Growing the economy

Wages for low to upper middle income workers have been stagnant for 35 years and each president during this time period has promised to resolve this problem by growing the economy. Prior to the 80’s there were two ways of doing this. It was called priming the pump at the top or priming the pump at the bottom. The first suggested that if businesses have more cash they will invest in new facilities and this will provide new jobs and competition will force waged up. The second was to lower taxes and thus give more money to consumers who will spend more causing businesses to expand and thus more jobs and higher wages through competition. Both of these methods worked during the first half of the 20th century. When Reagan tried priming the pump at the top it didn’t work. Businesses had discovered that it was more efficient to buy an existing facility than to build a new one. They avoided the cost of construction and had a ready-made well trained work force. No new factories meant no new jobs. Clinton followed Reagan in the 90’s and tried priming the pump at the bottom by lowering taxes on the middle income groups but wages remained static. This should have worked out better since there were no recessions and we had the dotcom growth in the market but the results were that wealthy people’s income rose rapidly but middle income did not. The Bush 2 years were stunted by the great recession caused by the mortgage crises and this distorted things. His plan was to reduce some of the health care cost born by companies and use this to increase wages. Companies had been holding back on wage increases to pay for increases in health care. He pushed through two major tax cuts, one in 2001 and a second in 2003 trying to prime the pump from the bottom. He was hit with the 9/11 disaster and then the great recession so the results were skewed. Obama’s approach was to transfer funds from one group to another. He pushed for more unemployment benefits, forcing companies that do business with the government to pay higher wages, raising the minimum wage, extending overtime pay to low level managers and in general using government rules to raise income for middle income workers. To date this has not worked. The Republican candidates are saying that they will removed restrictions placed on businesses by the EPA and other regulatory agencies, they will simplify the tax code, invest in infrastructure and allow the free market to work it’s magic. Hilary will do the same except she will impose more regulations not less. In addition she will build on the Obama plan to raise the minimum wage. Both parties will push for infrastructure improvements. Neither party has said much about expanding the energy business and shipping natural gas and oil around the world. Too bad!