Swans Commentary » swans.com October 20, 2008  



American Economy Predicaments


by Walter Trkla





(Swans - October 20, 2008)   The problem with the American economy, like all other industrial economies, is how to achieve, simultaneously, full employment, price stability, and economic growth. In order to achieve these objectives, any economy, of which the United States is no exception, must answer the following questions: what to produce, how to produce it, and who gets the final product. The Reagan government chose supply-side economic policies, as opposed to the theory called demand-side economics to answer these questions. This has led to the present economic crisis in America. Both theories have the same objective; however, each theory attacks the economic problem from opposite ends. The supply side addresses the economic objective through the business sector, while the demand side tackles it through the consumer sector. Roosevelt, in the 1930s, used demand-side economic policies to stimulate the economy, while Reagan some fifty years later used the supply-side economic policy to try and achieve the same outcome. "Ted Lowie has suggested that what America has done is to introduce a new form of socialism; it leaves profit to the private market but it socializes risk, which is in effect assumed by the government, which then spreads the cost across the backs of the taxpayer." (1) The result of Reagan's policies, however, was a social backlash and a polarized society. The gap between the rich and the poor became wider, which the supply-side economics was supposed to narrow. These economic policies created racial, cultural, economic, and social backlash, where the "cure became worse than the illness."

The supply-side theory, which is also called "trickle-down" theory, "Thatcherism," "Reaganomics," or better known by its opponents as the "horse and the sparrow" theory, or again, as Bush Sr. called it, "Voodoo Economics," emphasizes the production side of the market. This theory calls for the government to stimulate the economy by reducing taxes, lowering interest rates, and selling off government services. This theory also suggests that government regulations are harmful to business. As a result, supply-side governments may compromise the safety of workers by eliminating mandatory holidays, safety equipment, smoke-free environment, and minimum wages so that business has more profit for investment. Furthermore, supply-side economists suggest that low minimum wage leaves more profit in the hands of business, lower interest rates make borrowing cheaper allowing more investment capital, lower taxes mean more profit resulting in more dollars for investment, and deregulation or fewer rules and paperwork provides the business with opportunity for more investment. These savings, according to the father of Reaganomics, Milton Friedman, are reinvested by the entrepreneur in new businesses providing economic growth.

Reagan was elected on a platform to create economic growth. The private sector with low taxes, deregulation, and low interest rates, limited spending on social programs, and low minimum wage, according to Reagan's economic advisors was able to produce more goods, employ more people, and stimulate the economy. Increased employment, supply-side economists felt, leads to increased spending and more demand for goods and services. In a simple way, this demand pull by consumers, creates wealth and economic growth and stability. This logic works as long as those who benefit from these policies reinvest their savings in the domestic market.

In most Western nations, wealth is controlled by a small minority. In America, ten percent of the population controls over sixty-seven percent of the national wealth. Recent government tax cuts were supposed to create thousands of jobs; however, some forty economists suggest that only a fraction of the planned jobs were created because the "controllers of wealth" spend most of their savings outside of the country. They purchase big ticket items such as automobiles, they take holidays outside of the province, they have offshore accounts, and invest in factories in China and the Philippines where wages are low and profits are high. As a result, the effect of the tax cut is lost. In order to make up for the tax cuts the government has cut education budgets, medical services, and social welfare programs. At the same time, the Reagan and Bush governments have increased user fees on government services, decertifying unions and deregulating the forest industry, as well as, privatizing government services. Most of the cost of this supply-side economics is achieved at the expense of lower income people who received the lowest tax cuts. Reagan blamed Carter for the American economic ills and, similarly, John McCain, who voted with the Bush II presidency ninety-five percent of the time, attempts to hide his support of the Bush administration by trying to tie Obama to all kinds of innuendo loaded associations with social activists.

During the Reagan presidency we saw the deregulation of finance and loan businesses that led to two hundred billion dollars in financial losses with the collapse of the deregulated Savings and Loan sector. This event led to a financial crisis in America. To eliminate criticism of his government deregulation, Reagan deregulated the broadcasting industry that supported his policies. The repercussion of this was that the broadcasting industry dropped most public interest programs in favor of more profitable programs.

