The policies that enabled the creation of our Second Gilded Age were born at the end of the 1970s out of a particular reading of the political economy of that moment.
Were the ideologues and the intellectuals of the right correct back when they claimed in the late 1970s that the economic problems of the 1970s were the result of "too much government" or of "an excess of democracy"? I think not. But in order to evaluate the argument we need to remember what it was.
So here are the particulars of the claims that the U.S. in the late 1970s suffered from too-large a government and too-strong a democracy set forth by Martin Feldstein9 and Samuel Huntington10, with 1-17 from Feldstein and 18-31 from Huntington:
- "Real GNP growth slowed from an annual rate of 3.9% between 1947 and 1967 to only 2.9% between 1967 and 1979... productivity per man-hour in... private business... 3.2% during 1947-67 to less than 1.5% since 1967 and less than 1% since 1973..."
- "The average unemployment rate rose from 4.7%... to 5.85%..."
- "The average rate of... CPI inflation jumped from 2% to 6.7%... with an acceleration to an average of nearly 9% since 1973 and over 13% in 1979..."
- "Stock prices... rose sixfold between 1949 and 1969.... In the decade since... in constant dollars fell nearly 50%..."
- "A falling share of national income devoted to net investment and to research and development..."
- "Increasing pressures and risks in the financial sector..."
- "Low profitability and an aging stock of plant and equipment in many specific industries..."
- "A deteriorating performance of United States exports..."
- "Expansionary monetary and fiscal policies... in the hope of lowering the unemployment rate but without anticipating the higher inflation rate that would eventually follow..."
- "High tax rates on investment income were enacted and the social security retirement benefits were increased without considering the subsequent impact on investment and saving..."
- "Regulations were imposed to protect health and safety without evaluating the reduction in productivity that would result or the effect of an uncertain regulatory future on long-term R&D activities..."
- "Raising the amount and duration of unemployment benefits to the current high levels to avoid hardship among the unemployed would encourage layoffs and discourage reemployment..."
- "Medicare and Medicaid... lead[ing] to an explosion in health care costs..."
- "Welfare programs... weaken family structures..."
- "Federal aid through the tax laws and through special credit programs to encourage homeownership would have such adverse effects on the cities..."
- "The high rate of unemployment, the lack of investment demand, and the low rate of personal income tax constituted an environment in the 1930s in which the side effects of social security and unemployment compensation would be relatively innocuous. Today's tight labor market, capital scarcity, and high personal tax rates imply that these programs now impede employment and capital formation..."
- "Personal and business tax laws were designed for an economy with little or no inflation. The interaction of this tax structure with the current high inflation rates causes extremely high effective tax rates on capital income, a discouragement to saving, and a distortion of investment away from plant and equipment toward housing and consumer durables..."
- "The democratic surge of the 1960s raised again in dramatic fashion the issue of whether the pendulum had swung too far..."
- "The vigor of democracy in the United States in the 1960s thus contributed to a democratic distemper... the expansion of governmental activity... and the reduction of governmental authority..."
- "Across the board, the tendency was for massive increases in government expenditures to provide cash and benefits for particular groups within society rather than in expenditures designed to serve national purposes vis-a-vis the external environment..."
- "During the 1950s and early 1960s... governmental expenditures normally exceeded... revenue... but... the gap.. was not large.... In the late 1960s... after the... Welfare Shift... the overall government deficit took on new proportions... obviously one major source of the inflation which plagued the United States..."
- "The beneficiaries of governmental largesse coupled with governmental employees constitute a substantial proportion of the public. Their interests clearly run counter to those groups in the public which receive relatively little in cash benefits from the government but must contribute taxes..."
- "In the family, the university, business, public and private associations, politics, the governmental bureaucracy, and the military services, people no longer felt the same compulsion to those whom they had previously considered superior to themselves... discipline eased and difference in status became blurred..."
- "The commandments of judges and the actions of legislatures were legitimate to the extent they promoted, as they often did, egalitarian and participatory goals. 'Civil disobedience', after all... implied the moral value of law-abiding behavior depended upon what was in the laws, not on the procedural due process by which they were enacted..."
- "The major expansion of unionism in the public sector... add[ed] still further to governmental deficits and to the inflationary spiral..."
- "The imposition of 'hard' decisions imposing costs on any major economic group is... particularly difficult in the United States..."
- "Domestic problems... become intractable.... The public develops expectations which it is impossible for the government to meet..."
- "Politicians... [seek] achievement which may have an immediate payoff but which they and, more importantly, their country are likely to regret... giv[ing] to dictatorships (whether communist party states or oil sheikdoms)... a major advantage..." 29 "An 'excess of democracy'.... The effective operation of a democratic political system usually requires some measure of apathy and non-involvement on the part of some individuals and groups..."
- "Marginal social groups, as in the case of the blacks, are now becoming full participants in the political system.... Less marginality... needs to be replaced by more self-restraint..."
- "Democracy is more of a threat to itself in the United States than it is in either Europe or Japan where there still exist residual inheritances of traditional and aristocratic values..."