By ALAN J. ORTBALS
For those of you too young to remember, “The Famous Adventures of Mr. Magoo,” Magoo was a myopic cartoon character who bumbled his way through life repeating the same mistakes time after time. Mr. Magoo came to mind recently as I read three government reports from the month of July.
First, the Bureau of Labor Statistics reported disappointing job creation numbers for July — just 157,000. It was the weakest jobs report in seven months and bad enough that it actually moved mortgage interest rates down.
Second, the U.S. Department of Labor reported that wages were not only growing more slowly than inflation but that wages have seen a sharp decline since the beginning of the year. Reviewing the government statistics, Pew Research commented that only the top 25 percent of wage earners have seen a true increase in pay over inflation since 2000 and that the cost of gas, housing and transportation have all jumped over the last year.
Topping it off was this Associated Press headline, “U.S. budget deficit this year is already 21 percent higher than last year.”
According to the champions of trickle-down economics, it wasn’t supposed to work this way. The Tax Cuts and Jobs Act of 2017 was supposed to be a boon for the middle class — creating jobs, raising wages and paying for itself through all the additional economic activity.
Sadly, trickle-down economics does indeed work this way. But, like Mr. Magoo, we keep stumbling along, falling for the same slick sales pitch and making the same mistake again and again. Consider its history.
After a long hiatus, Ronald Reagan revived trickle-down economics during his tenure, rebranding it as “Supply-Side” Economics. Huge tax cuts for the wealthy led to a burgeoning income and wealth gap between the top 1 percent and everyone else. Income for the lower 90 percent remained relatively flat over the decade of the 80s. Meanwhile, the national debt nearly tripled under Reagan’s watch and continued to grow under his successor, George H.W. Bush. The Reagan era ended in the recession of 1990 followed by a jobless recovery.
With deficits piling up, George H.W. Bush supported a tax increase in 1990 that probably cost him the 1992 election but led to a balanced budget in the Clinton years. When Bill Clinton handed the keys to the White House over to George W. Bush, we were on track to generate budget surpluses and begin to pay down the national debt.
But that bit of fiscal sanity expired when W pushed through another round of tax cuts driven by the same trickle-down economic philosophy promoted by Reagan. W actually pushed through two rounds of tax cuts, the Economic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003. The result was meager GDP growth of 1.8 percent per year and job creation that averaged just 95,000 per month. While income inequality grew; the wealth gap widened; the national debt ballooned; and, the economy eventually crashed in the flames of the Great Recession.
But we still hadn’t learned our lesson. Donald Trump promised, “the biggest tax cut in history.” So, once again, Congress passed massive tax cuts for the wealthy and pitched it to us as the Tax Cuts and Jobs Act of 2017. Seven months into it we can see how that’s working out. The rich are getting richer, the rest are struggling and the national debt is skyrocketing. My bet is that, as in the past, this will end in economic recession. And, when it does, we’ll be left with few tools to right the ship.
Governments fight off recession in two ways: increased government spending or tax cuts. But taxes are already too low to pay the bills so there’ll be no room for additional cuts when the recession does hit. And increasing government spending will be tough because we’re already exploding the national debt with the Trump tax cut. We’ll find ourselves between a rock and a hard place but that won’t be Trump’s concern. It will be President 46’s problem and ours.
Oh, Magoo. When will you learn?
Alan J. Ortbals is president and publisher of the Illinois Business Journal. He can be reached at [email protected] or (618) 659-1997.
By ALAN J. ORTBALS