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Unions, taxes needed for growth

November 30, 2012
The Daily Mining Gazette

To the editor:

For 30 years - from 1945 to 1975 - the American economy grew at an unparalleled rate more than 2 percent a year. Then for 30 years - from 1980 to 2010 - the economy barely grew at all, except for the very rich. Wages stagnated. The middle class fell behind.

What caused this discrepancy?

There were three causes for it: High wages gave way to low wages, high taxes gave way to low taxes and regulation gave way to deregulation.

Seeing that low wages in the 1920s weakened the economy by reducing the purchasing power of the workers, the New Deal pursued policies that strengthened labor unions, thereby increasing the purchasing power of the working class. It was that purchasing power that explains the extraordinary prosperity of these years.

The New Deal likewise levied taxes on the wealthy, even as high as 90 percent on the top income of the wealthiest. This insured that the Welfare State was paid for, that the poor were looked after and the purchasing power of the consuming public was maintained. It was this purchasing power that the wheels of industry and commerce turning.

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And finally, the economy was regulated so the wild speculation that caused the crash on Wall Street in 1929 would not happen again.

Then came 30 years of low wages, low taxes and deregulations.

The clamor for low wages and the hostility to labor unions greatly weakened the purchasing power of the working class, thereby fatally weakening the demand for goods and services.

Low taxes meant small government, which led to a reduction in the size of local government, a starving of the Welfare State, less money for education, neglect of the infrastructure - all of which meant a loss of that purchasing power needs to keep the economy going. For want of this purchasing power, businesses extended credit and government ran deficits. Regulations to prevent this were repealed, hence the crashes of 1929 and 2008. Bubbles always burst.

The root cause of the recession of 2008 was not the want of capital - interest rates were at rock bottom - but the want of purchasing power in the consuming public. To regain prosperity we need workers with higher wages, seniors with a secure retirement, the poor with money to spend.

Where to find the money? Where they found it for the 30 years from 1945 to 1975, from strong unions and high taxes.





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