Where we stand today, March 16, 2009

National – Lead, follow or get out of the way: Conservative commentators have been screaming that Barack Obama is a socialist or worst. The great fear they wish to engender in their readers and viewers is that the economy will collapse fully if the income tax is raised on the wealthy. The belief in conservative circles is that the rich are the only necessary force driving the economy, the old "trickle down" theory. Conservatives thrive on this fear without ever examining the data.

Top chart: Lets start with income tax rates. Income taxes on the wealthiest Americans reached a peek of 95% at the end of World War Two. The agreement was that no one should profit from the war and few did. Under President Eisenhower, a conservative Republican, the tax rate on the wealthiest Americans remained at 91%. It took Jack Kennedy to begin the reduction of taxes on the super rich. President Obama simply wants to restore the tax rate to where it was at the end of the Reagan administration.

Second Chart: The conservative theory is that by giving money to the rich they will spend it and it will trickle down the rest of us. The alternative theory is that the rich are entrepreneurs that will create jobs and stimulate the economy. The truth is that it’s the middle class that are the entrepreneurs (the rich have ancestors that were entrepreneurs) that create most of the jobs and most of the wealth. Between 1965 and 2005 the income tax rate on the richest Americans was cut in half yet only the rich benefited. They didn’t spend it, they saved it.

Third Chart: If the conservatives are right then personal net worth should grow following a reduction in taxes. It hasn’t. Personal income has grown at a pretty steady rate while household net worth has largely been a combination of savings rates and fluctuations in the stock market. During the 1950’s when the income tax on the richest Americans was over 90% the net wealth of American households rose an average of 5.5% per year. The greatest years of growth in personal net worth began during the hyper-inflation years of the Carter administration and continued at at slower pace through the Reagan years.

Fourth Chart: The moral of the story is "Look at the data" before pronouncing one philosophy right or wrong. The press and even some in government have been screaming "Depression." Our current situation is no where near what it was during the Great Depression. This last chart shows how far away we are from our parents and grandparents nightmare. Note, however, that current unemployment statistics do not reflect the tsunami of State and Municipal layoffs that will begin in May as Budgets and services are slashed in the effort to balance the books. (Note U3 are conventional unemployment statistics while U6 include discouraged and those no longer eligible for unemployment - data comes from the U.S. Census Bureau)

According to economic theory Barack Obama and his minions are doing the right thing and the educated in the far right know it leaving only the hysterical fringe to comment.

See also Historical Unemployment In Relation to Today