By Max J. Castro                                                                        Read Spanish Version
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Boasting about the strength of the economy has been a staple of Bush administration propaganda for a long time. In fact, while the rate of economic growth and the level of unemployment have been pretty good for the last few years, throughout the Bush era the economy has been “strong and getting stronger” only for those at the very top of the income distribution.

It is a trend that began long before George W. Bush became president but which has been aggravated by his policies. Since 1973 and especially in the last ten years, those in the top one-tenth of one percent of income earners have done spectacularly well. Those in the top one percent of the income ladder have done very well, and those merely in the top ten percent have made much less impressive but real gains in income. In contrast, and in spite of vast economic growth, between 1973 and 2005 everybody else, the remaining 90 percent of the population, experienced a significant drop in real income!

The current administration’s policies of giving huge tax breaks to the very rich, restricting government spending on middle class and low income programs, and giving business a free hand in every sphere have been a major factor in bringing about the obscene levels of inequality in existence today. But these policies have done more than just deepen inequality. By undermining regulation and oversight, these policies have led to many corrupt and irresponsible business practices, with results such as the Enron scandal and the current sub-prime lending crisis.

The regulatory mechanisms that emerged in the wake of the 1929 Wall Street crash and the Depression of the 1930s were not the product of a socialist conspiracy or anti-business ideology. They were lifesaving devices for the capitalist system and the American economy.

The administrations that have run the country for the last three decades seemed to have forgotten this and, in a frenzy of free market faith that has been particularly intense during Republican rule but has also been present during Democratic presidents, have poked huge holes not only in the social safety but also in the economic and financial safety net.

Now the myth of a perfectly self-regulating market has burst, starting with the housing market crisis and spreading through the economy. Many analysts are predicting a recession. The Federal Reserve Board, which usually acts with caution, was so alarmed as to carry out a record decrease in interest rates in order to boost the economy and prop up sinking stock market prices. The administration acted too, but as usual it saw the drama of millions of Americans in danger of losing their houses and their jobs as first and foremost an opportunity to further its ideological agenda in line with the interests of corporations and the very rich. The Democrats in Congress pushed a different set of policies to ward off recession, but in the end once more largely caved in to Congressional Republicans and the administration.

Democrats in Congress wanted to increase food stamps and extend unemployment benefits, measures that would have helped those hurt worst by an economic downturn but also the groups most likely to spend any additional income quickly, exactly what is needed to give the economy a quick boost.

Republicans were adamant against this approach. The GOP’s priority was to continue and expand tax cuts for business and the rich. The Republican argument is that this will stimulate the economy by encouraging investment.

Despite controlling Congress, the Democrats ultimately gave in on almost every issue except making the 2001 Bush tax cut permanent, which the Republicans dropped. The compromise that was approved by the House of Representatives and Speaker Nancy Pelosi does not include increased funds for food stamps or unemployment benefits. It does include new tax breaks for business investment. Pelosi did manage to obtain some payments for those too poor to pay taxes and to reduce tax rebates for households with higher incomes.

Despite these small Democratic wins, the irony is that a program intended to provide relief for a looming crisis caused to a significant degree by policies wildly biased in favor of business is itself rife with some of the same biases. 

An economy in which income is increasingly concentrated in fewer and fewer hands and that withholds its rewards from the vast majority of the population even in the best of times is not sustainable politically, socially, economically, or morally. The lesson of the compromise economic stimulus package is that neither Republicans nor Democrats are ready to confront this reality.