From the WSJ:

Liberate America’s Other Economy

June 12, 1990

In 1984, Mario Cuomo of New York electrified the Democratic Convention with his tale of America as two cities, one rich and one poor, permanently divided into two classes. He talked about the rich growing richer and the poor becoming poorer, with the conclusion that class conflict, if not warfare, was the only result, and redistribution of wealth the solution.

With all due respect to Gov. Cuomo, he got it wrong. America is not divided immutably into two static classes. But it is separated or divided into two economies. One economy — our mainstream economy — is democratic and capitalist, market-oriented and entrepreneurial. It offers incentives for working families in labor and management. This mainstream economy rewards work, investment, saving and productivity. Incentives abound for productive economic and social behavior.

It was this economy, triggered by President Reagan’s supply-side revolution of tax cuts in 1981 that generated 21.5 million new jobs, more than four million new businesses, relatively low inflation and higher standards of living for most people. This economy has created more jobs in the past decade than all of Europe, Canada and Japan combined. And according to the U.S. Treasury, federal income taxes paid by the top 1% of taxpayers has surged by more than 80% to $92 billion in 1987 from $51 billion in 1981.

There is another economy — a second economy that is similar in respects to the East European or Third World socialist economies. It functions in a fashion opposite to the mainstream capitalist economy. It predominates in the pockets of poverty throughout urban and rural America. This economy has barriers to productive human and social activity and a virtual absence of economic incentives and rewards. It denies black, Hispanic and other minority men and women entry into the mainstream. This economy works almost as effectively as did hiring notices 50 years ago that read “No Blacks — or Hispanics or Irish or whatever — Need Apply.”

The irony is that the second economy was born of desire to help the poor, alleviate suffering, and provide a basic social safety net. The results were a counterproductive economy. Instead of independence, the second economy led to dependence. In an effort to minimize economic pain, it maximized welfare bureaucracy and social costs. 

- Jack Kemp

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