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The Failure of Conservative Economics Part VII — Solutions

April 16th, 2013 · No Comments · Economics, Politics, Populism, Social Security, The Budget, Wall Street

So what are the solutions to our economic problems?

They’d better be good. The Bush Administration left us with an enormous mess.

In January of 2009, the first month of the Obama Administration, 779,000 people lost their jobs. The average number of jobs lost in the first quarter of 2009, was 753,000….per month. The American workforce was coming apart.

Banks and Financial institutions were failing and those that weren’t were coming to the government, palms outstretched. Lehman Brothers, a financial institution for over a century, failed, after Bear, Stearns a seeming stalwart, gone a’gambling with OPM, (other people’s money) barely survived.

Banks like Wachovia and Washington Mutual and First City Corporation, some of which had been in business since the mid-19th Century, were merged. Tens of billions of dollars were involved.

And it could have been worse except for the financial safety net put into place by the “Liberals” after the last Conservative mess in 1929. The Federal Deposit Insurance Corporation limited damages to personal bank accounts. This meant that there would be no 1930s-style run on banks to remove savings. They were safe, but no thanks to the “Conservatives.”

Unemployment insurance softened the landing for many people who were laid off, at least initially. Food stamps were available to those who also saw their home equity disappear and had to look for both a job and a home. By January of 2009 a full-fledged Depression had arrived, not a Recession.

January 2009 was was the worst month for job losses ever. Conservative economists like Alan Greenspan, Chairman of the Federal Reserves, had no answers. His answer was that he did not believe that the Wall Street crowd would act other than in their own self interest. Greenspan had been not only a long-term leader among Conservative economists, but a Conservative follower at one time of the erratic prophet of free living and loving…Ayn Rand.

Ayn Rand was no more an economist than Greenspan was a point guard for the Knicks…she was a novelist and theorist on all things about which she knew little. Her novel,”Atlas Shrugged” was as strange a mixture of fantasy and dilettantish economic theory as ever written.

Enough has been said about the immediate causes of the Great Bush-Cheney Second Depression. The housing bubble…speculation in mortgage-backed securities…inflated securities backed by worthless mortgages…deliberately lax regulation in exchange for campaign contributions and finally bank, industrial and commercial business failures. But there is a history.

Since 1981, when the Republican Party rode the charismatic coat tails of Ronald Reagan into office, the Big Lie was that we needed a return to “Classic Liberal” economics. In other words, for a happy life we only needed lower taxes, smaller government and privatization of everything that moved and had a government name attached to it.

The leader of the economic revolution for the new “Conservative” forces was Dr. Milton Friedman, who wrote the book “Free to Choose” which basically said that Americans would be better off with their own money in their own pockets.

It is a delightful thought…no taxes…lots more money in our pockets and we can all choose to spend it however we choose. It was a fool’s errand for government. Fools voted in the fools who ran it, and those fools ran our government into the ground.

Now we must fix it. We must elect officials who will change policies and do so quickly before the damage is so great that it cannot be repaired.

Our real problems began in the post Viet Nam era when we failed to address the costs of the war that still lingered. These were inherited by President Ford. Inflation was becoming a real problem.

Ford did his best to combat inflation but the solution would prove more difficult than the WIN buttons (Whip Inflation Now) and the jawboning recommended by his two chief aides, Donald Rumsfeld and Dick Cheney.

Postponing it and pushing it forward lead to both inflation and unemployment. The Phillips curve, an economic concept, had said that high unemployment and high inflation are incompatible, but that is just what happened. In the late 1970s we had high inflation, high unemployment and low economic growth. That wasn’t supposed to happen.

There were a number of extraneous factors. High oil prices coming very suddenly and moving throughout the economy was one. Another was too much money in the economy which had not been controlled, because, if it had, it would have caused a recession.

That is what happened, a very severe but relatively short recession in the early days of the Reagan Presidency. Businesses living on credit, like auto dealers, went bankrupt and unemployment temporarily grew to as high as 10.8%. But inflation ended and prices and interest rates began to recede.

