong.

One other thing is, when I look at the people who work in our plants, I don’t think of them as UAW. I think of them as Ford employees, Ford employees who take tremendous pride in building quality and safety into our products. If you ask someone in our plant, where do they work, they say I work at Ford. To me, everybody who works in our plant is part of our extended family.

Tim F - The Mystical Secret to Economic Growth

Kevin Drum on the economy (http://www.motherjones.com/kevin-drum/2008/12/median_wages.html).

"This isn’t just a matter of social justice. It’s a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich. This is, by far, Barack Obama’s biggest economic challenge. Until median wages start rising steadily and consistently, we haven’t gotten ourselves back on track ."

In other words, the secret to sustainable economic growth is to make sure that a ton of people have a modest amound of disposable income. Having a few of people with a shitload of income, while the rest worry about medical bankruptcy, worked out less well.

Continuing below...

[Kat]

Tim F - Creative Capitalism
http://www.balloon-juice.com/?p=14709

As far as I could tell from listening to a synopsis on NPR, the most interesting aspect of Creative Capitalism boils down to a conversation between Bill Gates and Warren Buffett. Gates, whose company made vast profits when it created a niche and shut out competition, thinks that corporations should spare some of their resources for charity. Buffett, who managed a firm that thrived in a fiercely competitive environment, thinks that donating corporate resources to charity amounts to stealing from shareholders.

I hope it will not shock readers to reveal I side with Warren Buffett. Wonderful as it sounds when that people like Bill Gates finally realize that he could never spend all his money (I bet he thought about it), his initiative has the look of a food-sick morbidly obese man weighing whether to donate some leftovers. Corporate philanthropy, at least the systematic version proposed by people like Gates, strikes me less as a great idea than a depressing symptom of a second gilded age. Andrew Carnegie’s huge gifts was nice but America still won when we changed the system to make them unnecessary. Modern noblesse oblige, insofar as it survives the looming depression, is mostly a sign of how far our economic system has decayed from whatever high water mark we hit in the mid 20th century.

Kat here... There's more of all three of these posts at Balloon Juice. But with regard to the post just above, as I see it, a big part of the problem is that most companies seem to think paying their labor decent wages is 'charity' (and therefore, robbery of their shareholders), rather than viewing it as a necessary and desirable investment in the company's - and the country's - economic future.

[Bo]

Until real change is achieved, the vast majority of us (some 70 some percent of us are working class) are fucked. The parasitic capitalist class has been waging a successful war against us for a long, long, long time. Unless we stand up and demand SOMETHING, they will continue to win, and win BIG. Capitalist 'free market' economics is completely demolished as an ideological stance. The only thing of worth that its devotees can offer us is entertainment as we sit back and watch them scramble for justifications for the horrors that they have unleashed upon global society.