The president calls it a "jobs and growth" plan, but it's neither.
His latest round of proposed tax cuts won't create jobs and won't grow the economy. It will only do more of what his last round did -- make the rich even richer.
The economic problem right now is too much capacity relative to demand. Too many factories are idle, too much equipment isn't being used, too many people don't have jobs. The nation is having a hard time coming out of its slump because there still aren't enough buyers for all the goods and services the American economy can produce.
But there's also a long-term problem, and it's as much a social problem as an economic one: We're splitting into three separate societies.
At the top is a regal class with more wealth and income than any aristocracy has ever had. They're also receiving a bigger slice of America's total income now than at any time in the last 60 years. In the middle is a big, anxious class that's just a bit better off than a decade ago but still having trouble making ends meet. At the bottom is a large underclass whose income and sparse wealth declined through the 1980s and mid-1990s, then picked up in the late '90s when the national rate of unemployment dipped to 4% and employers had to scrounge to find workers. Now that the official rate of unemployment is back at 6%, the underclass is falling backward again.
The short-term problem is related to the long-term one. For years, American productivity has been rising at a healthy clip. Computer and Internet technologies have dramatically increased our capacity to produce more goods and services. That's a major reason why the economy could grow so quickly in the '90s without igniting inflation.
Alan Greenspan deserves credit for recognizing this when he allowed short-term interest rates to fall and unemployment to drop. Despite the "irrational exuberance" that caused stock prices to soar in the late 1990s and plummet between 2000 and now, the productivity revolution continues. That's why our businesses have all that new capacity.
But here's the rub. All the goods and services that can now be produced have to be bought by someone. Individual consumers account for two-thirds of what's purchased in the nation. And because of the productivity revolution, a lot of items can be made cheaper. But they're not so cheap that consumers can afford to buy all of them on paychecks that haven't gone anywhere.
The only people whose pay has skyrocketed are at the very top. They're spending princely sums on exotic vacations, mansions in the Hamptons and cashmere sweaters. But they spend only a fraction of the money they have. The much-larger anxious class doesn't have a lot of discretionary income after paying for utilities, food and housing. The underclass has virtually none.
The recession that just ended was relatively mild because most consumers in the anxious and under classes kept on spending despite their fragile finances. But to do so, they had to go deep in debt and work longer hours. Now they're worried about unsteady jobs, shrinking 401(k) retirement savings and war.
It looks as if their buying binge is over. Consumer confidence has dropped six out of the last seven months. The Christmas buying season was a bust.
So where's the demand for all the goods and services the U.S. can produce to come from? Foreigners won't and can't buy up what's left. The world's second-largest economy, Japan, is flat on its back; the third-largest, Germany, is sliding into recession. Much of the rest of the world is in no shape to go on a buying spree.
So now comes President Bush's much-vaunted economic plan. It mainly cuts taxes on the royal class. Its members own most shares of stock, so reducing taxes on stock dividends is a boon for them. According to the IRS, more than 60% of the total value of dividends paid to individuals in 1999 went to the top 10% of taxpayers. The royal class also gains the most from accelerating the income tax cuts enacted in 2001 because most of the benefits originally scheduled to take effect after 2004 went to the highest earners. And they're the ones who reap almost all the benefits from a permanent repeal of the estate tax, which would affect only estates worth more than $1 million. Yet the members of the royal class are spending about as much as they want to spend. No amount of extra money in their diamond-studded pocketbooks will cause them to spend much more.
The president's plan responds to the nation's two overarching economic problems -- overcapacity and widening inequality -- by worsening both. It's a remarkable achievement, made all the more remarkable by the utter cynicism with which it's being marketed.
It's not a plan for "growth and jobs." It's a plan for rewarding the rich when what the economy needs is more spending by people of modest means. And it further concentrates wealth and power at a time when wealth and power are already in fewer and fewer hands.