Republicans are ticked off at the government, President Obama, Obamacare, immigrants and Republican leaders who abandon conservative principles once in office. Even Donald Trump says “the system” is “broken.Democrats are angry too, but their list of villains is different: money in politics, Wall Street and the rich. “People feel like the system is rigged against them,” says Democratic senator Elizabeth Warren, “and here is the painful part, they’re right. The system is rigged.” Ordinary citizens can no longer get ahead just by hard work.
The fact that the two lists of villains have little in common indicates that the two groups are projecting their own political preoccupations onto the situation, rather than getting to the root cause of the problem.....
The fact that 60 years ago politicians were able to reach bipartisan agreements on budgets doesn’t mean those politicians were generically wiser and more public-minded than the politicians we have today. The principal difference is that back then, politicians were operating in a world of strong economic growth and widely shared prosperity. So of course it was much easier to find win-win compromises. The underlying reason why public institutions find it difficult to reach agreement today is that the economic pie is not growing fast enough to produce solutions.....
The same line of reasoning can be applied to the current lists of villains from the political parties. Would Republicans be so bothered by immigrants and the government handouts if prosperity was widespread and the economic future was bright? Would the Democrats be so upset about Wall Street and the rich if there were good jobs for all with growing salaries?...
From 1949 through the 1970s, firms shared the gains from productivity improvements with the workers who produced them. Not surprisingly in this period, the economy functioned well and there was widespread prosperity. Then firms began acting very differently on a consistent basis over several decades. From 1980 onwards, firms didn’t share the benefits of productivity gains with their employees. Instead they kept the gains for themselves. Not surprisingly in this period, the incomes of most citizens stagnated...
The villain isn’t a set of individuals or institutions. It’s an idea. Companies embraced the notion that the very purpose of a corporation is to maximize shareholder value as reflected in the current stock price. The focus of these firms turned inward towards singlemindedly extracting value for the company’s shareholders, ahead of delivering value to customers. Executives were compensated in stock so that they would focus on the goal of increasing the stock price....
It also generated horrendous unintended financial, economic and social consequences: short-term decision-making, relentless cost cutting, staff reductions, squeezed operations, lower investment, crippled innovation, a dispirited workforce, reduced benefits and pensions for employees, mindless mergers, closed factories, off-shoring of production, increased debt, reduced ability to compete, declining rates of return on assets, rampant illegality in the financial sector, excessive financialization of the economy, and ultimately secular economic stagnation....
In effect, firms have hijacked the benefits of growth that the workers have produced. Naturally workers are angry when their incomes stagnate, even as the economy grows.
But it gets worse. When workers’ incomes stagnate, this starts affecting economic growth itself. As the workers don’t have more money to spend on products and services, firms perceive a lack of demand for new products and services. As a result, firms are increasingly disinclined to invest in new products and services. Real economic growth slows. The virtuous circle of growth is broken. Instead we enter a vicious cycle of decline.
Against this background, we can see why Republicans in the marketplace looking for good work might think that immigrants have stolen their jobs. Good jobs are hard to find because corporations have been keeping the benefits of productivity gains for themselves. Don’t blame immigrants. When firms are run this way, there simply aren’t enough good jobs to go around.
We can also see why it appears to Republicans that the government has gotten involved in too many handouts for people in need. It’s not because government has lost its way. It’s because private sector corporations aren’t sharing the benefits of the economy with ordinary citizens in the way that they used to, and as a result, many more citizens need more help from the government just to get by.
We can also understand why Conservative leaders might abandon their plans to do something about immigration and government handouts once they get into office. The proposed actions don’t gain traction, not only because they are unpopular: they don’t solve the underlying problem.
Democrats are somewhat closer to the truth with their particular list of villains: money in politics, Wall Street and the rich. Yes, it’s true: the system is rigged. We do live in a world in which corporations take the gains from productivity improvements, and so yes, the deck of cards is stacked against ordinary citizens.
Where Democrats go wrong is in thinking that the problem can be solved by “taxing the rich” or “printing money.” Merely shifting assets from the top 1% to the middle class won’t solve the problem of stagnating incomes. So long as private sector corporations keep retaining the benefits of productivity gains for their shareholders and their executives, the problem will continue. It can’t be solved by government action. Instead, we need to go deeper and change the way these private sector corporations are run...
) is the only congressman who is an economist. It would be nice for him to convince enough of his fellows that TANSTAAFL applies to overspending also. AFAIK, the Austrian school of economics has the only solid explanation of booms and busts. In the long run, the best way to test any idea is by comparing its predictions against reality: too bad so many dislike the idea of reality testing their favorite theory 
