THE U.S. ECONOMY: What Happened?



The Best Way Forward

Rev. Robert Emerick  –  


A public presentation to a diverse group of Brooklyn community activists and church members, sponsored by Peace Action Bay Ridge and The Interfaith Peace Coalition,   meeting at The Lutheran Church Of The Good Shepherd, Bay Ridge, Brooklyn, on June 15, 2013 (Updated on 1/27/14)

In 2011, I decided to investigate the conflicting claims being made in political campaigns about how to create jobs and strengthen the U.S. economy.  Over a period of eight months, I compiled data on the major economic indicators from 1900 to 2011, in order to compare them, in order to see for myself what factors have actually coincided with lower unemployment and higher economic growth.  This brief presentation is based on those findings.  Ms. Brita Rose edited a draft of the findings for publication as an article, “A Lay Person’s View of the Economy”, in the online magazine CounterCurrents, on 12 July 2012.

My interest in this subject continues, and I try to learn as much as I can about economics, because I have learned that the way we think about the economy drives the policies that directly and immediately impact human well being.  As a Christian minister, I try to learn about this subject because I now see that it is essential to implementing Jesus’ core teaching that we should strive to make Heaven on Earth by loving one another – being radically committed to the physical, social, psychological, civil, economic, and spiritual well being of ALL people.  This means caring and acting for human welfare, animal welfare, and the welfare of the planet that supplies our food, air, and water.

Economics is woven into every aspect of human society. The economy is a crucial quality of life concern that affects every individual, family, community, organization, institution, profession, business, employee, shareholder, and government, in every way, every day.   

I thank my friend Dr. Tracy Mott, Chairperson of the Economics Dept. at University of Denver, for his patience and generosity in checking my work, making suggestions, and offering perspective.

I thank my colleague in ministry, David Rommereim, Pastor of The Lutheran Church Of The Good Shepherd, for sharing in this interest and for engaging in fruitful dialogue with me.

I thank our local economics study group: members of Bay Ridge United Methodist Church, Lutheran Church Of The Good Shepherd, Our Lady of Angels Roman Catholic Church, and the Community, for our shared effort.

I welcome conversation.



THE GREAT DEPRESSION marked the US economy in the 1930s.  When FDR took office in 1933, the unemployment rate was 24.9% – a 754% increase over the pre-crash 1929 rate of 3.3%.  Between 1929 and 1933, the entire economy shrank by 39% – the GDP (Gross Domestic Product) went from $103.7b (billion) to $63.1b.

THE NEW DEAL was the name given to the policies and legislation FDR used to address The Great Depression.  It included increasing the Federal debt to fund massive Federal spending to increase employment and demand, to get the economy moving.

THE NEW DEAL WORKED.  Between 1933 and 1937, the GDP rose 60%, “…the most rapid peacetime growth in American history.”  (Lind, p. 287)  Unemployment decreased by 42.5% – from 24.9% down to 14.3%.

In 1938, under pressure from Congress, FDR chose to fulfill a campaign promise he had made – to balance the Federal budget.  The 1938 reduction in Federal spending, (and the requirement on banks to recapitalize, which led to excessive recapitalization [private conversation with Dr. Mott]), coincided with a 33% increase in unemployment, and a 2.5% decrease in GDP.

The resumption of Federal spending in 1939 coincided with a decrease in unemployment of almost 2% in one year, and a 3.5% increase in the GDP.

During WWII, the capital gains tax rate averaged 25%, and the marginal rate on income over $2m averaged 85.6%.  Federal debt grew from 45% of GDP in 1941 to 120% of GDP in 1945.  The average wartime unemployment rate was 3.9%.  Wartime GDP rose from $120.4b in 1941 to $222.2b in 1945.

By the end of WWII, the Federal debt was 120% of GDP (compared to about 102% today).  After WWII, Federal spending continued with the GI Bill (which many in Congress opposed, charging that it was socialism!), the Marshall Plan, the Eisenhower Interstate Highway System, and the first Federally-subsidized public housing.  The GI Bill built the post-war economy.  Even with the continuing high levels of Federal spending, by 1971 the Federal debt had dropped from 120% to only 37% of GDP.  GDP rose from $222.4b in 1946 to $1.1 t (trillion) in 1971 (an increase of 400% in 25 years, nominal dollars).

