History's Goat

The economic engine is running on empty. It looks robust only if you ignore the underlying conditions. Household savings were negative last year for the first time since 1933; that is, families kept up by spending more than they earned and by borrowing to do so. The national economy, encompassing private-sector business and government as well as households, also had negative savings in the fall quarter of 2005, despite bountiful corporate profits.

The household accounting reflects a common reality: Wage incomes, adjusted for inflation, are stagnant or falling. The weekly wage for 92 million people in nonsupervisory jobs (82 percent of the private-sector workforce) has declined for three consecutive years, largely because total working hours shrank across the economy. Even per capita income--a broader measure that includes the billionaires--declined for four years in a row under Bush. One in six manufacturing jobs has been lost since 2000 (39 percent in communications equipment, 37 percent in semiconductors). These losses are explained as free-market "efficiencies" but mainly represent the global relocation of American production.

The cumulative effect is an economy that doesn't produce enough to pay for what it wants and needs. The conservative order, notwithstanding its proclaimed values, makes up the difference by borrowing. In five years, Bush has added $2.5 trillion to the federal debt with more to come (thanks to his regressive tax cutting, deficit spending, the war in Iraq and the subpar economy). In the same five years, the national economy as a whole took on even more debt--$2.9 trillion--to pay for the ever-swelling trade deficits. The creditors are our trading partners, led by China and Japan. The collective indebtedness is growing much faster than the nation's collective income--always an ominous sign for a debtor. George W. Bush may wind up as history's goat because he had the bad luck to inherit the effects of twenty-five years of rightward governance (including Bill Clinton's tenure). Government shifted tax burdens downward, favored military spending over productive domestic investment, encouraged multinationals to disperse jobs and production overseas and embraced the Federal Reserve's hard-money monetary policy, which suppressed working-class wages. Fortunes were shifted upward, fabulously.

The era produced a great ideological irony: Starting with Reagan, the right repeatedly finessed its contradictions with debt--the borrow-and-spend "sin" they once assigned to liberalism. In 1981, Reagan's first year as President, the federal debt surpassed $1 trillion for the first time ever. Twenty-five years later, despite fiscal restraint under Clinton, the federal debt has surpassed $8 trillion.

The Republicans now find themselves in a corner with no good choices. If Bush withdrew the stimulus of federal deficits, economic growth would collapse. The sensible course would require a massive shift in priorities--moving money and benefits from the wealthy few to the struggling many--but that is ideological heresy and would double-cross the GOP's monied patrons. Bush could confront the huge trade deficits by imposing unilateral limits on imports, but that is also a humiliating heresy he won't touch. So conservatives are likely to muddle on, hoping the economy will somehow work itself out of its weaknesses. Progressives should get busy now developing alternative ideas for the major shift that must inevitably follow.

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