An Overview of Macroeconomic History

Macroeconomic theory and economic policy are two wildly complicated fields of study, the latter even more compounded by its nasty habit of being written in confounding legalese. Most people hardly look into economics any further than how it most directly affects their personal finances, although everyone has an opinion on how taxes are collected and subsequently spent. But a basic understanding of how macroeconomic policy works is of the utmost importance when it comes to electing representatives who shape our socio-economic environment; the job of a governing body is to help guide how a market's causes, effects, and fluctuations affect its participants and the citizenry as a whole. While nuance may increase when going from fundamental theory to specific legislation, the approach to economic policy stems from really only two philosophies.

The first believes that corporations and the wealthy are responsible for spurring economic growth through job creation and capital investment, and is commonly referred to as 'supply-side' (though it's had a few nicknames over the years, like 'Reaganomics,' 'Trickle-Down,' and 'Voodoo Economics'). This approach favors low tax rates for the highest brackets, little to no regulation of major industry, and belief in an infallible 'free market.'

The second believes that working class consumers spur economic growth by spending their discretionary/disposable income on common goods and services, and would be referred to as 'demand-side' (or Keynesian) if anyone were currently talking about it. This approach favors marginally-high progressive tax rates through the higher brackets, collective bargaining, consumer protection against corporate exploitation, and recognizes that a truly 'free' market is entirely dependent on the highest possible participatory rate and upon a relatively level playing field.

These two philosophies identify with the two market forces of supply and demand, though they adamantly disagree on which is the driving force of the market. One believes that if you favor suppliers, demand will catch up; the other believes that if widespread demand is encouraged, suppliers will match it. Granted, markets have a natural sense of balance through the push-pull of these two forces; in terms of cause and effect, it seems obvious to me that demand reflects cause and supply represents effect. But if I can't convince you that demand is the dominant force in a market, perhaps a brief overview of macroeconomic history can.

We're all familiar with the Great Depression, a severe macroeconomic plunge catalyzed by the stock market crash of 1929. But how often do we look at the circumstances that led to that fateful Black Tuesday? What were the macroeconomic trends and policies that manifested the opportunity for such a disaster? Put simply: Supply-side economics. A more in-depth explanation would reveal that corporate profits were at extreme highs, major industry was relatively unregulated, and wealth/income equality was disparate. The inflation of industry's worth due to an over-supply of goods with no demand was ultimately realized, and the market crashed. Many critics will cite further mishandling of the situation by pointing at the reactions (like monetary manipulation by the Federal Reserve) to the crisis, but none of that changes the cause of the bubble.

Other influences on economic conditions leading up to that period were the two industrial revolutions. Thanks to improvements and innovations in production, efficiency skyrocketed; that meant less work had to be done to make an even superior product. The reduction in overhead and lessened labor costs meant higher profits, but the spoils were most certainly not equitably distributed; leading industrialists of the time did not share Ford's perspective on labor, but rather followed the lead of magnates like Carnegie and Rockefeller. The bottom line remains: Lax regulation that allowed the rich to get richer at the expense of the working class to the point of extreme wealth inequality set the stage for the Great Depression.

Fast forward to a period we're all a little more familiar with: the 2007-current Great Recession. What were the preceding circumstances? Can we look to any macroeconomic trends or policies that might've enabled this economic downturn? For starters, supply-side economics had once again been in fashion for a number of years; not only had we seen major tax reformation leading up to this period, but some very specific legislature was passed to undo the consumer protections put in place after the Great Depression. Again, corporate profits were high, industry was relatively unregulated, and the gap in wealth equality was on the rise. The housing loan industry bubbled up and the bottom fell out; the reaction this time was a bailout of these major industries at the taxpayers' expense.

Another influence on economic conditions of this period was the digital revolution, more so the rise in personal use directly prior to the events of the recession. Here again we see a skyrocketing of efficiency due to technological advancements, and again the spoils of increased profitability were not equitably distributed. I hope we're starting to notice some patterns developing.

We mustn't overlook the period in between these two crippling macroeconomic downturns; our economy eventually recovered from the Great Depression and actually flourished in the decades following, resulting in unprecedented prosperity for the American middle class from the 40s through the 70s. What were the macroeconomic trends and policies that defined this era? For starters, a worldwide armed conflict created a substantial amount of demand for a wide variety of goods, most of which could be manufactured by the American working class. But without proper economic policy guiding this increase in production and profitability, things might've turned out much differently.

Repairing the damage done and navigating us out of the depression fell upon the shoulders of FDR, elected in 1933 and holding the office of POTUS for a record four terms until he passed. He and his advisors (one of whom being John Maynard Keynes) crafted legislation to not only protect the economy against exploitation, but also to learn from the mistakes of the previous supply-side era and pretty much do the opposite. It was during this time that Glass-Steagall was enacted (Clinton would later repeal) to build a wall between investment and commercial banking so that the next time brokers wanted to play fast and loose with their investments, they couldn't risk the hard-earned savings of working class people in the process. He instituted a minimum wage, stating that "No business which depends for existence on paying less than living wages [more than a bare subsistence level ... the wages of a decent living] to its workers has any right to continue in this country." His legacy is most widely defined by the New Deal, a plethora of social safety net policies; he even planned to legislate a Second Bill of Rights which would focus on economic equality, but did not live to see it through.

