Wednesday, May 23, 2012

Conservatives want corporate profits, not jobs

By George Templeton
Gazette Columnist
The New Testament states that the “love of money is the root of all evil.”  George Bernard Shaw claims that “Lack of money is the root of all evil.”

Michael Lewis in his book Boomerang claims “… when everyone is guilty no one is…  It isn’t a problem with government; it’s a problem with the entire society.”  But what came first, the chicken or the egg?
“A phantom is something that appears to be but has no real or physical existence.  Like an apparition, a shadow, a dream, or a vision, a phantom is not what it seems to be.”   Phantom wealth caused the Great Depression and the Great Recession.  Economists describe the appearance of this phantom in detail but sometimes it is more propaganda than science.  Will economic policy create prosperity and jobs?

Classical economics holds that the forces of supply and demand will solve all problems.  Rational man forces free markets to make the right things, at the right price, the right way, in the right proportions, for the right people.   The dark clouds of recession and creative destruction have a silver lining because they encourage necessary adaptations in lifestyle.  There can be no government intervention.  It is all up to Adam Smith’s unseen hand to steer the course of national wealth.  Government’s only responsibility is to balance the budget.

John Maynard Keynes came to the rescue when classical economics could neither explain nor solve the Great Depression.  He believed that recessions resulted primarily from investor confidence and expectations.  His theory claimed that the free market could not be counted on to provide full employment and that it resulted in an “arbitrary and inequitable distribution of wealth and income”.  Keynes, an avid capitalist, focused on demand and emphasized fiscal policy (spending and taxes).

Keynes provided the rational for temporary, large scale government action such as Roosevelt’s public works program to make jobs.  These reversed the Depression and grew the GDP but a decade later had not completely restored the economy.  That required WWII military-industrial spending, proving that government can make jobs that don’t go away.
Conservatives don’t believe in stimulus.  They claim that Keynes knew nothing about economics.  They look at the speck of sawdust in their brother’s eye and ignore the plank in their own.  Modern economics is not about a world that used to be.  Cutting government, taxes, and regulations won’t do the trick.  Right wing ideology replaces common sense when it refuses to deal with real, concrete problems because it would destroy incentives to those winners who don’t need help.

Milton Friedman’s demand side theory is called monetarism. It focuses on how policies influence the stock of money and the rate at which it circulates in the economy.   Friedman followed a different path than Keynes but was mostly in agreement with him.  He emphasized monetary policy (money supply, interest rates) and introduced the idea that employment could be temporarily increased by lowering interest rates, taxes, and increasing the money supply.  Profit increases when prices rise faster than wages.  Kept too long into boom times, this policy leads to simultaneous high inflation and unemployment called stagflation, forcing the government to choose between raising interest rates to fight inflation and lowering them to restore growth.

An effective stimulus depends on the dynamic state of the economy.  Debates about delays in getting data, the efficacy of monetary versus fiscal policy, the types of taxes and their short and long term consequences are irrelevant when ideological disagreement results in stalemate and inaction.

No economic theory is complete without consideration of the forces of both supply and demand. There are thousands of variables that affect the economy in the complex computer models used by economists.

The supply side “field of dreams” is what every entrepreneur wants to portray to potential venture capital investors, but we must remember it is high risk and slow acting.  It took 35 years for Apple to grow to a company with one million employees in China.

Supply side magic is based on the idea that economic performance depends almost totally on tax cuts provided to wealthy investors and entrepreneurs who can afford to make contributions.  The tremendous growth of the business lobby and super packs is because of their “no taxes” ideology.  Republicans have incorporated big business political power into government, outsourcing legislative tasks (immigrant detention prisons, and gun legislation) to them.  The price paid by lobbyists is to support party dogma.

If the Clinton budget surplus was a tax surplus caused by over-charging the public, then a budget deficit must be a tax deficit.  David Stockman and Alan Greenspan saw how tax cuts lead to budget deficits and that economic growth does not pay for the cuts.  When times are uncertain the public saves instead of spending their tax refund.

Politicians announce tax cuts and implement sneaky tax increases such as Governor Brewer’s leap in the tax rate for second homes.  Higher taxes on the wealthy existed during extended periods of American growth.  Few predicted the economic expansion following the Great Depression when the top marginal tax rate was 79 to 94%.  Under Eisenhower the rate was 91% and 77% when Nixon became president.  Will Bunch’s book Tear Down This Myth documents how a pragmatic Reagan cut taxes when he came into office but had to raise them in 1982, 1983, and 1984 to control the deficit.  His 1986 Tax Reform Act cut the top tax rate but raised corporate tax and abolished preferential treatment for income from capital gains and investments.  The internet boom came after Clinton’s 90’s increase.

