Inequality

Understanding and Fixing American Economic Malaise, 1970s to Present

The Problem

• Slowing American economy

• Stagflation: simultaneous high inflation and high unemployment

• Oil shocks

• Competition from Europe and Japan (and later all Asia and Latin America)

Solutions

• Keynesian “pump priming” – no longer effective

• Economic restructuring – long term and painful solution

• Remove “barriers” to economic innovation

• Maintain living standards to encourage consumption

Balance of Power in the White House and Congress

• Congress– House – Democratic (28 years); Republican (12 years)

• 1968 - 1994 - Democratic• 1994 - 2006 - Republican• 2006 - 2008 - Democratic

– Senate - (Democratic 23 years; 17 years)• 1968 - 1980 - Democratic• 1980 - 1986 - Republican• 1986 - 1994 - Democratic• 1994 - 2000 - Republican• 2000 - 2002 - Republican/Democratic• 2002 - 2006 - Republican• 2006 - 2008 - Democratic

• White House:– Republicans – 28 years (1968-76; 1980-92; 2000-2008)– Democrats – 12 years (1976-80; 1992-2000)

Balance of Power, 1968-2008

• Presidency • RRRRRRRRDDDDRRRRRRRRRRRRDDDDDDDDRRRRRRRR

• House• DDDDDDDDDDDDDDDDDDDDDDDDDDRRRRRRRRRRRRDD

• Senate• DDDDDDDDDDDDRRRRRRDDDDDDDDRRRRRRRDRRRRDD

Balance of Power, 1968-2008

• Presidency

• RRRRRRRRDDDDRRRRRRRRRRRRDDDDDDDDRRRRRRRR

• House• DDDDDDDDDDDDDDDDDDDDDDDDDDRRRRRRRRRRRRDD

• Senate• DDDDDDDDDDDDRRRRRRDDDDDDDDRRRRRRRDRRRRDD

1976-1980 1992-1994 2002-2006

Conservative Solutions: Reagan/Bush I Era

• Tighten monetary policy to control inflation• End welfare and coddling of criminals • Curb the power of unions• Ease civil rights enforcement and affirmative action• Deregulate industry to create more competition:

– Airlines, 1978

– AT&T breakup, 1984;

– loosen environmental rules.

• Cut taxes - to rein in big government and free private markets.

How Effective are the Solutions?

• What are the underlying dynamics?

• Who is helped or hurt (long run and short run) by:– Economic restructuring– Policy changes

1970

1969

Willie Horton ad• Bush and Dukakis on crime • Bush supports the death penalty for first-degree murderers • Dukakis not only opposes the death penalty, he allowed

first-degree murderers to have weekend passes from prison • One was Willie Horton, who murdered a boy in a robbery,

stabbing him 19 times• Despite a life sentence, Horton received 10 weekend

passes from prison • Horton fled, kidnapped a young couple, stabbing the man

and repeatedly raping his girlfriend • Weekend prison passes. Dukakis on Crime • [political message paid by National Security Political

Action Committee].• http://www.cnn.com/ALLPOLITICS/1996/candidates/ad.archive/horton.mov

MD65PLUSMD55TO64MD45TO54MD35TO44MD25TO34MD15TO24MEDIAN

Median Family Income by Age Cohort, 1947-2005

Inflation Adjusted Median Family Income, 1959-89

MD65PLUSMD55TO64MD45TO54MD35TO44MD25TO34MD15TO24MEDIAN

15to24

65+

25to34

median

35to44

45to54

55to64

Median Family Income by Age Cohort, 1947-2005