Monday, August 2, 2010

Facebook Musings on Economic Policy

What I had intended to be some brief musings on the state of America's economy circa August 2010 wound up becoming a much more comprehensive and all-encompassing stream-of-consciousness on the policies we ought to pursue. I have reposted that material below.

Matthew Rozsa - Status Update
According to second-quarter earnings reports, American big businesses are earning record profits; indeed, the five hundred largest non-financial firms held almost one trillion dollars last quarter, an amount that is growing.

So why isn't this leading to increased hiring and a decline in unemployment? See below for my answer.

Matthew Rozsa
According to conservative economists, the best way to stimulate economic growth is by cutting taxes on America's largest corporations, since (according to their argument) the expected increase in their profits will prompt them to create jobs. What is happening instead, however, is that big businesses are using their expanding gains to (1) pay dividends to their shareholders and buy back their own stock, thus driving up the share prices, (2) invest in potentially lucrative overseas markets, and (3) increase the salaries of their CEOs and other high-ranking corporate officials. What's more, instead of creating jobs, the American plutocracy is (1) using technological innovations to reduce the number of workers they need to employ and (2) forcing those workers they DO employ to work longer hours (this, incidentally, leads to a chimerical "increase in worker productivity", although that reflects not greater American output but the simple fact that fewer workers are being forced to perform the same amount of labor that used to be carried out by greater numbers). In short, if conservative economic theories were correct, the extraordinarily profitability of American businesses should have already triggered a period of high employment, rising wages, and overall prosperity; instead it has created a lopsided pyramid, one in which the wealthiest Americans are becoming richer while the incomes of the middle-class stagnate, the plight of the working poor becomes increasingly precarious, and the unemployed enter a period in which their status as economic undesirables risks becoming permanent (a fact worsened by the growing trend, as reported in "The New York Times", of big businesses to refuse to hire jobless Americans, apparently on the assumption that their unemployed status must reflect personal weaknesses rather than the larger health of the economy).

Matthew Rozsa
One of my main criticisms of American liberals is that, while we are frequently extremely astute in diagnosing the causes of major problems in this country, we are just as likely to come up short when we are called upon to offer solutions to those problems. That is why I am going to offer my own thoughts on how to resolve these matters below.

First, I need to confront the two main arguments presented by right-wingers whenever they try to put the kibash on liberal economic policy proposals:

1) They'll be too costly.

There is some legitimacy to this claim; our multi-trillion dollar budget deficit poses a grave threat both to the borrowing capacity of American businesses, the vitality of our bond markets, and the ability of our children and grandchildren to have a fiscally sound future. As such, there is a decent argument to be made that left-wing economic plans which are egregiously expensive (even including Obama's stimulus package) do more long-term harm than good and shouldn't be pursued. At the same time, there is a great level of dishonesty in Republican claims about being "deficit-oriented"; after all, it stands to reason that if you shouldn't spend money helping the middle-class and poor, you likewise should avoid spending money on the privileged and downright wealthy. Instead, Republicans and conservative Democrats are among the most adamant defenders of maintaining President Bush's $1.3 trillion tax cut on the wealthy (which cost half a trillion dollars more than Obama's stimulus package), as well as continuing to pour trillions of dollars into the military-industrial complex (through increased spending to corporations that manufacture military hardware and as a result of our ongoing military engagements) and such culturally-oriented programs as the war on drugs (indeed, legalizing and regulating marijuana alone would single-handedly transform billions of dollars of waste into an equal or greater amount of revenue). Indeed, even some of the much-maligned social welfare programs that Republicans frequently attack are often covertly supported by them when the interests of the well-to-do wind up being at stake; for example, while the largest chunk of our federal budget is spent on Social Security checks - the majority of which goes to recipients who do not fall below the poverty line - Republicans often oppose saving trillions of dollars which could be done, very simply, by excluding Social Security payments from all beneficiaries who earn(ed) more than $100,000 a year. In short, while I agree that we need to reduce our budget deficit - and that some liberal programs (like the stimulus package) may have to go in the name of deficit reduction - true deficit hawks should also focus on axeing wasteful spending that is near and dear to the hearts of the GOP. Until both policies are discussed in the same breath, any dialogue on spending reduction is inherently disingenuous. What's more, although I agree that Obama's stimulus program is dangerously costly, if conservatives persist in impeding the measures that would truly create a more egalitarian economic infrastructure, then policies such as the stimulus package will be rendered necessary in lieu of better alternatives.

2) Any government attempts to regulate the economy or control the practices of big businesses constitutes "socialism" or "communism".

