“The Greatest Story Never Told”: Today’s Economy in Perspective

THERE IS a debate going on today over whether our economy is in recession. Polls show sagging public confidence. But some perspective is sorely needed. The fact of the matter is that we in the United States, and to a lesser degree the entire world, have just lived through—and continue to live in—the greatest period of prosperity in human history. Over the last 25 years, more wealth has been created, more people have been lifted out of poverty, standards of living have been elevated more dramatically, and the quality and length of life have improved, more than ever before in recorded history. Unfortunately, as Larry Kudlow says, this is “the greatest story never told.” We need to start telling the story, and also to think about its causes.

First, let us focus on the United States (and I say this with full knowledge that the State of Michigan is a unique exception among the 50 states to America’s extraordinary recent prosperity; but the causes of Michigan’s peculiar problems are a topic for another day): Average economic growth in the U.S. has not only been positive for almost the entire last quarter century, but for much of this period the rate of growth has accelerated. Our nation’s total economic output in 1982 was $5.1 trillion; last year it was $11.3 trillion (in real 2000 dollars). Per capita economic output in 1982 was $22,400; last year it was $37,807 (in real 2000 dollars). The average unemployment rate in the 1970s was nearly seven percent; it has been declining, on average, every decade since, and has remained below five percent since 2003. The service sector of our economy has been on fire, growing from $1 trillion in 1982 to $5.5 trillion in 2006. And do you know how far back one has to go to find the year when America’s total manufacturing output peaked? All the way back to 2007! Yes, U.S. factories produced more last year than in any previous year in our history. That’s the “hollowing out”—as its critics like to say—of America’s economy.

This expanding economy has, of course, resulted in huge gains in wealth. The Dow Jones Industrial Average began the 1980s at 825; today, despite its recent declines, it remains above 12,000, a 1,400 percent increase. And with the democratization of the capital markets that has occurred through savings programs like IRAs and 401(k)s and investment vehicles like mutual funds, the average family’s wealth has grown dramatically, too. In 1983, 19 percent of American households owned stocks; in 2005, 50 percent were investors. In 1989, the median family net worth was $69,000; in 2004, it was $93,000.

These gains in income and wealth have resulted directly in a better standard of living for virtually every segment of American society—including the poor. Among families living below the official poverty line in the early 1970s, less than 40 percent had a car, almost none had color televisions, and air conditioning was virtually unheard of; in 2004, 46 percent owned their own homes, almost 75 percent owned a car (indeed, 30 percent owned two or more cars), 97 percent had color TVs, and 67 percent had air conditioning. The poor in the U.S. have an average of 721 square feet of living space per person, as compared with 430 in Sweden and 92 in Mexico.

Similarly, technology has become accessible to all sectors of society. There were 9.8 million cable TV subscribers in 1975, and 65 million in 2006; 2.1 million personal computers in 1985, and 243 million in 2007; 340 cell phone subscribers in 1985, and 243 million in 2007.

Health indicators track similarly. Infant mortality dropped from 20 deaths per 1,000 people in 1970 to seven deaths per 1,000 people in 2002. In 1980, American life expectancy was less than 74 years. Today it is 78.

Nor is America totally unique in this regard. While we have led the world in most measures of prosperity and growth, other countries have been enjoying the broadest expansion of wealth in history as well. A recent issue of The Economist documents the tremendous worldwide improvement in both the social conditions in poor countries and the alleviation of poverty: Between 1999 and 2004, some 135 million people emerged from destitution, and there are now twice as many countries with fast-growing economies as there were in 1980.

This long period of sustained economic growth and the huge quality-of-life improvements it made possible didn’t happen by accident. They were a result of a major expansion in economic freedom, initially in the U.S., then increasingly around the world. This expansion took many forms, but three of the most important were a dramatic reduction in marginal tax rates, a series of major deregulations, and a broad expansion of trade.

After decades of top marginal tax rates in percentiles from the 70s into the 90s, President Reagan signed the Economic Recovery Tax Act of 1981. The top marginal rate was reduced from 70 to 50 percent, and by the time Reagan left office, it was down to 28 percent. During Reagan’s two terms, the top corporate tax rate was reduced from 34 to 28 percent, individual tax brackets were indexed for inflation, and—although there were some tax increases—the devastatingly high top marginal tax rates that preceded Reagan were gone. Nor have they come back—at least not yet.

