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It’s the Economy…Or Is It?

July 4th, 2012 · 1 Comment · Democracy, Economics, Politics, Populism, taxes

Sometimes it seems that economists live in a world different from ours. We have bills to pay, jobs to keep, children to educate. The formulas that economists constantly elaborate upon seem to have little to do with daily life.

Of course that is not true. The outcome of macroeconomic calculation can have an enormous impact on our daily lives. It is doing so right now. The economist Arther Laffer and the Nobel Laureate economist Milton Friedman both had an enormous impact upon the thinking of President Ronald Reagan. So much so that he took actions that are damaging to us even today.

Ronald Reagan cut taxes in the belief that doing so would stimulate the economy several times more than the cost of the tax cuts. It is something like this (and it sounds…sounds…logical): if we cut the amount of money you pay to the government (taxes) then you will have more to spend. The more you make, the more you save in taxes and the more you have to spend or invest. More spending and investment will boost the economy several times more than the cost of those tax cuts to the government.

Well, it sounds great but we all know now that it did not work. Studies by the Congressional Budget Office showed that the most that the government (that is, us taxpayers) could expect to get back in return was about 20% of the money that the government lost.

The result of those mixed up economics was a continuing deficit of hundreds of billions of dollars a year up until Bill Clinton was able to stem it and balance the budget in the last three years of his eight years as President. But by then the national debt was $5.6 trillion dollars! Then, George W. Bush and Dick Cheney took it to $12 trillion in just 8 years, relying on the advice of the same economists who had incorrectly guided Reagan and Bush’s father.

Of course, the worst thing about “Reaganomics” as it was called was that he persuaded so many people, despite the facts that were evident to everyone, that it was economically feasible to go into debt by hundreds of billions of dollars each year. Of course it was good for the Republican Party, the new conservative Republican Party, made up of those who had formerly been the Southern Dixiecrats of the Democratic Party…the racist segregationists, like Strom Thurmond and Jesse Helms. They were resurrected under Reagan and saw a great way to steal money for their campaigns and ultimately to enrich themselves at the same time.

The Republicans used this ruse that tax cuts were good and deficits didn’t matter, to get themselves elected and then to hire contractors for government work who would pay them back in campaign contributions.

The principal person who discovered the value of this system to fool the public was Grover Norquist. No dummy, but a truly sinister guy, a clear Neo-Fascist from the get-go, Norquist saw a great opportunity to make millions.

Who benefits most from cutting government and keeping taxes low? The very rich. The richer you are the more comes back into your pocket. So Norquist made up this theory, based on Reaganomics, to justify his putting money in the pockets of the rich It said that the smaller the government, the greater the private economy. It sounds terrific. But it is bunk. It has never worked—except for multi-millionaires and billionaires.

Here’s why it doesn’t work. It is like standing in water. You can stand there forever if the water only comes up to your chest. But our population is not stagnant. There were 200+ million people in the U.S. in Reagan’s time; now there are 300+ million.

You can’t cut a government the way you cut a business because you can’t just toss 100 million people out the door. But if Grover Norquist has his way–he has had it his way for some time now—and you keep cutting government and taxes, you drown government. You drown those American people not tall enough to keep their heads above water, in other words, those who need government to help them survive.

Norquist actually looks like a guy who would drown children and puppies. It turns out he would, and it is horrible to realize. His comment was that he wants to make government so small that we can “drown it in a bathtub.” By which he means, of course, that his policies…followed by many Republicans legislators…would reduce government to almost nothing. And many Americans would literally die as a result.

Economists, for the most part merely modify or try to improve on the accuracy of economic theories. Because we are in the greatest economic depression since the 1930s much of what economists thought they knew has been either proved or disproved.

When the economy drops, government revenues drop. In the United States, for example, we were told that we had something like a $400 billion annual deficit under Bush, or so we thought. It turned out that in 8 years, before the Second Depression started in 2009, Bush and the Republicans in Congress had already added $7 trillion, stolen it really, to the national debt. That’s double the $400 annual rate we were told. So what happened to the money?

