The Pursuit of Happiness in a More Perfect Union: Creating an American Economy of Equal Opportunity

By Robert G. Bill

The conflict between conservatives and liberals over public economic policy appears to have become a permanent feature of the American political landscape. Conservatives seek economic solutions with the market as virtually the sole organizing economic principle, invoking individualism inspired by the Declaration of Independences right to the pursuit of happiness. Liberals look to an important economic role for a federal government established by the Constitution to promote the general welfare. In addition to the disagreement among the political class, there is also no agreement among economists, with no model reliably predicting the economic crises of recent decades. Under these circumstances, the author believes individualism and the concern for the common good may only be reconciled through policies which promote equality of opportunity or, as Abraham Lincoln expressed it, equal privileges in the race of life, with all its desirable human aspirations.

The reconciliation of individualism and the common good is developed through reviews of the meaning of liberty, happiness, and their economic implications. The historical performance of the American economy is described in the context of the evolution of American federal government from one of limited economic scope, supporting laissez-faire capitalism, to the current mixed government. The more expansive role of government is described in terms of taxation policy and spending, including concerns over the national debt and its significance. With this background, the general reader is invited to follow the authors path to a policy of equality of opportunity with specific proposals for an end to poverty, assistance to children, assistance to postsecondary education and training, and commitments to social and medical security. A specific taxation policy is proposed to fund these programs while maintaining a prudent and manageable national debt. Associated with these proposals are reforms to make the federal government more representative of the people.

• Language: English
• Publisher: Xlibris US
• Release date: Nov 7, 2016
• ISBN: 9781524550431

Robert G. Bill

Robert G. Bill was a researcher in fire and fire protection for twenty–five years at FM Global, a major industrial and commercial mutual property insurer which operates the world’s largest full–scale fire research facility. There, he was Assistant Vice President and Director of Research for Fire Hazards and Protection, overseeing research in areas of flammability, fire spread, material reactivity, and fire protection systems. Previous to joining FM Global, he was an Assistant Professor in the Department of Mechanical Engineering at Columbia University conducting research in turbulent combustion. He holds BS, MS and PhD degrees in Mechanical Engineering from Cornell University. During his doctoral program, he minored in theoretical physics and took courses from Nobel Laureates, providing a perspective that, along with his interest in mathematics, has led to his book, Geometry, Geodesics, and the Universe. Dr. Bill's publications include research in the areas of fluid mechanics, micro–meteorology, combustion, and fire protection. In 1994 and 2003, he received the National Fire Protection Association’s (NFPA) Bigglestone Award for communication of scientific concepts in fire protection. From 2002 to 2008 he served on the executive committee of the International Association for Fire Safety Science and in 2009 was elected as a lifetime honorary member equivalent to the grade of Fellow of the Society of Fire Protection Engineering. In 2019, he was a co-winner of NFPA's Philip J. DiNenno Prize for groundbreaking innovations that have had a significant impact in the building, fire and electrical safety fields. Now retired, Dr. Bill enjoys time with family, playing the violin, community volunteering, and walking his fox terrier.

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Copyright © 2016 by Robert G. Bill.

