A Student's Reading of The Politics of Rich and Poor
Often times, a political analyst/scientist will write a book on the politics and economics of the time. This writer may also create a work which emanates views contrary to the opinion of the governing body. Rarely, however, does one find an analyst who will clearly undermine his own political party by, in effect, saying, "I told you so." Kevin Phillips, editor-publisher of The American Political Report, columnist for the Los Angeles Times, and chief political analyst for the 1968 Republican presidential campaign, describes in his book, The Politics of Rich and Poor: Wealth and the American Electorate in the Regan Aftermath, the consequences of the decisions made by the United States government while under the presidency of Republican Ronald Regan. Phillips' theme of the widening gap between the upper twenty percent of the population, in respect to annual income in actual dollars, with the lower twenty percent of the population coincides with the belief of the typical American avarice, during the eighties, leading the country on a rollercoaster ride of economic instability and shaky ground. These ideas remain constant and prevalant throughout the seven chapters. His views, though somewhat repetitive in the text, strike the reader with astonishment, especially when considering Phillips' Republican party affiliation.
With his thesis in mind, Phillips discusses three major factors that escalate and at the same time submerge the state of the economy in America. These factors include: the sudden shift in tax rates, the diminishing "global wealth" of America, and the inability of the government under Regan to satisfy a "happy medium" for economic growth. All of these factors support Phillips' theme and prove his argument of an up and down cycle of economic stability.
From 1921 to 1925 the top one percent of the population's tax rate was gradually decreased from the marginally high rate of seventy-three percent all the way to just twenty-five percent. Over four years this elite group of Americans received a forty-eight percent reduction in taxes. This decrease opened the door for the super-rich Americans to capitalize and increase their current wealth.
As the taxes decreased for this group of the population, others also benefited. A surge in real estate investments occured, the stock market values rose dramatically, and new technology such as radios and automobiles were surfacing every day. This bull economy lasted only a few short years. By 1929, the situation was reversed entirely. The economy crashed with unequaled consequences. The rich citizens who were living "the good life" four years ago were now stuck with paying seventy-three percent of the entire population's taxes. The stock market was on the down side, to say the least, the real estate and technological markets were also paralell to the stocks. The solution from the new democrats was to bring the economy back by forcing the affluent to carry the burden. The highest tax rate eventually reached ninety-one percent. After about twenty-five years, the economy was finally stable enough to lower this absurd rate. In the mid seventies, the rates were gradually lowered to a mediocre seventy percent. Starting in 1980 the republican machine decided to again lower the rates, thereby lessening the gap between rich and poor. What actually happened was the high income brackets had more of a decrease than anyone. The rates at one point reached a low fifty percent. This cut, once again opened the door for the elite to become super-elite. The cycle had surfaced again. Just like in the early 1920s, the rich were gradually getting richer at the expense of everyone. The technology markets boomed once again, real estate sales increased dramatically, and the stock market rose by leaps and bounds. It seemed like just what the economy needed. Regan's reelection thrived on the fact that the entire country was caught up in a whirlwind of the seemingly perfect economy. The cycle continued just like economists predicted; the perfect economy suddenly had a recession to deal with.
Another one of Phillips' reasons for the downfall of the United States' economy after Ronald Regan is the diminishing "global wealth" of the country. The stock market crash of 1987 opened Regan's eyes to the fact that his efforts to heal the economic woes of America were failing. The huge amounts of money borrowed to fund the tax cuts of the early eighties were borrowed at high interst rates. The republican party decided to raise the United States interest rates to a high level in order to fight inflation on the borrowed money. This surge in interest rates increased the value of the dollar significantly. This increase almost crashed American manufacturing because the products made in the states were not selling overseas due to a high dollar value. The interest rates were slowly forced down, and the dollar lost value like never before. By 1988, other countries were shopping in the states like it was a flea market. Their currency could buy so much more than ours in our own country. Soon, the trade deficit was increasing, the selling of American companies to overseas investors was a daily occurrence, and foreigners were looking at our millions as "pocket change." Japan began to buy our businesses and real estate more than any other country. In 1985 the total net worth of America and Japan was respectively 30.6 trillion US dollars and 19.6 trillion US dollars. In as little as two years, the Japanese had capitalized on the slouch in the value of the dollar and reversed the ratio. By 1987, the United States had 36.2 trillion dollars in assests compared to Japan's 43.7 trillion dollars. Most of Japan's new capital was formerly American owned companies and property. This trend in foreign ownership was a leading factor in the decline of our economic system during the eighties.
Clearly, the Japanese were not the only reason for the slip in American economic history. Phillips' other reason for the downfall was the lack of Ronald Regan's party to control a "happy medium" for everyone
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