I know I’m getting a little obsessed with the NY Times and it’s sometimes amazing, sometimes utterly clueless analysis of what’s happening with tax policy and the American economy. But I had to comment on Matt Bai’s piece in the Sunday Times about the debt-reduction commission, also known as the cat-food commission. Bai’s thesis is that American’s don’t want to hear that they are going to have to sacrifice something because it runs against our national grain, our desire to be ever bigger and stronger and number one in the world:
What makes this case for sacrifice so much harder to embrace, perhaps, is that it goes to our national psyche, threatening our self-image as a land with limitless potential. While past generations have readily sacrificed for national greatness, debt reduction — at least in the gloomy way its advocates argue for it — feels like a call to sacrifice in the name of our national decline.
And, of course, like every writer who takes on this topic, he harkens back to the Good Old Days when America seemed to be on top of the world:
For much of the Industrial Age, and especially between World War II and the oil crises of the 1970s, this was, in fact, reality. Wages and profits rose, the social safety net and the nation’s military reach both expanded, and government lived largely within its means. College education, suburban lawns, good pensions and blissful security all became part of the pact with the middle class, as much a part of the constellation of entitlements as Medicare and Medicaid.
He says, of course, in the end, that by tighening its fiscal belt, America can pave the way for more greatness:
In fact, policy experts argue that steps along the lines of the commission’s recommendations could actually modernize outdated systems — making the country more competitive as a result — without profoundly affecting the American experience. A simpler, updated tax code for businesses might help spur entrepreneurship, while a hard line on inefficient spending (farm subsidies come to mind) might free up government to invest more in new technologies and infrastructure. A streamlined military of the kind championed by Robert Gates, the defense secretary, would probably be better prepared for the challenges ahead than a military burdened by the costs of obsolete weapons systems and bases left over from the cold war.
But he totally misses a key point: Between World War II and the 1970s (actually, until the election of Ronald Reagan in 1980) the American economy was driven in part by a stable middle class, created in part by trade unions but also — to a great degree — by a tax system built on socioeconomic equality. Rich people paid taxes in the good old days — in fact, the highest income earners paid around 60 percent or more of their income in taxes. and that money allowed the nation to build highways and watger systems and offer public education to all and to create the entitlements that kept old people out of dire poverty.
And because the public sector — the government — was largely able to live within its means, and offered quality public services, people were willing to pay taxes and not blame public employees for everything and demand that Santa Claus bring them goodies for free.
Yes, this country can be great again. It’s richer than ever. But as long as that wealth is so tightly controlled by such a small elite, we’re going to continue to slide down until we become another banana republic. There’s really no way around it.