Understanding Bushonomics

How We Got Into This Mess in the First Place

Scott Lilly details the Bush administration's unsustainable and unbalanced economic policies that have led to the current weak state of the U.S. economy.

The Bush administration's flawed tax, minimum wage, union, trade, and immigration policies have sunk us into an economic downturn. (AP)
The Bush administration's flawed tax, minimum wage, union, trade, and immigration policies have sunk us into an economic downturn. (AP)

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In 1914, Henry Ford convinced the directors of Ford Motor Company to increase the minimum wage it paid most workers to $5 a day. In return, Ford, the first company to use the assembly line to produce automobiles, got greater commitment from its employees to help management achieve the potential efficiencies possible with assembly production. In addition, the company gained so much free publicity that it was able to virtually eliminate its advertising budget for years after the announcement. But Henry Ford argued years later that the biggest benefit to the company was the enrichment of its workforce, “For on that day we first created a lot of customers.”

For a time, Ford’s action put upward pressure on wages not only among automobile manufacturers but in other industries as well. In less that a decade, however, Ford’s leadership in profit sharing was almost totally ignored by most U.S. businesses. The 1920s were a period of remarkable growth in industrial output. Between 1920 and 1929 worker productivity grew by 63 percent while real wages (after accounting for inflation) fell by 9 percent. The benefits of this productivity boom accrued entirely to business. Part of it was distributed to stock holders in the form of dividends, helping to push share prices ever higher, while the remainder was invested in new plant and equipment, which further increasing productivity and industrial output.

That cycle continued until October of 1929, when Wall Street suddenly realized that consumers could not begin to purchase all of the goods and products that this capacity was capable of producing. The late Arthur Schlesinger wrote in The Crisis of the Old Order:

Management’s disposition to maintain prices and inflate profits while holding down wages and raw material prices meant that workers and farmers were denied the benefits of increases in their own productivity. The consequence was the relative decline of mass purchasing power. As goods flowed out of the expanding capital plant in ever greater quantities, there was proportionately less and less cash in the hands of buyers to carry goods off the market. The pattern of income distribution, in short, was incapable of long maintaining prosperity.

Nearly three quarters of a century after the 1929 crash, George W. Bush began gathering his economic advisors to prepare the policy agenda for his incoming administration. There seemed to be little appreciation of the lessons of either Henry Ford or the Great Depression. The first orders of business were massive tax cuts focused heavily on corporations and the highest income individuals to foster economic growth through assistance to the “supply side” of the economy.

Subjects of this report include: the Bush administration’s tax policy, minimum wage, enforcement of federal wage and hour laws, unions, enforcement of trade agreements, and immigration.

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Scott Lilly

Senior Fellow