In subsequent years, President Bush the elder and President Clinton raised some taxes too much, but lowered others; and it didn’t appear smart to anyone that we should return to the levels that had prevailed prior to Reagan. The current President Bush has lowered taxes dramatically—not so well in 2001, but then very effectively in 2003. The effect was to lower marginal tax rates, phase out the death tax, offer marriage penalty relief, and lower taxes on capital gains and dividends.

Major deregulation was another part of the expansion of economic freedom that has enabled 25 years of strong growth. Interestingly enough, this deregulation began when President Carter signed the Airline Deregulation Act of 1978, lifting price and route controls that had forced higher prices and fewer choices on consumers. Without these controls, airlines could offer deals to fill otherwise half-empty planes and choose more efficient routes. The airline industry has obviously struggled for many reasons in subsequent years, but consumers have been the big winners in terms of increased safety, more choices, and lower prices. Deregulation is responsible for ten to 18 percent lower fares, saving travelers $5-$10 billion a year.

Following this, in 1980, Carter signed the Motor Carrier Act, deregulating an industry that had been closely controlled by the government since 1935. This put a stop to regulations dictating what products truckers could transport and what routes they could travel. The kind of inefficiency that resulted from these regulations can best be understood by the following example: A motor carrier with authority to travel from Cleveland to Buffalo that purchased another carrier’s right to go from Buffalo to Pittsburgh was required to ship goods from Cleveland to Pittsburgh via Buffalo, adding an unnecessary and wasteful 272 miles to the trip. As a result of easing these regulations, prices for truckload-size shipments fell 25 percent by 1982, and efficiency gains and cost savings helped to make possible the “just-in-time” inventory system that has transformed retailing, lowered consumer costs, and, arguably, diminished the economy’s susceptibility to recessions.

President Reagan accelerated the trend toward less regulation, easing or eliminating price controls on oil and natural gas, cable television, long-distance telephone service, interstate bus service, and ocean shipping. In addition, banks were allowed to invest in a broader set of assets, and the scope of antitrust laws was reduced.

More recently, economic freedom has expanded in the form of freer international trade. In 1993, NAFTA eliminated a majority of tariffs on products traded among the U.S., Canada, and Mexico, and phased out others. In 2004, CAFTA eliminated tariffs immediately on more than 80 percent of U.S exports of consumer and industrial goods to Central America and phased out the rest over ten years. Since 1985, we’ve had bilateral or multilateral trade agreements with 16 countries. International trade is freer today than it has been at any time in the last 100 years.

This “greatest story never told” is indeed a tremendous story. It’s the story of the fastest-growing period of prosperity—and the most dramatic mass elevation from poverty—in the history of the world. And it’s all been possible because—bit by bit, in fits and starts, with advances and retreats—the U.S. and other countries have been moving toward greater economic freedom.

In light of this story—which, to repeat, is ongoing, so that you don’t have to go back to medieval or classical times to find the evidence—it is utterly perplexing that so much of the election year rhetoric of late is aimed at reversing our economic course. For instance, it’s hard to find a domestic policy that can be proven to be as successful as the Bush tax cuts—even by presumably Democratic standards. It’s simply a matter of fact that these tax cuts shifted the tax burden substantially to higher income earners and took millions of lower income workers off the tax rolls altogether. The economy took off and ran for at least five years after implementation, and the federal deficit shrank dramatically after the tax cuts were enacted. Yet calls to reverse these tax cuts abound.

For the Democratic Party, of course, there are other reasons for rolling back economic freedom. One is the powerful special interest groups within its coalition—organized labor in particular—which rely on government for special treatment and benefits they could never obtain in free and fair market-based negotiations. Unfortunately, the resulting higher costs and inefficiencies can devastate industries and regions—Michigan being a prime example.

But if we can expect Democrats to resist economic freedom, how do we explain the timidity on the Republican side to defend the economic ideas that have fueled recent advances in prosperity? The answer is that most politicians are ultimately motivated by their perceptions of public opinion. And despite the evidence, the public doesn’t seem to realize the period of unprecedented progress we are in.

As a side note, the increasing lack of opposition among the American people to higher income taxes should not be surprising when an increasingly progressive tax code means ever fewer Americans are paying any taxes at all: In 2005, the top one percent of earners in the U.S. paid 39 percent of all income taxes, while the bottom 50 percent of earners paid just three percent. Over time, if half of the population believes that it is entitled to have someone else pay for government, we should not be surprised if public support for economic freedom continues to erode.

As one who has done a lot of campaigning over the years, I’ll admit, it can be hard to explain to some audiences why they should have to buy their own health insurance when the other side is offering to have the government give it to them for free. But that doesn’t absolve politicians of the moral obligation to present the principled and true argument.