The national debt was $5 trillion when Clinton left office and $12 trillion when Obama took office. But Obama, and the country, all of us, were left with 15 million unemployed (14.9 million) and a difference of $1 trillion a year between revenues coming in and the costs of government. That difference was caused by two Bush wars at about a billion a day and three consecutive tax cuts for millionaires and billionaires. This is not complicated stuff. You voluntarily take a pay cut, not once but three times and spend three times what you used to spend…then you will get it.
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The United States was losing jobs at the rate of 700,000 a month when Obama took office. That continued until he stopped it after about 6 months of billions in stimulus funds poured into the economy. Here’s what caused the $1 trillion per year deficits under Obama. (By the way, the first one was actually under Bush. Bush left Obama a $1.4 trillion deficit in the middle of 2009 when Obama was still fighting to get the job losses to stop.)

Bush had real deficits of about $300 billion. If you add to that the costs, or losses in revenue, to the Treasury of 15 million taxpayers now being unemployed, that is another $350 billion. When you do tings to try to keep these people from starving or losing their homes (that part was not successful…unemployment insurance will not cover most mortgages) you then end up with another $350 billion in debt. If you add that all up, it comes to over $1 trillion in added costs every year. You can blame Obama, but if you do, take a look at the hundreds of Republican filibusters on jobs legislation he has sent to Congress.

So…let’s call on our economists to help. What do they recommend?

There’s the problem. The current theory among many economists has never considered what to do when the economic situation turns on its head. Their entire economic history has been involved with maintaining a low level of inflation, dealing with short recessions and understanding sharp and prolonged price raises, usually being determined to have been speculation. Although they never seemed to catch it at the time.

Of course there are other economists, normally academic economists, and they all have a different approach. Economists from Harvard, Columbia, Princeton, Berkeley, Texas and other universities have come up with alternatives to the common wisdom among the government and the Wall Street economists.

The approach of most academics is to use what worked in the past. They have the foolish notion that we should go with the empirical evidence of what has actually worked. The politicians these days, however, want to stick to their theories that somehow God will come down to earth and somehow miraculously change history. History says simply that you need more revenues than costs. Republicans say that this will mean tax increases on the rich and on huge global corporations who now pay no taxes—and that is unacceptable.

The FDR initial stimuli, tens of thousands of public projects from 1933 to 1941 before war production began to take hold, dropped unemployment from 25% down to about 15%. Then in 1942, the increase in production for war dropped unemployment even more. By the end of the war, unemployment was down. After the soldiers were fully integrated back into society the United States began on an economic boom that ended only in the late 1970s. Inflation, caused by the refusal of either political party to pay off Viet Nam war debts, resulted in an economic crisis and that resulted in the election of Ronald Reagan.

Taking office in 1981, Reagan a complete amateur in the economic realm, did listen to the advice of one serious economist, Paul Volcker. They brought down inflation, although they had to cause a recession to do so. Then Reagan set out on his plan for government…lower taxes and more military spending. It was the beginning of a false ecnomic theory that lasts among Republicans even to this day. It lasts because it is popular, not with most rational economists, but because salaried Repubican economists believe it so long as their paychecks depend on it.

From 1981 until today…with the huge deficits left us by Bush and Cheney, the Republican economists continued to insist that deficits did not matter. Two trillion under Reagan, two more trillion under Bush the First, a trillion and a half under Clinton until he could balance the budget and create surpluses, which he did in the last three years of his term.

Then came Bush the Second and massive spending, which given the fact that these people aren’t stupid, you must believe was real theft of the wealth of the country from the taxpayers. In all, including the three trillion that Bush and Cheney left on Obama’s doorstep, along with 14.9 million unemployed, they spent 10 trillion dollars more than the country received in revenues during that 8 years.