In 1974, CEO pay was 35 x (times) higher than the average worker’s pay.  In 1980, CEO pay was 40 x higher than the average worker.  In 1995, it was 150 x higher, and in 2011 it was 400 x higher.  From 1977 to 1989, CEO pay increased 104% while worker pay increased only 7%.  Since 1990, CEO pay has increased 298% and worker pay has increased 4.3%.  According to the Cornell economist Robert Frank, “…when researchers examine the data within individual countries over time, they find a negative correlation between  [economic] growth rates and [income] inequality.” (Frank, 2011, p.159, my underline. This means that higher income inequality = lower economic growth!  See also pages 13 and 112 in The Economist magazine, Oct. 13, 2012, Vol. 405, No. 8806; and the side-by-side comparison of economic indicator data, below.)


Comparison of Economic Indicators from 1946 through 2012 


From 1946 to 1971 From 1972 to 2012:
1. Average marginal tax rates on highest incomes: 80% 44%
2. Average capital gains tax rate: 25.8% 18.9%
NOTE: According to a US Senate report, as of 2006, “high net worth individuals” were tax-sheltering at least $1.6 trillion “offshore
3. Average unemployment rate: rate: 4.6% 6.4%
4. Average annual Federal budget deficit: 1.8% 14.35%
5. Average annual number of Federal employees:

(comprehensive data collection started in 1962)

5.8 million

(1964 – 1971)

4.7 million
6. Average annual rate of inflation: 3.4% 4.36%
7. Number of Federal budget surpluses: 8 4
8. Number of Federal budget surpluses:

(adjusted for inflation, 2009 dollars)

4% 2.8%
Federal debt as % of GDP: Decreased 68%

(from 120% to 37%)

Increased 173%

(from 37% to 102%)

Data sources available on request


Because the economy is a system of exchange of goods and services that is affected by every transaction that has a measurable exchange value, it is difficult, if not impossible, to prove economic “causation” beyond a reasonable doubt.  This means that, for the average person, the patterns of coincidence of economic indicators are the only economic “facts” available for us to use when we think about the economy in order to make economic policy decisions. It would be extremely foolish for us to ignore clear and consistent patterns of coincidence of economic indicators.                                           

As you can see from the above data, the economy was much stronger in every way from 1946 to 1971 than it was from 1972 to 2012.

A number of things happened in those respective years that certainly had an impact on the economy.  But the single most important public policy factor affecting our economy is the Federal tax code.  In 1972, the capital gains tax rate was cut in half.  In the mid-1980s, the capital gains rate was cut again, and the marginal tax rate on the highest incomes was also cut.  Starting in 1972, MANIPULATION OF THE FEDERAL TAX CODE BECAME THE PRIMARY POLICY MEANS OF REDISTRIBUTING WEALTH FROM LOWER AND MIDDLE INCOME TAXPAYERS TO WEALTHY TAXPAYERS.  

This use of the tax code to transfer wealth from lower and middle income taxpayers to higher income taxpayers, along with the suppression of wages, has a name:trickle-down economics,” or, as George Herbert Walker Bush called it, “voodoo economics.” 




  1. If you raise taxes on the “job creators” you kill jobs. NOT TRUE!  Higher taxes on the wealthy have coincided with higher employment.

  2. Balanced Federal budgets are good for the economy.  We have to balance the Federal budget to create jobs and grow the economy. NOT TRUE!  Since 1921, we have had two balanced budgets – in 1938 and 1960.  Federal spending was cut 8.2% in the “austerity” budget of 1938.  The 1938 budget cut coincided with a 2.4% reduction in GDP, and a 32.6% increase in unemployment.  In 1960, Federal spending was cut 4.8%, the GDP growth rate declined 2.7%, and unemployment did not go down.

  3. Federal spending causes Federal debt. We have to reduce Federal spending to reduce Federal debt.  NOT TRUE!  Higher levels of Federal spending have not coincided with increased Federal debt, and lower levels of Federal spending have not coincided with decreased Federal debt. Lower tax rates on the wealthy have coincided with increasing Federal debt.  Higher taxes on the wealthy have coincided with decreasing Federal debt.  Case in point: In the 1980s, taxes on the wealthy were dramatically reduced, Federal spending was reduced from 23% of GDP in 1982 to 21.2% of GDP in 1988, and Federal debt rose from 38% of GDP to 55% of GDP – an increase of 17 points in six years.  The national economy is not like the household economy.  Federal spending is an investment in the economy – it produces income. (It’s like the homeowner who adds an extension on the house, and then rents it out.)