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Contents

Preface

1. Introduction And Scope

2. Liberty And Equality, Promises To Keep

3. The Wealth Of A Nation

3.1 The great circular river of the economy

3.2. Gross Domestic Product (GDP) in the U.S., tumult and growth (1929 Crash to the present)

3.3 Income - who gets what

3.4 Wealth – what you get to keep

4. The American Market

4.1 Introduction

4.2 The market in theory

4.3 The market in practice

4.3.1 Antebellum America

4.3.2 The Gilded Age and a society’s response

4.3.2.1 Barons of the Gilded Age: Andrew Carnegie and John D. Rockefeller

4.3.2.2 The federal government takes steps to resist the barons

4.3.3 The Roaring Twenties and its consequences

4.4. The Great Divide: Depression and World War II

4.4.1 The New Deal

4.4.2 Economic aspects of victory over fascism and the aftermath

4.5 Mistrust and stagflation

4.6 The call for limited government and a return to crisis

4.7 Are economic theories true?

4.7.1. Can truths be proved?

4.7.2. Some inductively reasoned truths of the American market

5. The Pursuit Of Happiness

5.1 An ancient philosophical question

5.2 Jefferson’s happiness and ours

6. The Rich Shall Always Be With US: Wealth And Inequality

6.1 Life at the top, the tale of the tape

6.1.1 Income – what the 1% gets

6.1.2 Wealth – what the 1% keeps

6.2 An apology for wealth: point and counterpoint

7. Government For The People

7.1 A century of increased involvement in the market

7.1.1 Spending

7.1.2 Taxes

7.2 Liberals and conservatives recycle the debates of the Great Depression

8. Choosing Equality Of Opportunity In A More Perfect Union

8.1. Equality of opportunity, a foundation of the pursuit of happiness

8.1.1 An end to poverty

8.1.2 Assistance to children

8.1.3 Post-secondary education and training assistance

8.1.4 A commitment to social and medical security

8.1.5 The price of equal opportunity

8.2. A more perfect union

8.2.1 The House of Representatives

8.2.2 The Senate

8.2.3 The Presidency

8.2.4 The Supreme Court

9. Conclusions And Concerns

Appendix A: Amendments To The Constitution

Appendix B: The Relationship Of Savings To Components Of GDP

Appendix C: Comparison Between Estimates Of US Dollar Value Using The GDP Deflator And The Consumer Price Index (CPI)

Appendix D: An Arbitrary Supplemental List Of Innovations In Computer Technology

Appendix E: Imagining A Representative Senate

List Of Tables And Figures

References

End Notes

About The Author

The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.

– John Maynard Keynes I

Preface

We live in times in which there is no consensus on domestic economic issues by political leaders and economists, and as a result the desired policies of professed conservatives and liberals have not the slightest elements in common. This in itself is not new, as the same types of arguments were made during the Great Depression. The difference is that the crisis of that period, with its impact on virtually everyone, brought about the possibility of political action. Today Americans seem to be almost equally split on all issues. Think of the responses to economic challenges of those who identified with the Occupy Wall Street movement or the Tea Party to see how wide a gulf exists. In addition to the lack of consensus on economic policy, there is the associated disagreement among economists on the fundamentals that drive the economy. No economic model has reliably predicted the periodic economic crises of the American market. Unlike the typical situation in the sciences, the value of the analyses of experts and their conclusions for the engaged citizen is unclear. I believed that such a chaotic situation was an invitation to try to determine for myself what would make good economic policy, keeping in mind that the experts had reached diametrically opposed conclusions. Using publicly available data, my goal was to form my conclusions as much as possible upon observations that I could accept as objective. This book is the result of my efforts.

My background is not in economics or history, but as a reasonably educated person – I have a PhD in Mechanical Engineering which I freely admit gives me no special insight – I should be able to muster the facts to come to personal conclusions about economic policy that I could justify to myself and others. In my own field, I have found that the act of developing and justifying conclusions in writing makes for more precise reasoning and often brings about insights which I was unaware of before beginning to write.

I have found that it was useful to review the purposes of our nation as seen by our Founding Fathers; the economic performance of the nation in the past, including the contentious subject of inequality of income and wealth; and the role of the federal government, comparing economic performance under the limited government before the Great Depression with the economy under the actively involved federal administrations since that time, including a review of taxation, spending, and debt. Throughout, in regard to all historical events, I have provided details from authoritative sources. The economic data come primarily from federal government agencies, all cited and available through the Internet.

The final fruits of this book are conclusions characterizing the current state of the interactions of the free market and federal government and my belief as to how this interaction needs to be modified to promote equality of opportunity. Equality of opportunity can reconcile the goals of conservatives and liberals by creating greater participation of individuals in the market and by promoting the common good. The United States, with its blending of the free market and representative democracy, along with its historic good fortune of resources and place in time in the flow of world events, has the economic opportunity and the capability, with its unprecedented wealth, to build a society where not only no one lives in fear of want, but all can participate in the pursuit of happiness that the Founding Fathers believed was an unalienable right. Although my recommendations for enhancing equality of opportunity are embedded in economic data of the present, they may also be seen as showing that we can make them a reality whenever we are ready. I hope you will share my belief in how this can unfold, but even if in the end you completely disagree, I hope that the process of following my reasoning will have led you to a clearer understanding of your own beliefs.

