Charles Terrano: A Question of Growth?

A Question of Growth
by Charles Terrano
Bluegrass Socialist Party

One of the biggest challenges facing Socialists is overcoming all the misinformation and misconceptions that people have. Not misconceptions about Socialism; misconceptions about Capitalism. People do not understand how a Capitalist economy actually works. We saw this during the debt debates a few months back. Those on the Right love to compare national finances to household finances. We heard so many times how when times are tough a household needs to cut back its spending to make ends meet; therefore government needs to do the same. Comparing national finances to household finances creates a nice easy analogy that ordinary people can relate to and it makes sense to say, if a family has to cut back spending when times get tough, shouldn't governments need to do the same thing?

Arguments like this show a complete misunderstanding of how finances work on a national level. Federal spending and debt work nothing like household spending and debt, but to a populace who doesn't know any better the comparison seems to make perfect sense. Educating people on economics is a huge challenge but one that we must undertake. People will never embrace Socialism as an alternative to Capitalism until they understand how the Capitalist system actually works. Until they understand the economics behind the system they wouldn't realize how badly the system hurts them.

The first step in understanding the system is to not accept statements at face value; learn to ask questions. Here's a great example: Ronald Reagan is a hero to those on the Right; it is often said that once he took office Reagan was responsible for starting the greatest period of growth in American history. This theme is repeated so often that most people simply believe it without question. This is what needs to change. When a person says that Reagan was responsible for the greatest growth we need to first ask: "What do you mean by growth?"

There are many, many ways to measure growth. We could look at the growth of income, general economic growth measured by GDP, employment growth, business growth, market growth, etc. So what kind of growth does the Right mean when they talk about Reagan? The first thing you might think of is wage growth; let's look at that first.

If we take a look at the publically available data on incomes that can be found on the census bureau’s website we can find that in 1980 the median income for a family in the bottom fifth of the population was $16,151/year (adjusted for inflation), in 2010 the median income was $14,991/year - a 7% loss. Compare that to the top 5% of the population, for people in that group their median income in 1980 was $176,375 (adjusted for inflation), in 2010 their median income had jumped to $313,298 - a 78% gain.

If you were in the poorest segment of the population, your income has actually dropped over the past 30 years while the richest segment of the population has seen their income jump dramatically. Okay, so Regan's growth could have referred to incomes for the richest Americans but as we've seen it certainly didn't do anything to help the incomes of the poor.

The next thing to look at would be general economic growth as measured by the Gross Domestic Product. GDP growth is probably what most people would think of when talking about economic growth. Here the numbers tell a very interesting story. Again, these numbers are publically available, in this case from Table 1.1.1 on the Bureau of Economic Analysis website. During the 1950's our GDP grew an average of 4.17% a year, in the 60s it was 4.44%, the 70s saw growth of 3.26%. During the 1980s, the Reagan era, GDP growth was 3.05% followed by 3.20% in the 90s and a horrible 1.69% during the 2000s. According to the data direct from the government's websites our GDP growth was actually worse during the Reagan and post-Reagan era than it was in the 30 years prior.

So growth in this context doesn't refer to GDP growth and it doesn't refer to income growth except for those at the very top. How about jobs? Perhaps there was tremendous growth in jobs after Reagan took office. Let's go to the data, this time the data is from the Bureau of Labor and Statistics. If you look at the unemployment figures you will find that from 1950-1979 unemployment averaged 5.17%. From 1980 through 2009 unemployment averaged 6.30%. Unemployment was over a percent higher on average during the post-Reagan era than before it.

If it wasn't jobs, wasn't the GDP, wasn't income except for a select few, what exactly was the growth that Reagan was said to have created?

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