Starve The Beast = Starve The Millennials

Chris Mathews, an NBC anchor, has asked from time to time where all the political hatred came from. He should know since he was an aide to Former Speaker of The House, Tip O’Neill, who worked closely with President Ronald Reagan on many issues.  There is no doubt that our country is facing substantial political and financial problems.

How did we get into this mess?

It dates back over 30 years. In the 70s and 80s, Reagan was the first to promote the idea “taxes should hurt.” In the beginning, the idea was that if taxes were painful, citizens would become more aware of how the government spends the tax revenue. The slogan evolved into “government isn’t the solution, government IS the problem.” This was the mantra for the 80s. In 1980 the maximum individual tax rate was 70%, (20 years earlier, the top rate was 91%), while the corporate rate was 46%. By 1990, the top rates were down to 28% and 34%. The middle class was duped into thinking it would be life-changing; however, the few hundred dollars a year saving was no windfall.

The windfall, of course, fell on the top 10%.

So the shortfall of revenue naturally created problems, especially when expenditures were not decreased by a similar amount; thus, the start of serious deficit spending. On a personal level, it would be like having an income of $2,500 per month and rent of $900 per month. Suddenly, the employer reduced pay to $2,300 per month and many were forced to borrow $2,400 per year to stay even or else default on a lease. This practice is what the government did—it borrowed on the people’s behalf and had stuck them with the bill.

The overall national debt tripled during this period.

But deficit spending, at the time, helped to win elections and increase profitability. It was such a good drug, that the Europeans and others imported the philosophy in order to compete. It changed the whole world. And what’s the result?  Most of the world is on this drug and will not be able to kick the habit.

So, the “solution” became “starve the beast.”

This philosophy’s concept is: if the government is overspending as a result of entitlements and tax cuts, it will need to cut almost all expenditures. And in the 80s, these cuts came down to the local level such as high schools, colleges, roads, infrastructure, and so on.

In my local high school, music, sports, libraries, cultural activities, and repairs of buildings became the obligation of individuals. College tuitions now had less funding and had to charge higher fees. As an example, when I went to college, and the tuition represented 5% of the cost; now it serves 55% for the same school. But, there had to be a solution!

Eureka! School loans.

At first, the thinking was, “We can’t lend ‘kids’ money. They’re pretty flakey.” So, back to the starve-the-beast-headquarters.

“Aha! We can make the loans bankruptcy proof, that way they will be liable for the rest of their life, and maybe longer if they have an inheritance. But it will take time, maybe 20 years or more. We can’t do it overnight. But let’s see if this new NAFTA thing will work for now.”

So, has “starve the beast” worked in some areas?

Yes, it worked very well for the top 1%. By the late 80s the stock market had tripled (300%) but leveled of wages stayed the same even though productivity increased 70% — the theory of “trickle down” remained only a theory. The 1990 recession was on the horizon. It would last about 9 months for Wall Street and years for Main Street.

The 1987 film, Wallstreet legitimized the phrase “Greed is Good,” which became a new mantra.

We needed a new plan, and it couldn’t be called “starve the beast.” It has to have some “mother, God, and apple pie” words in the name or maybe “freedom” words. We could no longer use the slogan “greed is good.” How about North American Free Trade Association (NAFTA)? In 1992, a political unknown, Ross Perot ran for president as an independent against George H.W. Bush and Bill Clinton. He won 19% of the vote. The idea of NAFTA was that if we remove the trade barriers, we could buy products at a much lower price. Perot said that Mexican wages were $1.00 per hour vs. American wages of $12.00. It might seem to be a perfect “free lunch.”

The Unions were adamantly opposed to such as idea.

But, Perot was against NAFTA because he said there would be a “giant sucking sound” as jobs leave the USA while American companies move manufacturing out of the country. Then he said wages eventually would start to equalize. Mexican labor would approach $6.00 per hour while American labor rates would approach $6.00. But, NAFTA was labeled as “rising prosperity for Canada, Mexico, and the U.S.” That’s even better than “freedom.”

But prosperity for who?

Well, yes, big business will make a lot of money. And, the more they make, the more will trickle down. But as Perot would have probably predicted, the top 1% had increased incomes of 138% while wages decreased by 15% from 1989 to 2010. On top of that, health care benefits dropped about 30% for wage earners.

Drip, drip, drip…another decade, another arrow in the “Beast.”

In 2003, there was another tax cut. Capital gains and dividends were taxed at 15% instead of 28%. Some billionaires saved $10,000,000 in one tax year while “Joe six-pack” saved $600. Thanks to “starve the beast” tax cuts now appear to be irreversible, and we can’t afford to maintain our homeland.

In my upcoming book, a central character, a shaman named X-Ray, talks about how to be a good citizen.

The shaman says, “The first thing is personal responsibility…. We are all part of a tribe hether it is old China or the USA. The tribe has provided a platform from which each of us has sprung. So each of us has the duty of reimbursing the tribe by properly maintaining the platform and even improving this platform.” Millennials will now inherit a platform, from my generation, sadly, that has not only starved the beast but may have killed the goose that laid the golden egg.

Our infrastructure is now 17 trillion in arrears.

The politicians are talking about a two trillion dollar plan. If passed, the two trillion is to spend over a span of ten years. That’s 200 billion per year or about 1.2% of the outstanding platform deficiency which will be passed on to Millennials. So, as this fog starts to lift, we can see the future game plan for “starve the beast.” 100 million Millennials will inherit a 17 trillion dollar deficiency. Bringing it down to earth, each Millennial will inherit a deficiency of $170,000 (husband and wife: $340,000). This starts to look like a teaser mortgage payment for an average home: $170,000, 1.2% interest for the first year.

So, the 200 billion per year which represents about $600 per person, is merely window dressing to keep the “starve the beast” philosophy rolling along; appeasing the “beast” before it roars.

Oh, I forgot to add the $100,000 of student loans! Since they are bankruptcy proof, the “beast” might not want to roar too loud.

Rich Meyer, Blogger & Author