R. G. B.

October 2016

Postscript – I wrote this book during the 2016 presidential campaign and completed it just before the election. The results of the election may suggest to some that a revision is necessary. However, I believe that the campaign and election underscore the urgency of the need to respond to the book’s call for equality of opportunity in the American economy. Rather than directly commenting on the election, the book provides a basis for a coherent understanding of the economic issues raised in that extraordinarily contentious election. – R. G. B. (January 2017)

Chapter 1

INTRODUCTION AND SCOPE

"Those who yearn for the end of capitalism should pray for government by men who believe that all positive action is inimical to what they call thoughtfully the fundamental principles of free enterprise."

– John Kenneth Galbraith II (¹)

From the beginnings of the United States in the Declaration of Independence and in the creation of a federal government under the Constitution, two major themes have competed to dominate the American economy. These are the themes of individualism, as embodied in the Declaration’s unalienable right to "the pursuit of happiness," and that of the common good as embodied in the federal government’s duty to promote the general Welfare as proclaimed in the Preamble to the Constitution. Conservatives seek economic solutions in individualism as expressed by the free market and limited government, while liberals believe in the judicious intervention of government into the market to promote the common good. The contrast between these themes has never been more pronounced than now with the complete absence of agreement in the economic philosophies of the two major American political parties and in their recommended courses of economic action. But individualism and the concern for the common good may be reconciled through policies to promote equality of opportunity. To fully appreciate this resolution, however, we must first understand the failures of the market as the sole economic organizing principle under limited government before the Great Depression and, alternatively, the deficiencies of economic performance that have occurred in a market actively guided by federal regulation and federal spending to support and stimulate the economy.

The current disagreement on economic policy between conservatives and liberals is so complete as to make one wonder if either of the positions and their theoretical underpinnings is valid. Decades of economic models associated with fiscal and monetary government policy have not allowed economists reliably to predict any of the major crises that have occurred going back to the Great Depression.III In hindsight, economic theory has been used to explain what has happened, but even then economists disagree as to which economic factors were the most important. IV It appears that economists have usefully elaborated many of the factors that drive economic performance, but the range and circumstances in which the models apply are essentially unknown, hence the trial and error approach in seeking economic growth with full employment and stable prices. The contrast of the science of economics with the physical sciences, which have successfully described and predicted phenomena ranging from the sub-atomic to the dynamics of galaxies, is quite clear. In the physical sciences there is consensus except at the cutting edge of a discipline; in economics, there is no consensus, as can be seen by the continuing debates about the causes of our various economic crises.

The lack of current consensus by economists on economic theory is mirrored in the lack of consensus on policy by our two political parties. Remarkably, the political debates remains essentially the same as in in the Great Depression,V even though enormous economic changes have occurred in the United States since that time. These economic changes are largely seen by conservatives as being due to the market which they believe could be made more effective if made freer, or as liberals believe, due to the government’s role in regulation of and investment in the market. Liberals support the market system, but wish to mitigate its harsher but seemingly unavoidable results while conservatives believe that such results provide the necessary market discipline to maintain a free and economically efficient society. A missing feature of those arguments is the tremendous wealth that has been generated in the United States following the end of limited government in the Great Depression and victory in World War II. To discuss economic options using the economic arguments made eighty or more years ago without acknowledging changes in the wealth, the role of the federal government, and preeminent global status of the United States is preposterous. To say otherwise is nonsense or more emphatically to borrow the phrase of the utilitarian economist Jeremy Bentham, nonsense upon stilts.VI

In the period following World War II, the market has, over the long term, generated substantial growth in income and wealth under a wide range of economic conditions. This has been accomplished by the market with the aid of federal government’s financial regulation and spending to support and stimulate the economy coupled with containment of inflation. From the immediate post-war period until the mid-seventies, the income growth was experienced over a wide range of incomes. However, from the period of the late 1970s onward, the economic rewards have increasingly gone to upper income earners. A simplistic way to frame the economic debate is to ask how the rewards of the market economy should flow throughout society. Conservatives will only accept the market as an effective and just allocator of income and wealth and call for a return to limited government. Liberals tend to focus on income inequality and demand government intervention to promote a less skewed distribution of income and wealth. These views are hopelessly incompatible.