This ignores four vital points: (a) The American government has fought against the excesses of America's corporate oligarchy since before Karl Marx ever penned his notorious texts (see Andrew Jackson and the war against the Second National Bank or Martin van Buren and the establishment of an independent treasury), (b) Even after the dawn of Marxism, presidents whose commitment to capitalism is beyond dispute often used the power of the federal government to fight for economic egalitarianism by increasing taxes on the wealthy and curbing the power of big businesses (see the trust-busting and corporate responsibility legislation of Theodore Roosevelt and William Howard Taft, the policies proposed by Theodore Roosevelt after his presidency during his third-party campaign in 1912), (c) There are many important areas of our economic and social life that are controlled by the government without claims of socialism - police officers, firefighters, public schools, state colleges, and DOT-financed roads and bridges, for example, are all entirely run by the government, even though they used to be completely in the hands of private enterprise, and none of them have led to the creation of a socialist state; likewise, agencies such as the FDA and SEC, which exist to make sure that our food is clean, our drugs are safe, and our financial markets are run on sound business principals, have not led to the loss of any of our liberties (and when those agencies fail to do their jobs, it is invariably because the private businesses they're supposed to be regulating have corrupted the officials working for them to ignore the responsibilities of their job), and (d) Most important of all: Claiming that government regulation of private enterprise is socialistic commits a classic logical fallacy known as "The Straw Man Argument", which is defined in the following way by The Nizkor Project (an organization dedicated to debunking Holocaust denial, and thus all-too-familiar with illogical arguments that pass themselves off as legitimate): "The Straw Man fallacy is committed when a person simply ignores a person's actual position and substitutes a distorted, exaggerated or misrepresented version of that position. This sort of 'reasoning' has the following pattern: Person A has position X; Person B presents position Y (which is a distorted version of X); Person B attacks position Y; Therefore X is false/incorrect/flawed... One might as well expect an attack on a poor drawing of a person to hurt the person." Because Socialism and Communism are very specific ideologies, and because simply arguing that businesses should be regulated by the government is NOT automatically in keeping with one of those ideologies, labelling all liberal proposals as socialistic or communistic is a straw man fallacy.

I complete my argument in the third comment.

Matthew Rozsa
The primary domestic and social problem confronting today's policymakers is, in the immediate, figuring out how to create well-paying jobs for all Americans who are willing to work and, in the long-term, figuring out how to minimize or even prevent the widespread suffering caused by massive unemployment and wage declines in the future.

There are several ways of doing this:

1) Pass legislation that makes businesses legally responsible to their employees. Although such measures would no doubt raise a firestorm of controversy, it should be remembered that corporations are ALREADY legally beholden to their stockholders (as a result of the stock market crash of 1929, dishonest practices that betrayed those who invested in the stock of big businesses were outlawed, and agencies exist to this day making sure that corporations are straightforward and beholden to their investors) and, to a lesser extent, to consumers (hence the creation of agencies that prevent companies from selling dangerous products without the public's knowledge and legislation requiring that businesses are honest both in how they characterize the goods and/or services they provide and the methods in which they expect their customers to pay for them). Considering that job security, workplace safety, and pay consistent with the national cost of living are just as vital to the rights of employees as fair dealings are to the rights of stockholders and consumers, it isn't too much of a logical leap to argue that the same rationale which allowed for the creation of the aforementioned laws also be used to make employers beholden to their employees. This should happen in several ways:
i. Their should be a guarantee that, once someone receives a job, his or her employment will not be terminated except when it is as a direct result of criminal activity and/or demonstrable (emphasis on that word) performance-related issues. This includes shipping jobs overseas, replacing workers with technological innovations in the name of "efficiency", trying to let some workers go and force others to carry their load as a cost-saving measure, punitive measures due to efforts to unionize, and layoffs due to declines in corporate profits (the last one isn't as tricky to actualize as some may argue - if a company has genuinely lost all money, then obviously they have no choice but to fire their workers, but if it is reasonable to assume that cost-cutting measures can be worked out without shedding jobs, such as by having the higher-ups take salary cuts, then those should be required in advance of layoffs).
ii. Likewise, there should be a guarantee that a job, once received, will pay enough within a forty-hour workweek so as to ensure that an employee will be able to afford the necessities of life (food, shelter, clothing, medical care, and a certain amount of discretionary money) in accordance with that year's cost-of-living. Although conservatives may claim that this will make it too expensive for would-be small business owners to create their own establishments, the reality is that the increase in purchasing power resulting from an overall rise in salaries would inevitably result in consumption growth, the resulting revenue from which would more than offset the additional start-up expenses business owners would incur from the salary increases. Indeed, this last point is perhaps the most important one of all - i.e. not only would raising the minimum wage dramatically improve the standard of living of America's most disadvantaged citizens, but it would prompt millions upon millions of citizens to greatly increase their spending, which has - without exception in history - led to periods of economic growth and prosperity.

