Monday, January 19, 2015

Passing money among themselves

In the United States, the top 1% own 40% of all the wealth. They own 50% of all the stocks. The top 20% own 93% of all the wealth, leaving 7% remaining for the bottom 80%. Since 2009, 95% of all new gains in the economy have gone to the top 1%. It is as if the wealthiest one percent have spent the last 30 years designing an economic system where they get to increase their wealth by passing money among themselves while everyone else works for wages that do not improve their standard of living.

The only way that this condition could exist is through government intervention in the market. It's sort of socialism, in reverse. This is not sustainable economic policy, and there are only two loud voices in Congress bellowing or screaming these facts out: Senators Bernie Sanders and Elizabeth Warren.

There is much that we could do about this and Warren and Sanders are offering up many, many solutions, to a deaf, dumb and blind Republican majority. The Democrats appear mostly unwilling to discuss these issues, but lately, they seem to be rediscovering their backbone.

First off, there is the trade deficit. Republicans just love to whine, moan and groan about the budget deficit. They claim that their economic policies (Reaganomics) really do work and they are desperate to prove their point. Well, we have an excellent natural experiment underway in Kansas with Governor Brownback. He cut taxes for the wealthy, cut social programs and now his economy is in the dumps. His state is enjoying none of the gains almost all other states are enjoying right now. The other state that is missing out? New Jersey with Republican Chris Christie at the helm. Republicans are getting more than just a little bit antsy about the results and they are starting to back peddle on Tinkle Down Economics.

The new Republican Congress will attempt to impose the same fantasy on the rest of us through federal legislation. But as we can see, not only are most Republicans not scientists, only 6% of scientists identify as Republican, Governor Brownback proves once again that they are not even economists. So it would seem fitting that none of them would talk about the trade deficit.

Fortunately, there is an economist who is speaking loudly and clearly about the trade deficit, Dean Baker. Baker has written a few books on the subject and many articles, too. In a nutshell, we've been running a strong dollar policy since the early 80s and enhanced that policy in the 1990s. As a result, the strong dollar has created a massive trade deficit of about $500-600 billion every year. That money is being siphoned off to other countries creating demand there, not here. Replacing that demand would create about 6 million jobs alone.

The people who have the means to benefit from this state of affairs are members of the 1% class: CEOs and boards of directors. They can leverage the delta between currencies and take most of the profits for themselves and their shareholders. By sending jobs overseas, they suppress employment here and keep wages low. The strong dollar policy has been one of the largest factors in wage stagnation for the last thirty years. But there are a few others that have yet to be discussed.

During the 1950s, America experienced a great economic boom. Wages and income for the middle class rose steadily during that time. The standard of living increased for everyone. Conservative are reluctant to recall the very high tax rates under Eisenhower, but they are even more reluctant to recall that for most colleges and universities, education was free.

The voices calling for free education are becoming louder and clearer. Several European countries already offer free higher education for all, some for anyone in the world, regardless of citizenship. Not too long ago, Germany abandoned tuition for public colleges. Why? Because they know that people are educated, they can pull a higher income, they make better choices at the polls and they are more engaged with their government.

But here, in America, we have a Republican Party that is intensely averse to anything that might possibly raise wages in America. Oh, they talk a good talk on Meet the Press, but their policies go exactly in the other direction. The Democrats are not much better as they are far from the progressive party they used to be in the 60s and 70s.

Big business seems more intent on grabbing more profits for themselves than sharing that prosperity with others with a higher education. God forbid that they should have to pay more money for the skills they need to compete with the world.

Lastly, there is infrastructure. We have left much of our infrastructure in neglect. Bridge collapses have made the headlines in recent years. We drive over roads littered with potholes and other hazards, and curse the crews improving our roads. But here, in Utah, I see the road crews every day, working on something. They know something about infrastructure here. But at the federal level, they seem to know not that building infrastructure helps everyone.

50% of our bridges are at or near end of life. We spend about 2.4% of GDP on roads. Bernie Sanders says that Europe spends twice what we spend on roads. China? 4 times as much. Estimates to put our roads and bridges back on track vary, but the consensus is, it would cost $1.1 Trillion. Sanders has introduced a bill in the Senate that would get us back on track and add 13 million jobs to the economy.

Deficit hawks on the other hand warn us that such ambitions have no place here. God help us if the labor market gets tight and wages have to go up to meet demand, right? Nevermind the demand that such work would create in our economy, or the return on the investment by reducing commute and travel times as well as the tax revenue generated by the demand. No, if you listen to the upper crust of Congress, they're too busy extracting profits to do anything about infrastructure.

There are some in Congress who prefer things as they are. At least someone in Congress is noticing that there is a middle class and they need help. We can do it through infrastructure and education. Who else is willing to step up and save the middle class?
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