American economic history shows that both the market and a federal government active in the economy are needed if all citizens are to meaningfully participate in society. A clue as to how to end the political stalemate is given in the Declaration of Independence’s bold assertion that all men are created equal with certain unalienable rights among which are Life, Liberty, and the pursuit of Happiness and that governments are instituted to secure these rights. The meaning of equality, seen as a self-evident truth by the Founding Fathers, has been debated since Independence as related to political, legal, social, and economic rights. The limits of the Founding Fathers’ vision of equality may be seen in the great conflicts and movements that were necessary to the expansion of rights, notably the Civil War, the ending of slavery, the mass movements to grant women the right to vote, and the civil rights movement returning rights that should have been won in the Civil War. The Founding Fathers believed in equality of all before the law, but not economic equality. However, they rejected the privileged status that came simply as a result of birth in an aristocracy while believing in the rights of people to benefit from their talents and labor. Abraham Lincoln saw these ideas come together in the concept of equality of opportunity or in his own words, equal privileges in the race of life.² It is in the spirit of Lincoln that I have proposed policies to end poverty, to assist children, to provide free post-secondary education and training, and to provide old-age social and medical security while maintaining the market as the dominant organizing principle of the American economy.

Despite the aims discussed above, the scope of this book is actually quite narrow, as it only deals with domestic economic issues over which we have considerable control through government policy (taxation, domestic support programs, regulation of markets, etc). VII Perhaps what I mean by considerable control is best understood by contrast to foreign policy. In foreign policy, the best of planning can come to naught simply by the lack of cooperation of other nations. Also, even the best policies are likely to bring with them undesirable results due to the complex nature of the problems involving countries with different histories, cultures, and understandings of the world.VIII In contrast, all of the economic analyses and resulting recommendations put forward in the coming chapters, that are meant to promote both the pursuit of happiness of the individual and to help form a more perfect union, are limited to actions that are completely under the political control of the various bodies of government of the United States and for which there is considerable experience from the past to draw upon.

This book is conservative in the sense of the eighteenth century British statesman Edmund Burke. Burke (1729 – 1797) was a member of the British Parliament who was sympathetic to the grievances of Britain’s American colonies but a vocal opponent of the French Revolution. He accurately predicted the resulting social upheaval and excessive violence that resulted from the revolution. ³ Although he was a strong supporter of representative democracy and believed in the need for governments to be responsive to the governed and capable of reform, he was wary of the kind of utopian visions of a new society such as envisioned by the leaders of the French Revolution. With deference to traditional social relationships built over the centuries, Burke believed that the sudden abandonment of the past risked the loss of the cohesiveness necessary to a stable and peaceful society. Like Burke, I also believe that revolutionary changes would risk much, and, in my opinion, are not necessary to greatly enhance the lives of all Americans. Now and for some time in the past we have lived with the possibility of removing economic fear from the lives of Americans. To do this we need not make a major break with the economic processes of the market, but rather we need to enhance the participation of all in a more just market through equality of opportunity.

The conclusions and recommendations are based on data from official United States government agencies such as the Office of Management and Budget, the Bureau of Economic Analysis, and the Census Bureau. I have provided sources for the data. The data are the basis for my conclusions concerning the unprecedented wealth, its growth, and its distribution within the United States, particularly after World War II. I believe that the presented data are correct, but of course there are people who question the accuracy of the data. For example, there are a number of ways of calculating inflation. Such effects are marginal to the thrust of my arguments as I am concerned with much larger trends. Perhaps the most significant contribution of this book is discussing the economic issues in terms of these data.

