[Chart 1]

Recent performance by the US economy is dismally poor. Our experience in the last decade is similar to Japan's "lost" decade. A bellwether of the American economy illustrates how bad things are: the Standard and Poor's price index of 500 large-cap US stocks is down 18 percent this decade (2001-2010), even when unadjusted for inflation. The causes of this development follow below, but lie ultimately in the pursuit of economic policies since the early 1980s that derive from a selfish distortion of classically liberal (i.e., free-market, capitalist) economic theory.

After World War 2, economic policymakers used Keynesian tools to moderate market volatility. These appeared to generate stability and growth until the 1970s, when inflation and low economic growth occurred simultaneously. Initially, in response to stagflation, policymakers continued to pursue Keynesian policies, evidenced by President Nixon's statement that "I am now a Keynesian in economics." However, reactionary ideologues used the crisis of stagflation to usher in a new-old age of laissez-faire economics under President Reagan. These policies served the richest of Americans very well, but left ruin in the wider economy and for many Americans.

Beginning in 1981-82, the share of value added in the business sector, net of capital consumption, received by American workers drastically declined (see chart #1,) even as more Americans entered the workforce (see chart #2.) These two trends are the origin of enormous profits earned during the last three decades by wealthy elites – through greater labor participation and much lower sharing of production with workers.

Increasing volatility and crises have occurred because of a return to distorted, classically liberal economic policy. Economic depression, once regarded as a vanquished demon, has again raised its head high. One measure of increased volatility, the standard deviation in the S&P 500 price index, is 15 times greater for the period 1981-2010 than 1950-1980. Growing instability, rising inequality, and economic crisis are the direct fruits of our economic zeitgeist.

An important question is why a selective reading of classical economics was misapplied to conditions in the late-Twentieth Century. When Adam Smith, regarded by many as the founder of classical economics, presented his analysis in 1776, his ideas were progressive, even ideologically revolutionary, in a discipline dominated by mercantilist thinking. His prescriptions for the economy were poison to the old aristocracy and merchant classes throughout Europe. His analysis heralded a freer era to what came before. In the second half of the Twentieth Century, however, a revival of a very narrow and crude interpretation of his work brought back economic diseases that were for a time seemingly cured.

The answer to the riddle, "Why discredited economic policy became fashionable?” lies in the motivation for creating a new economic dogma. On the one hand, during the decades following World War 2, most Americans achieved a measure of prosperity they never thought possible during the Great Depression and Second World War; on the other hand, the wealthiest Americans did not see their relative wealth and power grow abundantly, even though in both absolute and relative terms it was overwhelmingly preponderant. As tyranny cannot tolerate anything but its own growth in power, the modern US economic aristocracy subsidized intellectual and political reaction to achieve greater power and status. What began among intellectuals in academia became political action in the '70s and '80s through generous funding by wealthy elites. The sole economic policy tool for this movement is lower tax rates for the wealthiest minority of Americans. This should surprise few, considering its paymasters.

The new economic ideology, like all dogmas an extremely narrow reading of texts, is ostensibly grounded in classic liberalism. Yet Adam Smith in his lifetime foresaw many problems that economically powerful groups could create in a liberal society. In addition, he specifically identified the source of prosperity and profits as labor, like most, if not all, classical economists. His recommendation for government revenue was a progressive tax on those most able to pay (the wealthy), since they received the most benefit from a well-governed society. Obviously, these are not ideas cited by the creators of the currently reigning economic dogma.

[Chart 2]

Most supporters of this recent reaction advocate policies that provide them no benefit. As the economic theory behind reaction escapes all but a few of its supporters, a plebian myth of social Darwinism generates mass appeal and electoral success: the (white, Anglo-Saxon, male) Protestant work ethic. This myth requires very selective readings from traditions in the early Christian church because these traditions overwhelmingly supported the poorest in Jewish, Greek, or Roman society against their wealthy elites. Ironically, the Roman state executed the purported source of much tradition in Western civilization, Jesus of Nazareth, for political reasons (sedition against Rome and the interests of its power elites.) To those who support the current economic dogma in the erroneous belief that it is somehow religiously ordained, a closer reading of Christian texts with an open mind might set you free.

In short, pursuit of economic policies in support of a very small minority has reduced many to misery. History may not be doomed to repeat itself, but resurrected policies that proved to be failures in the 1920s and '30s have produced the same results again in recent decades. It is important to remember this because the economic aristocracy will always be willing to throw its wealth and power behind these same, dismal policies. For it is only through continued, misplaced belief by many in a manufactured, reactionary ideology that these ruinous economic policies can continue. The plain truth is that dangerous inequality in wealth will grow more unequal given exponential growth left under minority control. Economic data show the big lie of trickle-down economics for what it is: a policy generated by economic elites to increase their economic power. Until the American people awaken from their complacent, coma-like slumber, little will change. Sweet dreams to the wealthy.