Can a recent history of the U.S. economy read a bit like a crime story? Yes, in the hands of Michael Perelman, an author and economics professor at CSU Chico.
His new book, The Confiscation of American Prosperity, is a timely arrival this fall. The housing bubble is shrinking and harming many, and the author’s analysis puts such current affairs into a sane context. Perelman writes that the early 1970s was the end of the “Golden Age” of post-World War II prosperity. Corporate America’s rate of profits slumped in the late 1960s due to German and Japanese rivals grabbing market shares and profits. How to try and get it back? Politicians and think tanks united to weaken corporate regulation and taxation. And the two political parties targeted New Deal and Great Society policies, which protected the American people from the market economy.
What followed was a sea change for the nation’s majority. Perelman focuses on how this happened, who led the charge and to what ends.
The author details how a small but strong minority of Americans hoarded the bulk of growth from the sweat of a diverse labor force. As the nation’s gross domestic product tripled from 1970 to 2003, the “top 13,000 tax-paying households … saw its wages and salaries increase fifteen-fold.” Meanwhile, for the bottom 99 percent of Americans, average income remained basically unchanged between 1970 ($36,008) and 2004 ($37,295). Perelman surveys a wide variety of sources, defining his and their concepts and terms. The author’s prose is jargon-free. That may startle some readers used to opaque English from economists such as Alan Greenspan, former head of the nation’s central bank.
Pro-business policies of deregulation sprouted under President Jimmy Carter. So did the high-interest rate policy of Paul Volcker, former Federal Reserve Bank chief. This increased joblessness. President Ronald Reagan fired striking federal air-traffic controllers who had earlier campaigned for him. Later, private employers aped Reagan’s action, terminating their work forces during labor actions throughout the 1980s and beyond. Unions have been in a decline since. That has also pulled down hourly wages across the board.
On the educational and legal fronts, big business pushed to privatize public services for profit. The Heritage Foundation grew with funds from beer mogul Joseph Coors and this think tank became a service provider of experts to news media.
One of Perelman’s main themes runs counter to the wisdom that inequality of income and wealth are outcomes of market forces that free people’s productive potential. Perelman’s evaluates the research on the past three decades in the U.S. and concludes that this is a false assumption. Alternatively, he suggests that inequality disrupts and obstructs economic growth.
Further, economic inequality now, at levels last seen before the Great Depression, causes financial fragility. Businesses and the people they employ suffer, writes Perelman. Consider recent losses in the mortgage lending and home building industries from the collapsing housing market.
Lastly, Perelman critiques the economics profession. Take Professor Martin Feldstein. His research said Social Security harmed the U.S. economy by cutting personal savings. In time, Feldstein’s methods were found to have a fatal flaw. Yet he stayed close to the White House and remained a Harvard professor, shaping the world views of policy makers and corporate execs.
What is to be done with a profession that basically serves the upper class? “In the longer run, a total rethinking of economics is needed,” Perelman writes in closing. “Economists can make a contribution to this transformation by deemphasizing competition, while learning to understand more humane motives of behavior than profit maximization.”
A younger generation might help some economists of today and beyond to make this change. The crisp analysis in Perelman’s book can be a tool for that transformation.