I have also put the data into the historical context of American economic policies. Much of the discussion of economic policy, particularly from a political point of view, is highly abstract as if it were an entirely philosophical subject depending neither on actual data nor historical context. In the nineteenth century the subject of economics was known as political economy, stressing its link to government policy, hence politics. I use the term economics throughout with this understanding.

The economic history that I present is inherently not as objective as the economic numerical data, which at least has the advantage that it can be independently verified, although its significance and meaning is open to debate. History or even journalistic reporting necessarily has subjective components because comprehensive coverage is impossible; the historian or news reporter must always select those events which are considered to be most important. The New York Times may report a story as a major one on page A1, as a bare mention buried deep in the paper, or the story may be deemed so unimportant as not to be fit to print. The historian, at least, has the perspective of time, but still must choose those events to interpret which have the greatest impact.IX Keeping this in mind, I have focused on major public historical events which cannot be ignored without willfully distorting the meaning of economic policy. Finally, from the economic data and historical events, I have drawn my own conclusions and recommendations. The recommendations are necessarily cast for concreteness in the present; however, the goals, thus shown to be within our reach, are timeless. To begin, let us remind ourselves of the purposes of our national government, handed down by our Founding Fathers, and begin to see some of their implications for economic policy.

Chapter 2

LIBERTY AND EQUALITY, PROMISES TO KEEP

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. —That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, —That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

– Declaration of Independence X

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

– Preamble to the Constitution of the United States of America XI

The founding of the United States over two hundred years ago from the Declaration of Independence and from its eventual governing structure as embodied in the Constitution marks one of the greatest advances in liberty and self-government. Reading the opening phrases of the Declaration and the Constitution’s Preamble, which were written when monarchies were the rule in nations, I believe that anyone would be struck by the audacity, continuing relevance and challenges expressed in such memorable phrases as: unalienable Rights; Life, Liberty, and pursuit of Happiness; consent of the governed; and in the Preamble, of a more Perfect Union, which amongst its other purposes, is to promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity. Hovering above all this is the famous declaration that all men are created equal.

Of course, as with almost all revolutionary ideas, the principles did not come from the Founding Fathers as wholly new ideas, without precursors. To get a sense of the ideas that were familiar to the Founding Fathers, I focus on the philosopher John Locke (1632 – 1704) as a particularly important source of new visions of liberty. Already in 1689, Locke had written in Two Treatises of Government that:

"Man being born, as has been proved, with a title to perfect freedom, and an uncontrolled enjoyment of all the rights and privileges of the law of nature, equally with any other man, or number of men in the world, hath by nature a power, not only to preserve his property, that is, his life, liberty and estate…." ⁴

and

Men being, as has been said, by nature all free, equal, and independent, no one can be put out of this estate, and subjected to the political power of another, without his own consent. The only way whereby any one divests himself of his natural liberty, and puts on the bonds of civil society, is by agreeing with other men to join and unite into a community, for their comfortable, safe, and peaceable living one amongst another, in a secure enjoyment of their properties, and a greater security against any, that are not of it.

Locke formed his far reaching views of liberty and government following the tumultuous struggle of the English Civil War that would forever end absolute monarchy in England and begin the movement towards parliamentary democracy. Among the most cataclysmic of the events of this period were: the armed conflicts (1642 – 1651) between the Royalists with their Anglican allies and the Parliamentary party with the dissenters from the Church of EnglandXII; the beheading of King Charles I (1649); the formation of the republican experiment of the Protectorate (1649 – 1659) that was virtually a dictatorship under Oliver Cromwell and after his death in 1658 under his son Richard; and the restoration of the monarchy with Charles II (1660). The struggle between the Crown and Parliament for power would continue as the monarchy was subsequently vitally changed by the mostly peaceful events known as the Glorious Revolution in which the Crown was abandoned by James II (1688), and a government was formed in which the powers of Parliament were greatly increased by the English Bill of Rights of 1689⁵ under the reign of William and Mary.XIII

