The rise of the entrepreneurial state Book

This is an informative book on the unintended consequences of Reaganomics in widening the income inequality between the rich and the poor at future American's expense via the federal deficit.

The book speaks to a known fact that middle classes wages have stagnated under Reaganomics while the rich have gotten richer. My own hypothesis of what has happen is that Reaganomics made capital global as never happened before and b/c of this the rich preferentially benefited from this capital while multi-national firms receiving that capital have outsourced the labor to cheaper places thus depriving good manufacturing jobs in the US. The question is can the US people compete in this increasingly competitive world. I think the key is really to invest a whole lot of dollars in education and if the Democrats want income distribution, it should be directed in proven methods of social mobility. That is, if there is a special tax for the rich to pool it's resources towards a special social mobility fund that can be competitively placed in people who will make social mobility at the top of their priority. While trickle down economics works globally, it does not work in a specific national context like the US.

The Progressive era was as much an attack on robber barons by the common man as it is the resentment of the old established wealth resentment towards new wealth. The one thing that the old rich had was a sense of giving back to the community they belonged to that is lacking in new rich.

Reaganomics copied Coolidge revival of Roaring 20's economics but with debt involved. While America the land of millionaires, it also became the land of large national debt, stagnant disposable income, and homelessness. Wealth concentrated @ the top in unprecedented levels due to unfettered unearned income like a cut in capital gains tax while wages stagnated. The wealth concentrated by the smart, well-educated, and highly motivated individuals.

Now for the downside:

During this period, a two income household become a necessity instead of a luxury. For middle America, there is a stagnant purchasing power in living wage since the late 1970's. Once a manufacturing blue-collared job with minimal education was the ticket to the middle class but no longer due to outsourcing globalization. Although American GNP was rising, real wages were decreasing across the US. Just like the end of Reagan’s term, today we continue to face wage stagnation in the face of immense corporate profits.

Reaganomics enlarged the upper middle class such as 2-earned professional families, entrepreneurs, and investors were the foot soldiers of the Reagan revolution. The reason why the richer get richer in our economy is b/c they are the ones who vote not the people who are economically dispossessed. The gap b/w rich and poor was a global phenomenon with Japan agreeing to buy US bonds to keep the economy humming just as China is buying bonds today.

Dukakis resisted charging Bush with the stereotypical rich vs poor charges b/c he himself belonged to the upper middle class. It is ironic that the coastal regions who benefited from Reaganomics the most are now Democrat bastions.

The reason why Capitalism survives in the US is that Democrats are much a fan of it as Republicans but whereas Democrats favor regulation in capitalism, Republican favor unfettered capitalism. When Republican's are in power the concentration of capital results b/c they emphasize national unity, dynamic capitalism, and market economics.

Was Nixon having market driven welfare due to the fact he came from a humble middle class background and did not identify himself with the rich? Kevin Phillips was part of Nixon "new majority" republicanism with its anti-establishment middle class (blue dog democrats) The Democrats became the party of intellectual knowledge-based elite.

Under Reagan, the establishment became once again the economic via businessmen, investment bankers, and entrepreneurs instead of the intellectual ones that were in the Democratic party. It turns out Carter started policies that Reagan enshrined as sacrosanct in cutting taxs for the rich and deregulation and placing Volcker as Federal Reserve Chief. What started out as Carter cranks became Reagan trailblazers. It turns out that Democrats as far as the capitalist economy goes are just Republican-lite.

"Accelerating economic inequality under the Republican was more often a policy objective than a coincidence; but greed was rarely the motive; it was more a matter of investment theory and free-market philosophy." The shift of economic capital was from the welfare state to Entrepreneurs and Investors. Just like Romney suggests, Reaganomics caused creative destruction that is the hallmark of modern capitalism. Phillips suggests that this used to be cyclic in which enterprise-oriented policies unleash latent capitalist energies followed by speculative excess and market crashes. Usually, unfettered capitalism follows community-minded or government activism and vice versa. Excessive inflation usually drives market driven reform combined with disenchantment with government and renewed attention to individual enterprises. Reaganomics had the evangelical fervor that their economic theory was the only American should be.