If everything was going so swell, why did it all change? Well, a demand-side economic approach is tasked with keeping natural market forces in balance and beneficial to both the working class and the capital class. Unfortunately, an unnatural market force was imposed in 1974 when OPEC—proclaiming an embargo in response to hostilities in an ongoing religious dispute—more than quadrupled the price of crude oil. The guiding policies of the time were unable to compensate for such a drastic cost increase suffered across every imaginable industry, and we had an oil crisis on our hands. Leading up to this event, the industrialists and corporate conglomerates were already positioning themselves to apply more pressure and exact more influence over our legislative body. When they saw their opportunity, they jumped at it; lobbyists and think-tanks flexed their muscles and convinced our policy makers that demand-side was no longer tenable but that supply-side would've kept this crisis from happening. Shortly thereafter, riding on the coattails of a popular actor-turned-President, supply-side was rebranded as Reaganomics; we were told government can't solve the problem because government IS the problem, and we'd all be filthy rich like them if government would just get out of our way!

Wealth worship spread like wildfire. Gordon Gekko exclaimed "Greed is good!" and people ate it up; Calloway unabashedly sang "I Wanna Be Rich!" and even Madonna was living in a Material World. For the most part, the 80s were great; lots of people made money hand over fist, consumerism and materialism became the American way, and cocaine is a helluva drug. Unfortunately, this upturn was a bubble, too; through the late 90s (wealth worship was obviously still thriving because "It's All About The Benjamins"), we were seeing lots of deregulation, corporations were raking in huge profits, and wealth inequality was widening yet again. And we've now circled back to the conditions of an economy that enabled the events of the recession to transpire.

Quick recap:

• 1900 over-supply

• 1929 market crash

• 1933 over-demand

• 1937-74 widespread prosperity

• 1974 oil embargo

• 1980 over-supply

• 2007 recession

• 2017 over-supply

Some may claim this is over-simplification, but I'd argue that it's just looking at the bigger picture. Speaking of the bigger picture, a nation’s Gross Domestic Product is the statistical approach to determining macroeconomic growth; I’ve averaged the GDP of these years according to supply- and demand-side periods:

• 1930-32 averaged -9.20

• 1934-73 averaged 5.12

• 75-2007 averaged 3.14

• 2009-16 averaged 1.53

GDP leading up to the Great Depression was dismal, for sure. But the average in the period following the New Deal and up until the oil crisis (demand-side economic approach) was quite healthy, especially considering the more equitable wealth distribution experienced in that era. But since the shift to a supply-side economic approach, the GDP continues to drop and whatever profits are being made are collected by fewer and fewer people in our country. In contrast, other democracies around the world have been able to maintain GDP growth similar to our “Golden Age of Capitalism” and have withstood global economic downturns while still providing better New Deal-like social programs for their citizens.

Applying all that history and placing it into current context, we can see that our economy barely avoided another Great Depression but instead suffered a significant recession; and though it hasn't sufficiently recovered from the previous downturn, we're faced with an administration hell-bent on enacting even more severe supply-side policy. Conditions that precede drastic macroeconomic downturn—widespread anti-regulation sentiment, record-setting corporate profit, extreme wealth inequality—are all currently at unprecedented levels. History repeats itself, but sometimes it outdoes itself; if the capital industries are allowed to inflate their self-worth to the effect of another market crash, our economy at this point might not be able to sustain. Instead of a Great Depression or a Great Recession, we might be looking at a Great Destruction; a full-on collapse of the world's leading economy, which of course would have a drastic global impact.

This isn't about partisan politics, it's about policy that actually benefits the working class; that means pretty much anyone who might be reading this. If you have to work to live, you are part of the working class; some are working but not even earning enough to live, most are working check-to-check in perpetual anxiety, and some still have to work but have a little in savings. If you can quit working this very moment and not have to worry about affording the cost of living for the rest of your life, then by all means: Keep selfishly voting for policies that'll make it easier to turn your millions into billions. But the rest of us—the proverbial 98%—need some bones thrown our way. Both common sense and historical statistics prove that demand-side policy benefits the 100%, and supply-side benefits only the 2% at the expense of the 98%. We fully understand that for the majority of the 98% to benefit, it has to come at the expense of the 2%; primarily the 1% and more specifically the 0.01%. The good news is: They can afford it; and it's not a dreaded 'redistribution of wealth' but a restructuring of the rules to allow more equitable distribution of future profits. The 2% will continue to get richer but at a slower pace, the 98% will rise significantly, and the 100% will grow together toward inclusive prosperity. Our elected representatives should be exploring demand-side policies rather than debating which variant of supply-side to implement. The only way to get them pointed in the right direction is for us to stop acting like opposing 49%ers and unite our efforts as the 98%. One doesn’t have to be a macroeconomic analyst or an economics professor to understand the basic principles behind how an economy operates and how policy guides it; you just have to know which approach works for us all, and then demand it.