That Locke’s views and events of the period would form a key part of the thinking of the Founding Founders is not surprising as they occurred throughout the formative period of Britain’s North American coastal colonies. Indeed, Thomas Jefferson cited Locke along with the Greek philosopher Aristotle (384 – 322 BC), a consul of the Roman Republic, Cicero (106 – 43 BC), ⁶ XIV and Algernon Sidney (1622 – 1683)XV as sources for what Jefferson intended in the Declaration as an expression of the American mind. XVI In regard to the Declaration’s proclamation of unalienable rights to life liberty and the pursuit of happiness, Locke did not use this phrase in his Two Treatises of Government; however, Locke’s use of the term property there clearly applies to life, liberty, and estate, that is, a much broader reading of property than simply material property. The phrase "pursuit of happiness" was used by Locke in his Essay Concerning Human Understanding in which he emphasized the universal search for happiness and the individuality of its character.⁷ At any rate, Jefferson did not see in the Declaration radical new principles, but the harmonizing sentiments of the day…. He had only to look to George Mason’s draft of Virginia’s Declaration of Independence, adopted June 12, 1776 by the State of Virginia’s Constitutional Convention, to read of the inherent rights of men to have …the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety. ⁸

The groundbreaking nature of the views of Locke and those who followed declaring a government founded on natural rights is made clear by contrast with the theory of the divine right of kings. The theory had roots going back to St. Paul’s admonition Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. XVII James I (James VI of Scotland) expressed this in exalted form in the same period as the founding of England’s first successful North American colony, Jamestown (1607).

"[A king] is the supremest thing on earth: for kings are not only God’s lieutenants upon earth and sit upon God’s throne, but even by God himself are called Gods." ⁹

A parallel argument, but one appealing more to experience and logic, was that given by Thomas Hobbes for absolute monarchy.¹⁰ Born in 1588 (the year of the defeat of the Spanish Armada), Hobbes, like Locke, lived through the period of the English Civil War. With the events of the Civil War in mind, Hobbes in his book Leviathan drew a completely different conclusion than Locke arguing that in the absence of an absolute sovereign, peace, prosperity, and stability were impossible and that a war of all by all was inevitable. By accepting the protection and peace secured by a sovereign, the individuals of a nation gave up all rights and were obliged to accept the judgements of the sovereign. In Hobbes’ view, division of powers in a nation would lead to anarchy, a conclusion that would be completely at variance with the writers of the American Constitution.

As Americans, we are so familiar with the ideas of government formed in the Declaration and the Constitution which decisively reject Hobbes’ arguments that as Jefferson said they may seem self-evident, but it is cautionary to note that other truths have been and are frequently now accepted as apparently more self-evident. Currently, many, perhaps most governments reject the concepts found in the Declaration and given life in the Constitution. The world’s most populous nation, China, is included among those nations rejecting the American view of liberty and government, although it has borrowed some ideas of industrial capitalism. In this environment we are continually challenged to understand and protect our individual rights and social structure. However, my limited goal, in the context of this book, is to try and clarify what we mean by liberty, pursuit of happiness, consent of the governed, the general welfare, and perhaps most beguiling all men are created equal, as it relates to American domestic economic issues.

Of these ideas, liberty seems to be the most straightforward. The simplest view of liberty is that individuals should be free to do as they please in their pursuit of happiness and that liberty even includes the right to be unhappy. As I am reminded by McMahon¹¹, the doomed hero of Aldous Huxley’s Brave New World, the Savage, living in a controlling dystopic society of the future, claims that right:

But I don’t want comfort, I want God, I want poetry, I want real danger, I want freedom, I want goodness, I want sin.

In fact, said Mustapha Mond, you’re claiming the right to be unhappy.

All right then, said the Savage defiantly, "I’m claiming the right to be unhappy." XVIII

The concept of complete freedom, more conventionally, is often coupled with the concept of laissez-faire capitalism, that is, free economic markets without interference of government. Of this I shall say much more in the following chapters; however, it