So this is where we are now. What are the economic strategies that will get us out of this mess. Progressive economists, like Paul Krugman, Robert Reich, Jeffrey Sachs, Jamie Galbraith, Brad De Long, Dean Baker, and perhaps the dean of progressive ecnomists, Joseph Stiglitz will tell you that we need to reestablish employment at meaningful levels. It is not complicated and it isn’t new. Roosevelt did it in 1933 and it brought down unemployment and jump-started the economy and we never had a better economic period.

The first step is to create millions of jobs. If the private investors, influenced by the Republicans to wait until after the 2012 election won’t do it, then it is time for the government to create jobs. If the government creates jobs that are meaningful, we will come out of this Depression with perhaps the strongest economy in the world by a factor of two, with the strong Chinese economy trailing behind, and the economy of Western Europe trailing the Chinese.

We can create several million jobs immediately in several important sectors. First, in energy, the most obvious example. Wind energy is already providing huge resources to many parts of the country…despite the fact that the Republicans have fought it tooth and nail. Solar energy is so big in other parts of the world, like Germany, where it is already 20% of their energy usage, that unless we start to use our—massive—solar energy power and build an economic base for that industry, these other countries will take over our energy one day. China is already the largest solar manufacturer in the world.

We need to switch to electric power and switch a large part of our transport and travel to mass transportation. Both those things will make vast improvements in the efficiency of our infrastructure. As part of that, we need to develop our natural gas resources, not so that large corporations can loot them for their billionaire owners but so that we can use them to fund our needs for the last half of this century and the next. Huge changes are coming and we need to be ready—not as a bunch of greedy capitalists hoarding away dollars, but as a unified society working to improve the United States for subsequent generations.

In addition we need to investigate manufacturing opportunities here and begin to manufacture those essential military items here that are now being made abroad. This will create jobs here at the same time as it protects our military logistics. We need to improve our roads and streets and bridges and dams and railroad structures and roadbeds so that we can take advantage of new technology in energy and transportation.

Now, all those jobs that we must develop to set the economy right are also jobs that can be converted to private industry. Some of them will initially be public-private enterprises that can be easily sold off. But one way that we can insure that our country grows strong is by making a serious change in our policy that many countries around the world have already made. For example the country of Qatar.

Qatar is a country about the size of Connecticut. But it provides everything for its citizens literally from cradle to grave. How can it do this? It owns all its own natural resources. All the revenue flowing from Qatar’s oil wells goes into the government’s coffers. It is then returned to Qatar citizens in the form of benefits. This of course would be anathema to anyone like…oops…the former governor of Alaska. Alaska collects oil revenues and gives the excess in running government back to Alaskans in tax rebates. Norway collects revenues from its North Sea oil wells and distributes it to citizens in a special fund. Each Norwegian citizen already has a $65,000 stake in the fund.

By contrast, the United States has been the largest oil producing country in the world, making Norway’s oil look like a teacup compared to an oil barrel. But the U.S. has a deficit, a debt on each of our citizens, thanks to what can only be called our corrupt political system, of approximately $50,000 each and growing. And life for Norwegians is so much better than the U.S., there is no comparsion. In fact world ratings make Norway the most beneficial to its citizens of any in the world.

We don’t need to raise taxes. We simply need to do what every other country, advanced or emerging, in the world does…Arabs, Europeans, Asians or Latin Americans…keep the country’s resources for the people instead of giving them away to those rich enough to buy them and keep all the revenues to use to attack the People. That is the current American system. Billionaires are taking huge sums of money out of the ground in land that should be ours to use as a political weapon. They use the money to elect politicians who would destroy unions, cut social services, deny public services, including health care, contraception and necessary abortions—but also roads and bridges and smaller classes for children’s education.

EXXON and BP pay no taxes on tens of billions of dollars in income each year. We need to elect representatives…and that means anyone with a D instead of an R behind his or her name…to take back these resources and to make those who now have them pay at least 20% to the people who really own them. But it is more than just the energy companies. Huge corporations have banded together with ALEC (see alecexposed.org) to take back this country from the citizens, to cut social services, to impoverish workers.