  4. Private enterprise is able to do everything better, cheaper, and faster. NOT TRUE!  (There are very many examples of this, including healthcare.  See Stiglitz, pp. 172-186.)

  5. Trickle-down economics worksNOT TRUE! The economy has had a declining growth rate since 1981: from 1951 to 1981, the economy grew at an annual average rate of 3.6%; from 1982 to 2011, the economy grew at an annual average rate of 2.8% (Federal Reserve Bank of St. Louis, cited in Stiglitz, p.298).   “Inequality’s apologists…argue that…giving more money to the top will benefit everyone…because it will lead to more growth.  This is an idea called trickle-down economics.  It has a long pedigree – and has long been discredited… higher inequality has not led to more growth, and most Americans have actually seen their incomes sink or stagnate.  What America has been experiencing…is the opposite of trickle-down economics:  the riches accruing to the top come at the expense of those below.” (Stiglitz, p. 6. See also the Congressional Budget Office Report, Trends in the Distribution of Household Income.) 


If knowledge is power, then most of the American public is probably not very powerful, especially when it comes to economics.  Most of us probably don’t know much about our economic history.  I put myself in that category when I realized that I didn’t know enough to be able to discern the truth among conflicting claims in a political campaign, even though I had taken a course in economics in college.

Most of what I hear in the media that passes for economic “common sense knowledge” – like the Myths on the previous page – is simply nonsense.  In fact, the Myths directly contradict the Facts.  The Myths have had heroes and champions in government.  In my opinion, Representative Paul Ryan is probably the best-known representative of economic nonsense in government today.  When myths of any kind guide policy, the consequences are tragic for all of us.  Some of the government officials who promote the Myths, including Paul Ryan, have been followers of Ayn Rand.  Her philosophy is based on fiction.

Economics has been called “the dismal science.”  Yet nothing is more important for determining the quality of life, and equality of opportunity, for all of us.  What happens in the economy is directly related to the quality of our democracy, and ALL of our social institutions, including the family, education, law, healthcare, public safety, religious institutions, and government.  Economics affects our environment.  Politics and economics are two sides of the same coin, because they are both about “real world” power, potential, and opportunity – human well-being.  Economics used to be called political economy.

What can we, the people, do when the economic “information” we hear is often nonsense disguised as common sense?  And why would anyone in government and media choose to make assertions that have no factual basis, on such an important subject?

We need to find The Best Way Forward that 1) relies on knowledge, not “common sense nonsense,” and 2) maintains the balance of our core American values, expressed in the Preamble to our Constitution.

We need an accurate and reliable way to think about the economy.  My research tells me that neither government-controlled economies nor government-free economies work well, especially over time.   That is, over time, neither model is able to provide for the well-being of the entire population – not even for the wealthy.  This is because both of the extremes are unstable – both are extractive, exclusive, and unbalanced.  The U.S. economy has worked best when it has achieved a balance of the public and private dimensions.  The public and private dimensions NEED each other to function at their best.

I offer to you the model of the economy I use as I look at the facts of our economic and political history, and consider the best way forward:  I think of the economy as a circulation system with a heart that has two chambers – the private and the public.  The heart won’t work very well if either of the chambers is too small.  The entire body suffers when the circulation system is not nourishing ALL of the parts of the body because the heart is not pumping well from both chambers.  A well-functioning economic circulation system is NOT extractive and exclusive of parts of the social body.  Rather, it is inclusive and infusive of ALL parts of the social body.  A steady flow of Federal spending is needed to maintain demand in the economy because markets “boom” and “bust.”  Federal spending creates demand, and demand can create shared prosperity.

It would be fruitful to have a national (and local) fact-based conversation about economic models, and their strengths and weaknesses.  But I fear that such a conversation is almost impossible now because too many people think they already know everything, and too many people don’t want to know anything.

Ever since the New Deal was enacted, there have been those who want to end it, and go back to the old days of the unregulated, dog-eat-dog, winner-take-all, “let them eat cake” way of life.  In the 1930s, a group called The American Liberty League was formed and funded by a small group of wealthy interests – primarily the du Ponts.  The purpose of the group was to promote the idea that things like social security and government “interference” in the economy are “un-American.” The group ultimately failed, and disbanded in the 40s, because most Americans remembered the Great Depression that was caused by unregulated financial markets, and because most Americans could see the value of “the general welfare” – the common good.  Unregulated “free” markets always tend toward monopolies, and monopoly markets are not free markets.  Paradoxically, markets can be free only when they are regulated to maintain truth-telling, fairness, and competition.