In a similar way, Reagan blamed the permissiveness of the 1960s and 1970s for the economic and moral decline in America. He responded by union bashing and eliminating affirmative action programs, while at the same time dismantling the air traffic controllers union. He eliminated social programs for the poor. This created social conflict between the poor blacks who were seen as tax users, and the whites who were seen as tax payers. Conservatives ignored the fact that black men were most often unemployed because they did not have the education and skills of their white counterpart.

Reagan blamed feminists for the increase in divorce, family violence, promiscuity, and rise in female crime rate. Sociologists such as Rita Simon disagreed with the view that feminism was a cause of female crime and attributes the slight increase in female criminality to the economic liberation of women. Other sociologists such as Adler stated that male and female crime is converging. This caused a backlash because she suggested that female economic liberation would lead to greater increase in female crime of all types. Media and right-wing women's groups ignored Adler's familial explanation of female crime and sensationalized her liberation hypothesis, saying that feminism was the cause of the increase in female criminality. The media ignored her economic liberation thesis to which Adler attributed the case of female and male crime convergence.

Likewise, the religious right blamed the decline of the American family on feminism rather than economic disparity. The religious fundamentalist backlash was the promotion of the alternative -- the "real women" who looked after their children and home and went to church regularly. The "real women," who represented a Fascist model of womanhood glorified "the three Ks" -- Kinder, Kirche, and Kuche, (Children, Church, and Cooking). This was the conservative response to the "free love" of the sixties and seventies. This hostile response to what "real women" called permissiveness led to an explosion of self-help books and scare tactics directed towards working mothers who had children in daycare centers. They published stories of child abuse in daycare centers while ignoring the fact that most abuse of children took place in the family home.

The feminist backlash was most evident in the popular culture of the day. Movies such as Fatal Attraction embody the evil of feminism as it portrays an immoral woman destroying the life of a family man that she seduced. Conversely, television sitcoms such as The Cosby Show and Father Knows Best represented the value of a family unit guided by a strong male figure. (2) Feminist writers, at the same time, added to the backlash with a debate of their own. Some feminist writers supported the liberation theory of female behavior while others stated that environment and culture guided female behavior.

In conclusion, the Reagan years and similarly the present Bush government represent a backlash against policies of their predecessors. Reagan represented the conservative business elements that were portrayed as tax suppliers and those who use social programs as tax users. Reagan attacked these programs by cutting taxes, lowering minimum wage, deregulating industry, decertifying unions, and promoting conflict between the poor and wealthy, native against non native, and women against men. These policies in Reagan's America led to the stock market crash in 1987 and the banking scandals where investors lost millions. Junk bonds, mergers and corporate takeovers combined with free trade led to the Mexicanization of the North American economy where unions and reasonable wages were discouraged. In the end Reagan used some regulations, "the very hand of the federal government that Reagan and the supply-siders had tried for seven years to destroy," (3) to minimize the financial crisis that he created. The question remains whether the next president will dare to regulate the economy or if this promise of regulations is just more of the same.




1.  Watson, P. & Barber Benjamin: The Struggle For Democracy Toronto; Lester & Orpen Dennys Ltd., pp 211-212.  (back)

2.  Gordon, Colin: The United States in the Twentieth Century Vancouver; 1996. p 217.  (back)

3.  The Reagan Revolution: http://www.emayzine.com/lectures/1980s.htm (accessed 25 April 2002).  (back)


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Internal Resources

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About the Author

Walter Trkla is a retired high school teacher of world history, law, and economics. He holds a master's degree in teaching. He also taught geography at Thompson Rivers University, and supervised student teachers for the University of British Columbia. Mr. Trkla was adopted by his uncle after his father was killed in WWII. He lives in Kamloops, BC, Canada, with his wife Judy. They have two daughters.



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Published October 20, 2008