We suspect that taxes are not the strong variable that Republicans claim it is, or that they are not independent of interactions with other variables.

The Democratic demand-side economics holds that economic performance depends almost totally on the purchasing power of the masses.  The demand for services can be increased by a reverse income tax where the government gives money to citizens to make certain that they can afford to spend.  This is the economics practiced when Bush gave us a tax refund.
Class war is any policy that impacts groups differently.  The “No Amnesty” battle prevents integrating twelve million immigrants into the economy and hurts us.  The claim that democracy can only be preserved by preventing wealth redistribution reveals jealousy and a distrust of majority rule.  Wealth redistribution exists whenever a creditor makes a loan.  If inflation rises above the interest rate of the loan, the debtor wins and if it is less the creditor wins.

Common Sense
Civilizations have to adapt to changing circumstances.  Job opportunities must address:
(1)    Behaviors that are not sustainable and the belief that the distant future will resemble the past 
It’s not out of control spending.  It’s out of control trade-deficit that kills jobs and magnifies the national debt.  We have to make things in America and sell to other nations.  When we borrow to support a life-style we can’t afford, buying from other nations instead of selling to them, we are feeding the phantom and gradually draining our wealth away.  Climate change and world growth guarantee jobs implementing renewable energy efficiency.  Denial is a failing strategy.
(2)    A world of growing complexity, and interdependence 

Robert Shiller’s book The New Financial Order lays the foundation for risk avoidance using computer data mining, psychology, and mathematics to create financial instruments such as futures, options, and swaps.  Who understands the tax code, variable annuities, investments, and health care?  Many Americans need help to plan for retirement.  Government can nurture private financial planners.  Health care can shift from disease management to prevention, requiring nurses, technicians, counselors, and the gym.In the old days, modernization meant giving up neighborhood, family, and friends for the job.  In a world flattened by global business, jet airplanes and the internet, we give up country and culture as well.  Foreign language skills and higher education are necessary for the jobs of the future.  Forget about “made in America”.  Today’s manufacturing problems are all international incidents.  Interdependence includes the benefits of cheap Chinese imports and the severe erosion of the American economy caused by outsourcing of high-technology well paying manufacturing jobs.  Cheap goods will not make your mortgage payment.

(3)  A short-term outlook that precludes investment in the future 

Young companies, not small ones create jobs.  TV, the transistor, and home      computer have shown how government and big business enables small business to change the life-styles of everyone and grow jobs.   National policy for competitiveness should promote venture capital and technology such as the computing cloud and high-speed internet to better market American products to the world.   

Conservative policy is about corporate profit creation, not job creation.  Regulations are about workers and the community, not just business and finance.  Disease, water, and air pollution know no boundaries.  Political and financial fads leading to lasting damage are not the lifestyle changes we seek.

Government can help by taking steps to gradually reduce the trade deficit with caps and tariffs.  Corporate tax breaks have proven ineffective in keeping American jobs and growing exports.  Now is the time to simplify the tax code and to adjust subsidies to focus on bio-tech and the new creation.  The time to repair our broken infrastructure, repair bridges and roads, and build high speed rail, is now, while things are cheap and labor is plentiful.

Family Values
Liberals question the feasibility of continuous growth in consumption at the expense of quality of life.  Do you agree with economists who hold that the gross national product is a proxy for happiness?  Our general welfare does not always mesh with business interests and cheap goods from China.  What companies want and countries need are different.  Profit should not be the only goal.  Universal maternity leave, early education, and child care are examples of family values.

Because of Tea-Party obstruction, President Obama’s record represents only 2 years following 30 years of dominant conservative policies.  (Alan Greenspan’s book The Age of Turbulence claims that Clinton was a fiscal conservative.)  Their accomplishments left us with economic discontent, unemployment, torture claimed moral and patriotic, and a Jesus who with the help of the Cornwall Alliance condemns the ASU Global Institute of Sustainability for doing more than picking up beer cans and trash.

Taxes are not an erosion of freedom.   They come from a sense of responsibility and a desire to preserve domestic tranquility.  Shiller says to ask “… What kind of world would we like to live in if we could choose before we were born, assuming we had an equal probability of being born as anyone?"

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