The spirit and methods of The American Liberty League live on in segments of the media and government, still funded by extremely wealthy interests.  This interest group has a purpose – in effect, to strike the phrase “promote the general welfare” from the Preamble.  They still want to end the New Deal because they think that would serve their interests.  And if they are unable to end the New Deal, at the very least, they want to privatize it for profit.  (Do you remember the proposal to begin the privatization of social security? In fact, Social Security and Medicare are not a drag on the economy, and they are actually OK financially.)  The new Liberty Leaguers want any and ALL governments that could inhibit their profit-making to be too “small” to inhibit them.  And they still believe that one of the best ways to increase profit is to minimize labor costs – and in this, they contradict Adam Smith, who is known as the Founder of Free Market (or, “Invisible Hand”) theory.        The voice of the “small government” ideology can also be heard in the so-called “Tea Party” movement.  This seems, at best, short-sighted because the Tea-Partiers, and the rest of us – all of us – are the beneficiaries of the government programs that built the post-WWII economy – programs like the GI Bill, the Marshall Plan, and the Federal Highway System.  Here is another Tea Party puzzle:  as I recall, the Tea Party began as a protest against the fact that Big Business and Big Finance (“BB&F” – a.k.a. “Wall Street” – the people responsible for the most recent market crash) got an immediate and generous bailout from the Federal government, but homeowners and small businesses (a.k.a. “Main Street”) did not get a bailout from their government (which was “supposed” to be worried about them, too).  Their outrage was turned against government itself – striking against the goose that refused to lay the golden egg for them.  By turning against government itself, many Tea-Partiers have become, perhaps unwittingly, agents of the “Wall Street” agenda – which is to make government too small to effectively regulate them, or otherwise inhibit their profits.  This was a major political and economic victory for the new Liberty League.

If we allow anyone to kill the only goose we have, the average person will have NO VOICE in managing our economy.  The goose that lays the golden eggs is legally ours – it belongs to ALL of us.  The real problem is not government that is too BIG to care about the “little people.”  The problem is BAD government – government which responds immediately and primarily to the interests of those who use their financial power to control the political and economic agenda.  BAD GOVERNMENTS COME IN ALL SIZES!

In my opinion, the Best Way Forward means finding the best balance of public and private, liberty and the general welfare.  This should be an ongoing, pragmatic experiment.  We could find the best balance of public and private, liberty and the common good, because our core values are mutually dependent, NOT mutually exclusive.  We could even learn how to adjust the balance from time to time, depending on circumstances.  But it’s hard to conduct an experiment when it’s impossible for most people to imagine that our core values are complementary, not contradictory. 

In my opinion, if we are able to see that our economic and political life are like a circulation system that can and should nourish all parts of the social body, and that the system is driven by a heart with TWO chambers – private AND public – we have the best chance of achieving civil liberty and economic and political justice for all.

Again, I welcome conversation:  (


Acemoglu, Daron, and James A. Robinson (2012) Why Nations Fail: The Origins Of Power, Prosperity, and Poverty.  Crown Business, Random House, New York.

Frank, Robert H., and Philip J. Cook (1996)  The Winner-Take-All Society: Why the Few at the Top Get So Much  More Than the Rest of Us.  Penguin Books, New York

Frank, Robert H. (2011)  The Darwin Economy: Liberty, Competition, and the Common Good.  Princeton University Press, Princeton, N.J.

Lind, Michael (2012)  Land Of Promise: An Economic History Of The United States. HarperCollins, New York

Stiglitz, Joseph E. (2012)  The Price Of Inequality: How Today’s Divided Society Endangers Our Future.  W. W. Norton & Co., Inc., New York

“The American Liberty League, 1934-1940” by Frederick Rudolph (Williams College),    The American Historical Review, The American Historical Association,  Vol. 56, No.1, October, 1950 (pp. 19-33)


DATA and ANALYSIS compiled by and available from R. Emerick

U.S. Economy – Comparative Factors (the raw data)

Summary of Economic Indicators and Averages by President, 1946-2011

Economic Indicators with Analysis, 1946-2012

Models of Political Economy

Economic Myths and Economic Reality: Balanced Budgets and Economic Indicators, 1921-2012

Quotable Quotes from The Wealth of Nations, by Adam Smith

Notes from Adam Smith on Income Inequality and Economic Health

A Lay Person’s View Of The Economy”, Robert Emerick, Countercurrents (  12 July 2012