The very wealthy, the super-rich in the oil industry, the highly politicized CEOs of the health insurance industry, the major manufacturers and huge retailers who see their huge incomes being taxed, have plans to keep their wealth and reduce that of the Middle Class. The health care industry sees its cozy and corrupt $15 million annual salaries going away if we enroll all our citizens in solid health care programs, and the military contractors want no part of an anti-war administration.

Many of those of inherited wealth like the Waltons of Walmart want to pay no taxes…they consider themselves apparently of inherited wealth that has some kind of royalty attached. People who simply were born into wealth, many of whom never worked a day in their lives cannot face life with only the existing government taxation rules, which gives them at a minimum, $5 million and over half of the rest of what they never earned, regardless of how many millions or billions.

They have every incentive to keep it this way. Their huge fortunes are often invested in the stock market, which continues to climb, making them richer, day by day. The top one percent of Americans have wealth that is almost unimaginable even by some of the moguls of a century ago. They not only want to keep their billions but, like the billionaire Hendricks in Wisconsin, they want their governors to install “right to work” legislation to drive wages down. They want to keep employees on the edge of their seats, while this woman reached into her personal pocketbook to give $500,000 to Governor Walker’s campaign. Walker said on video tape that he would “divide and conquer” the workers for her…which he did.

So, if you want to return to a country in which jobs are plentiful, all people help to pay for society, resources are not given away to oligarchs, to generate revenues to use against the People, you had better vote for Democrats. The Republicans like Scott Walker are in the hands of the super-rich. And the media is in the hands of half a dozen super-rich conservative people.

In another country, in another time, if one political party had tried to oppress the people, bankrupt the people, make the people work for starvation wages and support crooks who had caused millions to lose their homes and all the wealth that they have, those people and the politicians who supported them, propped them up, made them rich at the expense of society—would have been dragged out of their homes, thrown in carts like piece of fireplace wood, taken to a central place and had their heads cut off.

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One Comment so far ↓

  • Proud Populist

    The part of conservatism that is most dangerous from an economic standpoint is the framing of “taxes” as a universal, “we’re all in this together” mantra. That would be laughable if not for it’s success. The cutting of taxes Republican-style benefits only the wealthiest of all Americans. It has no direct effect on the taxes of Joe or Jane Worker.
    Yet front groups for the Koch brothers and the like convince the ignorant that Washington D.C. is after their money. It’s the bogeyman in the closet that nobody ever really sees. But lots of morons will believe he’s in there!!
    The folks that are central to the economic policies of people like Norquist are the trust fund billionaires that are the modern-day aristocrats that Jefferson warned us about.
    They inherit their money. They don’t earn it and they want to be exempt from inheritance taxes. Anotherwords, they want a free ride as far as they can take it! That’s aristocracy any way that you kook at it and they buy any GOP politician that they can. Call it an investment, like for instance, the millions spent on buying the Koch’s governor in Wisconsin. Although I’m sure that the Kochs aren’t the sole owners. They are just the most visible after that prank phone call by The Buffalo Beast that the governor was kind enough to field.
    The modern-day robber barons are no longer the railroad tycoons, they are pharmaceutical companies,health care CEOs, Wall Street gamblers, and corporate raiders that make a living from outsouyrcing American jobs.

    Now we have another choice this Fall that should be blatantly obvious.
    You have an incumbent President that has battled an obstructionist party that clearly showed a complete disregard for anyone but their campaign contributors vs a Wall Street outsourcer who directly mirrors the carnivores that made a lot of money at the expense of American workers. Romney is also a hypocrite. RomneyCare was the model for health care reform and now he wants to appeal health care reform? That tells me he has no position that is not susceptible to change depending on which way the electoral winds are blowing!

    I’m wondering how much the average Republican voter can believe before he or she wakes up and looks around at what the GOP has done to ruin this country? God help us.