2) Once you make it so that those who work can afford the necessities of life, all that remains is the obligation to help the unemployed. Here, the solution is two-fold: (i) Cut excessive costs on unemployment welfare by making it mandatory for those receiving such benefits to report every day to an agency - either in person, over the phone, or via Internet - where they meet with a representative who actively assists them in finding work, from drafting resumes and coaching them through interviews to using connections with their agency to recommend given clients; those who fail to do this should not be able to receive benefits, without exception (ii) Empower the aforementioned unemployment agencies to provide economic incentives and use other means to encourage preferential treatment in hiring for businesses on behalf of the unemployed, so that those who are currently on the rolls can be removed from them as expeditiously as possible. Indeed, just as the Department of Veterans Affairs uses a quote from Abraham Lincoln's Second Inaugural Address as their mantra, so too should America's unemployment agencies adopt as their credo this passage from Franklin Roosevelt's first nomination acceptance speech:

"The task of government in its relation to business is to assist the development of an economic declaration of rights... Every man has a right to life; and this means that he has also a right to make a comfortable living. He may by sloth or crime decline to exercise that right; but it may not be denied him."

3) To resolve future economic problems that result from corruption in our private banking system - from the shenanigans that led to our current economic crisis to more systemic issues such as racial discrimination in both housing (redlining) and providing fair access to credit - we should follow a proposal made by Rexford Tugwell, a member of President Franklin Roosevelt's legendary Brain Trust - i.e. have "the postal savings system... take over the deposit and checking transactions of banks", as well as the job of assuming commercial credit (that latter half is my own additional, as Tugwell believed that could be safely left to private banks and financial industries).

I tried posting this comment, but Facebook told me it was too lengthy, which is a first even for me! The second half is contained below this one.

Matthew Rozsa
There are four more points related to this subject which need to be made:

1) With the exception of the banking sector, not one of these plans involves the government taking over a business that is currently in the hands of the private sector. While some may object even to taking over the banks, those institutions have already demonstrated why their power is too great to be unaccountable to the people through their recent actions; what's more, the reality is that - after the bailouts of 2008 and 2009 - American taxpayers have already incurred the high costs that would follow a takeover, so if we already own them anyway, we might as well reap the rewards that normally come with having control of an institution.

2) Critics of these socially liberal economic plans often point out that, if implemented, they would cause large businesses to flee the country, taking with them the jobs they could offer and the goods and services they provide. First, the aforementioned legislation would make it illegal for them to eliminate jobs without good cause once it is in effect; as for businesses that may try to eliminate those jobs PRIOR to the bill's implementation, the government could retaliate by banning the sale of all their goods and services in this country. Considering that Americans consume BY FAR more goods and services than citizens of any other country in the world (and our population is only growing), a bill that punishes companies which take away American jobs by denying them access to the American marketplace would ultimately cost them more money than they earn, compelling them to stay. Even if a few did decide to leave, only the goods and services they provide are indispensable; the individual companies themselves are not. As such, Americans could create new native businesses to replace the ones that fled.

3) There are those who claim that this is unjust to the wealthy. While these policies would admittedly cause the gap between the wealthiest and poorest Americans to diminish - which in my mind is an inherent good, but which in the minds of supporters of a corporate oligarchy is wrong, given the strong emotional investment many of them have in an economic infrastructure that invests them with so much disproporationate power and social status - it would ultimately benefit the wealthy as well as the poor, since it would create a more stable economic model throughout the future. After all, the greatest long-term threat to the wealth of the upper class lies in the possibility that their riches will decline because the middle-class and poor won't be able to spend as much money on their goods and services. In an economic system that guarantees that the middle-class and poor will always have enough income to spend that money, that threat would be removed.

4) Although many criticize liberal policies for being too expensive, one of the beautiful things about these proposals is that they would actually cost LESS money than the panoply of social welfare programs currently in place (which are, at best, erratically effective). Although money spent to create and maintain the agencies needed for iniitally implementing and then rigorously maintaining these programs, far more would be saved from cutting now-superfluous social welfare programs.

I'm done pontificating... for now. ;-)

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