The economy has been rigged to benefit the richest people at the expense of many of the poorest ones. The negative effects surrounding massive deindustrialization (most significant of which is likely tearing apart entire communities due to job losses and downward pressure on median wages) could have been significantly lessened with different governmental policies.
There have been several analyses of the 2018 election results showing that the Republican regions are disproportionately areas that lag in income and growth. In response, we are seeing a minor industry develop on what we can do to help the left behinds.
The assumption in this analysis is that being left behind is the result of the natural workings of the market — developments in technology and trade — not any conscious policy decisions implemented in Washington. This is quite obviously not true and it is remarkable how this assumption can go unchallenged in policy circles.
Just to take the most obvious example, the natural workings of the market were about to put most of the financial industry out of business in the fall of 2008. In the wake of the collapse of Lehman, leaders of both the Republican and Democratic parties could not run fast enough to craft a government bailout package to save the big banks, almost all of which were facing bankruptcy due to their own incompetence and corruption.
It is worth contrasting this race to bailout with the malign neglect associated with loss of 3.4 million jobs in manufacturing (20 percent of the total) between 2000 and 2007 (pre-crash). This job loss was primarily due to an explosion in the trade deficit. The latter was due to an overvalued dollar, which in turn was attributable to currency management by China and other countries, that kept their currencies below the market level.
While most economists now acknowledge the impact of China’s currency management, at the time there was a great effort to pretend that this was all just the natural workings of the market. The loss of jobs, and the destruction of families and communities, was not a major concern in elite circles, unlike the prospect of Goldman Sachs and Citigroup going bankrupt.
The decision to bail out the banks is routinely justified as being necessary to prevent a Second Great Depression. No one who says this has a remotely coherent story as to how the bankruptcy of these banks would have condemned us to a decade of double-digit unemployment.
We have known for 70 years how to get out of a depression (it’s called “spending money”). if the banks had collapsed, it would have undoubtedly worsened the 2008–2009 downturn, but nothing would have prevented us from boosting the economy back to full employment with a large burst of spending, just as the spending needed to fight World War II brought the economy to full employment in 1942.