The Constitution of the United States gives very few economic responsibilities to the government. “Coining” U.S. currency and regulating interstate and international trade are the only two specifically mentioned. The economic theory of “self-regulating” markets was prominent at the time. Economists believed that periods of cyclical unemployment would be corrected by lower wages, increasing profits, and providing incentives for businesses to invest, which ultimately would restore full employment. The government’s primary economic responsibility was to maintain the economic competitiveness essential for markets to be self-correcting.
During the Great Depression of the 1930s, it became apparent that market economies were not going to correct themselves, at least not without massive economic deprivation and perhaps widespread starvation. Governments in the U.S., Europe, and elsewhere in the world felt compelled to intervene in the economy to avoid political uprisings or outright revolutions.
Under Franklin Roosevelt’s New Deal policies of the 1930s, the government put more currency in circulation to reduce the cost of borrowing and investing money. Government spending for public works programs provided jobs for the unemployed. The Social Security Administration provided income assistance for the elderly and disabled. All these programs helped mitigate the economic crisis, but the Great Depression didn’t end until all the world’s major economies resorted to massive government deficit spending to finance World War II.
Following the war, there were fears of massive unemployment among returning soldiers and defense workers. In an effort to avoid another Great Depression, Congress enacted the Employment Act of 1946, which obligated the government “to foster and promote free competitive enterprise and the general welfare” by ensuring maximum employment. The Act included the constitutional language authorizing Congress “to promote the general welfare.” This Act brought partisan politics into economic policy. Liberals in Congress argued for a commitment to “full employment.” Conservatives prevailed in limiting the obligating government to “maximum employment,” meaning something less than full employment would be politically acceptable.
A government commitment to “full employment” did not become law in the U.S. until Congress passed the Full Employment and Balanced Growth Act of 1978. Rising unemployment following the Viet Nam war and rising costs of fossil energy, courtesy of the OPEC cartel, raised the threat of another major economic recession. The Full Employment Act explicitly instructs the nation to strive toward four ultimate goals: “full employment, growth in production, price stability, and balance of trade and budget.”
The Act was a reflection of the political climate at the time—the late 1970s. Lyndon Johnson’s Great Society programs of the 1960s had been similar to Roosevelt’s New Deal programs. Johnson’s programs added direct government spending to address the related issues of persistent poverty and racial injustice. Many Conservatives in government, as well as many members of the general public, feared that such programs represented a political trend toward socialism or communism. With the election of Richard Nixon U.S. in 1968, U.S. politics had taken an abrupt turn to the Right. The Full Employment Act 1978 committed the U.S. government to preserving a capitalist, free-market economy.
The presidency of Ronald Reagan of the 1980s took public support of the private economy to a whole new and different level, particularly the corporate economy. President Jimmy Carter’s economic legacy was “stagflation,” or simultaneous high unemployment and inflation. Reagan opted for a very different approach to economic policy than his predecessors: supply-side economics—also called trickle-down economics. The basic strategies are tax cuts and deregulation of private businesses. Tax cuts would give Americans more money to spend or invest and deregulation would add incentives for business investments. However, the Reagan era economic recovery was due primarily to massive deficit government military spending fueled by an effort to pressure Russia into ending the Cold War.
The most significant change in economic policy during the Reagan era was when the U.S. Department of Justice lawyers quietly stopped enforcing antitrust regulations that had been designed to ensure “economically competitive” markets. The economists who dominated the Reagan Justice Department rationalized that the ultimate purpose of market economies is to give consumers products at the “lowest possible prices,” even if doing so compromises the “economic competitiveness” essential for markets to ensure that consumers are getting the products that best meet their needs and preferences. The U.S. government essentially abandoned its initial economic responsibility of maintaining economically competitive markets.
By the time Bill Clinton became President in 1993, Democrats, as well as Republicans, had abandoned the policy mandate of the Employment Act of 1946 “to foster and promote free competitive enterprise and the general welfare.” The rallying cry of the Clinton presidential campaign was “It’s the economy, stupid!” The Clinton presidency succeeded economically primarily because new digital technologies were revolutionizing the U.S. economy. However, the dot.com economic hype eventually outpaced the digital economic reality. When the dot.com-bubble burst in 2000, President George W. Bush was left with the economic wreckage. However, the September 11, 2001, terrorist attack inspired a call for military action, which again resulted in deficit spending that succeeded in reviving the sagging economy.
The Clinton era deregulation of financial markets led to a speculative housing bubble that propped up the U.S. economy until the Great Recession of 2007-2008. The Obama presidency was then left with that mess to clean up, again with massive deficit government spending to prop up a failing banking industry and overextended private economy. Reagan had bailed out the deregulated Savings and Loan Banks during the 1980s at a cost of $130 billion. Obama’s bailout of the Commercial Banking industry cost taxpayers close to $1 trillion. Except for the deficit spending, the economic policies of the Obama era were much like those of the earlier Clinton era, with an emphasis on negotiating “free trade” agreements.
When Obama was elected president in 2008, as the first African American President, the Republicans feared a return to more progressive government policies that might give social justice priority over economic growth. The Republic leadership in Congress vowed to make Obama a “one-term president” by effectively creating a dysfunctional government. This played perfectly into the hands of an emerging corporate oligarchy. The only means of limiting or controlling corporate power is the collective power of the people working through the government. The Citizens United Supreme Court ruling in 2010 tightened the noose of corporate control around the neck of democracy when the U.S. Supreme Court removed all restrictions on corporate contributions to political campaigns. The corporate oligarchs have been free to engage in a comprehensive campaign to distort the democratic process and destroy the credibility of the government.
A growing lack of public confidence and trust in government left the U.S. vulnerable to the election of Donald Trump as President in 2012. Trump had neither the professional qualifications nor character historically considered as requisites for presidential candidacy. However, nearly half of the voters apparently didn’t want someone with the qualifications or temperament typical of U.S. Presidents. Since the Reagan era, Conservatives had been arguing that government should be run like a business; meaning that economic interests should dominate political decisions. Thus far, he has succeeded in “running government like a business,” his business, and he is clearly the CEO as well as the Commander in Chief.
From a corporate perspective, the economic agenda of the government has been very successful. Thus far, American taxpayers have been willing to bear the costs of major corporate blunders and to continue bribing corporations with taxpayers’ money to locate or relocate to their communities in the name of “economic development.” By one means or another, the taxpayers have consistently bailed out the private economy. Virtually every major political campaign in the U.S. now gives prominence to the promises of candidates to create more “good-paying” jobs and to promote economic growth.
From a political perspective, Americans are losing, or have lost, control of both their economy and their government. The U.S. economy is longer capitalism; it is corporatism—an economy controlled by corporations. The U.S. government is no longer a democracy, it is a corpocracy—a government controlled by corporations. Our economy has stolen our democracy.
John Ikerd