The 1st Republican age occurred during the Gilded Age guided by the theory of Social Darwanism and "laissez-faire" philosophy seeing that the economic fit will naturally rise to the top. The Roaring Twenties in contrast was the age of the "cult of prosperity" with Jesus being the greatest salesmen in the world. The idea is to be in Sales of anything. Reaganomics was characterized by a backlash against government overreach. Reaganomics framed in 5 central tenents: 1) importance of nurturing wealth, a successful economy depends on the proliferation of the rich. 2) individual investment and production are inherently creative, echoing the notion that supply creates demand (poster child of this is Steve Job's Apple when asked whether he does market research, he said "no, b/c the consumer does not know what it wants until we produce it and show it to them"). 3) the need to curb government b/c its regulation interferes with production which is the hallmark of supply-side economics 4) the essential role of entrepreneurialism in Reaganomics 5) cutting upper bracket taxes to help the middle class and the poor (trickle down economics)---> does not work.

Reaganomics was ripe for a take over b/c of inflation and inefficient government economic regulation.
The resurgence of Entrepreneurialism of outsiders crashing into remote corporate hierarchy was an appealing vision. Whereas older of Republicanism talked about inherited wealth, Reaganomics talked in terms self-made anti-elitist entrepreunerialism. Millioners were democratized. Entrepreneurs insisted that they were the key to change and growth. Immigrants and non-WASP entrepreneurs were central to Reagan's entrpreneurism and technological innovation.

The problem is the line between entrepreneurialism and debt manipulation became finer. That is, paper entrepreneurs proliferated people who did not make anything but instead made money off of money. The leverage buyout tycoons had taken the restructuring process beyond survival of the fittest to destructive profiteering, reckless expansion of corporate debt and rising bankruptcy rates. By doing this, all the reward goes to the leverage buyout tycoon while leaving all the risk to pension funds, saving loans, and banks all of which are insured by the government which leads to taxpayer-funded bailout. If it is true that immigration foster traditionally fosters entrepreneurism, why is Heritage Foundation so against it just b/c Obama is the one who suggest it?

1981 tax cuts lacked business investment in highering workers and hard capital. Phillips state that liberty and equality are antagonistic levers when one goes up the other goes down. Although tax cuts and high interests rates to protect creditors, bondholders, and financial institutions were part of traditional GOP policy, Reagan introduced running up peacetime deficits as a part of the framework as a private sector tool to fund tax cuts to the rich and military spending. While unearned income taxes were cut, Social Security taxes were raised disproportionately affecting middle class Americans. Although across the board tax cuts allowed the rich to pay a larger percentage of American taxes, it also was less than overall percentage of their income. Unlike previous Republican administrations, the fact that American military had replaced Britain as the preeminent world military might meant tax cuts would increase the deficit.

Aside from stagnant wages, the working poor lost federal assistance to the benefit of the defense industry.

Cutting taxes on estate and unearned income gave inherited wealth an upper hand

Reagan either defunded regulatory agencies or placed people in it who were hostile to it. Deregulation started under Carter with transportation that later spread wholesale towards all sectors. While deregulation helped consumers, it decreased safety and led to industries that were not safe such as food and drug services. As with everything educated, affluent were able to take advantage while uneducated poor people were not able to take advantage and favored populated areas over unpopulated areas. Deregulation policy also led to lax anti-trust enforcement thereby leading to increased mergers thus guaranteeing higher prices for consumers. Deregulation allowed S&L to spend money in risky ventures which was insured against loss by the tax payer.

Mundell combined loose fiscal policy (tax cuts and large budget deficits) with tight monetary policy. 1980's fiscal policy was different from other Republican administration b/c Money created money in other shores instead of products for the US for export to other places.

Interestingly, once regulation is established and companies adhere to it, they resist deregulation b/c it encourages market entry by entrepreneurial competition.