This expansion took many forms, but three of the most important were a dramatic reduction in marginal tax rates, a series of major deregulations, and a broad expansion of trade.

And the left is only in favor of one of these and only if it is to the detriment of the USA.

This long period of sustained economic growth and the huge quality-of-life improvements it made possible didn’t happen by accident........This expansion took many forms, but three of the most important were a dramatic reduction in marginal tax rates, a series of major deregulations, and a broad expansion of trade.

Pat's just stating the obvious (at least to most of us here) and backs it up well. He's right in saying that this story hasn't been told and needs to be - especially with a Marxist as an opponent and so many here telling us they're going third-party or staying home.

Great article! The same gains can be seen in the world economy, too.

The same tremendous improvement in living standards can be seen worldwide. If it weren't for the ghouls of the MSM incessantly beating their drums of doom, more people might realize this. When I was a kid in the 70's, the covers of Newsweek, Time, and other magazines often had pictures of starving African kids with distended bellies and flies swarming around them -- people starved in great numbers in Africa and Asia. When was the last time you saw a magazine cover of a starving child? There are still starving people and extreme poverty, but much, much less than a generation ago.

In the last generation, hundreds of millions of people have moved out of extreme poverty in China and India. The progress has been absolutely incredible, but you never hear mention of it in the MSM who are busy worrying about terrorists getting panties put on their heads.

These morons who rail against "globalization" don't realize just how many people can eat because of increased trade who would have starved a generation ago.

It's a great story but someone forgot to mention that the main ingredient driving this story is oil and it is left out of the equation.

America needs to drill now and the environmentalist need to be put in their extreme minority place before it is to late.

Right in one.

I'd add futher that people in Africa, China, India, et al, have more time to worry about things that are of concern to Democrats - environmentalisn and the like - if they're not worrying about where their next meal is coming from. Prosperity, not regulation, is the solution to environmental issues.

As far as America is concerned, I think that we're in pretty good shape. I can probably find a half-dozen channels on my TV at any one time where people are very well-paid to do nothing more than discuss what other people are very well-paid to wear. So as America is prosperous enough to produce trivialities like this, and Americans are prosperous enough to consume them....We'll be OK.

Its easy to sell the story that the economy is bad because everyone has their problems, everyone has bills to pay, and most people find it difficult to put their own situation into perspective.

And even people who recognize that they are doing well will sense the fragility of their situation, and that unease can easily be tapped by the professional pessimists.

But the fact is that the US has the lowest unemployment in the world. We have a roaring economy. Forget what the news people and the politicians tell you. Steel and concrete are going through the roof, which tells you that they are building like crazy. The restaurants are jammed. The railroads are jammed. Even at 4$ a gallon the highways are jammed.

We take in a million and a half immigrants each and every year and we still have the lowest unemployment in the world. And with all of that, the Dems continue to sell us on the need to let them run the economy.

Sure. They’ll know what to do with it.

This ignores the fact that the rural areas of the United States have not progressed. Our area in California, for instance, is still at $30,000 median income with a double digit unemployment rate. It gets worse and worse with increasing regulation of natural resource businesses, such as small family farms.

Our County Aging committee is currently trying to figure out how to keep Seniors from freezing this winter. We are stock piling free firewood cut by fire crews and stacked by volunteers for income qualified seniors with woodstoves, but God help those who went to kerosene units because of the air quality regulations. I don’t know what we will do for them. The waiting lists for LIHEAP (cash heating assistance) were long last year. There was money for less than half. This year will be a dangerous one.

"...a Marxist as an opponent and so many here telling us they're going third-party or staying home."

Spot on, but let's be fair.

When freeperGloomers say that today's 5.5% unemployment is worse than Clinton's 5.5%, they're not thinking they can get their pal Obama elected.

"Thinking" has nothing to do with their behavior.

That’s OK, folks - ignore the trillions of dollars in funny money aka fiat money that has created this boom and that is now causing major problems in the world’s markets. Remember, debt is money, and it can only be sustained as incomes rise to match debt service.

Ask yourselves why we are witnessing double and triple digit percentage increases in commodities and the implication that has for family budgets around the world.

Credit derivative bets are now well into the hundreds of trillions of dollars. The astronomical leverage at investment banks, hedge funds and private equity clients of anywhere from 25-45 to 1 virtually guarantees massive disruption in global markets.

The crash, when it comes, will take no prisoners.

But go ahead, party on, folks, the good times will only get better.

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