Boomerang Economics: Boom or Bust?

One would think a constant failure to control or even limit the increases of the national debt, $20 plus trillion, would draw attention to cause and effect. The interest we pay on that is now almost a quarter trillion a year. That’s some serious cash with get nothing in return.

In general government debt increases as a result of government spending, trade deficits, unpaid credit and decreases from tax or other receipts. It becomes clear since the 1980s that the national debt has continued to grow to what seems a point of no return as do the trade deficits, almost three quarters of a trillion dollars just this year.

Taking a trip back in times tells us history can and will repeat itself. In the 1920s a striking feature of the economy was the increase in mergers. Giant companies controlled more and more of American business. By 1929 nearly half the American wealth of the country was owned by just 200 corporations in turn controlled by about 2,000 persons.

There was a great imbalance in the distribution of income in the United States. In 1929 the income of the top tenth of one percent of the population equaled that of the bottom 42 percent. A banker was quoted as saying “Capital kept too much, and labor did not have enough to buy its share of things.”

In 1924 prices of shares of stock in American corporations sold on the New York Stock exchange had been rising. This rise was a reflection of the large profits companies were making. This spurred expectation that buying would later gain profits through selling in a skyrocketing stock market.

Union membership had grown during the early 1900s, but between 1921 and 1924 membership in the AF of L dropped by 25 percent. This along with increased productivity gains and reasons stated above started the Stock Market Crash of 1929 followed by the Great Depression.

If you would put a blue print of our economy over that of the 1920s you might gather the same indentifying factors. Large companies buying up others. Stock market at all time high. Top one percent equaling great portion of bottom half in wealth. Union membership down.

There is one thing added to those issues that rises above just those concerns and that is the national debt. Some say we may leave to our grandchildren to pay off. All factors considered this will affect us much sooner than later.                                                                                                                                                                                                                                                                                                                                

In 2001 Congress enacted the Economic Growth and Tax Relief Reconciliation Act. As a result of the law, in 2010 the average tax cut for the bottom 20% will be less than $350 with the top 1% getting a tax cut of $92,000. This adds to the disparity of wealth from top to bottom. It doesn’t address stagnant wages or cost of living increases incurred by those in the bottom tier of wages. Results didn’t increase capital for labor to buy its share of things. It did little if anything to improve the economy or decrease the growing national debt.

This brings me to the tax plan now being discussed in Congress. Does Boomerang Economics, throwing out there hoping it comes back, resemble more of the same? Will it give the middleclass the money or result in a financial windfall for the top 1%. If it is the latter of the two it will only multiply factors leading to bankruptcy of our government and a depression that will make the Great Depression look like a hiccup. Bankruptcy 2021!

I’ll end with one continuing issue still looming in our economy and that is trade deficits.

In the 80s Sam Walton warned of trade deficits and solvency of our country. In the 90s former CEO and Chairman of Dana Corporation, Southwood J. Morcott said “When we do buy a product, it is obviously more helpful to our economic recovery if the product is produced in the United States.” And in December of 2000 the U. S. Trade Deficit Commission said, “Not only is the trade deficit not sustainable but it carries a great deal of danger to the nation and living standards.”

Even Woody Hayes spoke of trade remembered by defensive end, Tom Marendt, in 1971. “It was a general meeting during summer ball, and no one, not even the assistants, knew what it was about. So we go in and all sit down, and Woody starts a lecture on products, specifically telling us why we must buy American products.”