Starting in the '80's, wealth was moved globally via international US debt. Although there has been an increase in millionaires, there has also been an increase in foreign investment in the US from the Japanese in the 80's to the Chinese today. Reaganomics not only concentrated wealth to handful of people at the top but also shifted wealth outside the US this was due to Reagan needing to borrow huge sums of money @ high interest rates to fund the tax cuts, defense building, and recession spending. From Fed's high interest rates, that made foreigners buy US bonds to its devaluation of the dollar that made foreigners own more of the US assets. Although the foreign investment poured into the US, foreign companies sent the profits back home. Unlike prior periods of indebtedness to expand production, this era indebtedness fueled US consumption instead. During the Reagan era even though jobless rate decreased, the standard of living and the wage remain stagnant compared to other industrial nations thereby giving credence to the increase in wealth gap. As US debt increases, future US living standard would fall.

While there is historical precedent of declining empires decline due to debt to fund wars, Reaganomics was the first time in history in which a country would go into debt to cut taxes for the rich. What is worse instead of making debt go toward productive investments, the debt instead into "creative financial instruments" that fed a rise in consumption of the US economy via credit cards. Aside from financial sector, defense and aerospace contractors, and port cities like Boston where imports coming in were large beneficiaries of Reaganomics.

Japan blamed US decline on American imperial military global overreach. Japan was the beneficiary of Pax Americana. At the time, High tech industries are being overtaken by global competition. I wonder if that is still the case?

Phillips paints a picture of foreign companies taking over "american" firms of course underlies the fact that these companies with the exception of Chinese companies have become multi-national firms with no regard to country loyalties. Who cares what companies own what as long as American jobs are being produced! Financial services made LBO a key to their money cow to selling off American companies oversees.

Thatcher's conservative government while strengthening the wealthy also saw a rise in unemployment three times as it was when she took office.
Japan, Britain, and the US conservative governments made the transfer of wealth in favor of the rich possible.

The good thing with millionaires and the goods they produce is what one time period is shown as luxury the next is seen as necessity by its commoness and decrease in price. Only when times are bad does resentment of wealth start to show itself.

The biggest beneficiaries of Reaganomics was the service sector including finance at the expense of commodities such as manufacturing, construction, and oil, gas, and mining. Blue-collared manufacturing jobs were the entry way to the middle class by uneducated folks. The service sector had more education and talent. The billionaire class came from real estate, retailing, computers, food and drink, communications, health care, and the military. By this point, oil billionaires were diversifying their investments.

Financiers made money from restructuring and repackaging and dismantling Fortune 500 companies. CEO's were not paid to perform they were just paid a standard rate. Affordable housing was an issue where the number of homeless have increased b/c of expensive homes.

GEOGRAPHY: COASTAL WINNERS AND INTERIOR LOSERS

The East Coast and California gained during Reagan presidency b/c of service industry concentration such as finance, insurance, entertainment, defense, and US trade imports. Sophisticated military expenditures meant they had to be located in bicoastal high tech research areas. The strong dollar lost money for farm areas due to cheap imports from other countries. Beyond the cities, education and economics were more important than race. The rural economies were collapsing.

THE LOSERS:

The economy affected disproportionately women, young people, blacks, Hispanic though people who were well-educated, well-married, and well off did better than the national average. There was a significant divide between the rich and well-educated and the poor and uneducated even more prominent in minority communities. On the plus side there was now a stable Black middle class while the majority of those in poverty were still minorities.

Single-parent households increased which not only stressed families household incomes but also stressed the woman who was heading the household. While the elderly became richer due to increase in federal benefits, the children of the US became poorer.

Culturally, unemployable youth drove up crime rates and expanded the drug trade while unwed teenage mothers and broken families promised further welfare generations and expenses. Wealth correction only happens during periods of depression or deep recession.

George HW BUSH:

Phillips belonged to Nixon's middle American Republican party criticized Reagan's aggressive new money capitalism. Whereas Reagan fashioned himself to be a Coolidge Republican with an unfettered capitalism, Bush preferred Teddy Roosevelt brand of Republicanism with his commitment to conservation, patrician reform, and greater regulatory involvement. Reaganomics excessive commitment to private wealth worked against the national interest by running up the national deficit.