In 1981, the Reagan Administration cut taxes far below the amount necessary for revenues to balance the budget. Between 1981 and 1988, we went from $900 billion in debt to $2.8 trillion. Our excess debt prior to President Reagan, had mostly been incurred from the Viet Nam War.

The deficits continued for 16 years until President Clinton brought them under control and balanced the budget and capped the debt at that time at $5.6 trillion. The second President Bush promptly spent all the surplus that Clinton had created and then cut taxes again twice to the point that we now have a $16.7 trillion dollar debt.

Even though Reagan and Bush the First had high ratios of debt compared to GDP, most of the debt literally comes from the last ten years, the disastrous result of the Bush-Cheney policies. It also comes from their legacy to us of 15 million people unemployed.

Unemployment costs the taxpayers about $700 billion. The costs of unemployment are two-fold. First is the loss of tax revenues from workers and companies. Second is the cost of unemployment, and a situation of Depression…i.e. long-term recession…welfare costs. In addition, there is low growth. Rather than 4% to 6% growth, we have 1.5% to 2% growth. Everything slows down.

We need solutions. These are some practical solutions, not necessarily the best, but workable, especially with some adjustments.

1. Revenue

The first challenge is to stop the bleeding. We have the lowest government revenues as a percentage of GDP since 1950. There is now about a 5% gap between the normal government revenue and what we currently take in. And that amounts to about half a billion dollars or a little more. We need to get to 20% of GDP and reduce our unemployment to at least 6% or lower. At that point we would be in balance. No deficit.

To do this we need to add 5 million direct government jobs. There are many ways to do that and it can be done very quickly. In 1933, hardly a high-efficiency era, with no computers, Emails, cell phones, Fedex, or faxes…Harry Hopkins created 4 million jobs in less than six months. We can create 5 million in six months.

People say that we are in debt and we can’t afford it. But look at the facts. This could be done for about $300 billion dollars, two years in a row. Each of the $300 billion investments (about 1.5% of our national debt) would be offset by several factors. The first is tax revenue from people now working, not collecting unemployment or welfare.

Second is the tax income from additional jobs from the employment multiplier. That means that, with sufficient economic growth from the first jobs, private service jobs are created from the higher demand.

This process will cut our Depression welfare costs…food stamps, unemployment and Medicaid in half…about, yes, $300 billion a year. And what would we get in return? About $140 billion in tax revenues and about 4% additional GDP growth. Of course almost every economist admits that the huge need for infrastructure repair and improvement will be done at the lowest cost in about 70 years!

Because our problem is lack of demand, this solution will really pay for itself in added revenues, unlike the promises of the Neocon economists with their tax cuts that never materialized into greater revenues. The theory that lower taxes would eventually raise more revenues never materialized. After this failed so-called theory…which some simply called fraud…the only result was a $16.7 trillion national debt.

This idea of “trickle-down” economics is no longer merely a foolish theory. Once it was debunked, it became merely a tool for the super-rich and the Republican members of Congress and Senate who support the rich to use with the uneducated to continue to maintain low taxes. Organizations like Americans for Prosperity, the Cato Institute and the so-called “Tea Party” Republicans—just a group of radical political opportunists—continue the charade.

In actual numbers, 5 million jobs can be created on this kind of budget and another 5 million from the multiplier. These will be direct jobs in energy, construction, training and transportation among other classifications. If we had a strong manufacturing sector, that multiplier would be two jobs for every one created.
This is Depression era economics. It worked in the Great Depression of the 1930s, even though there are now some minor economists and economic writers being paid by people like the Hudson Institute, a Koch Brothers funded organization, to try to prove the contrary.

Those same people say that the Reagan idea, which eventually cost us $2.68 trillion in debt is what we should do now. In other words, Neocons want us to believe that we should once again cut taxes and expect that somehow things will turn out differently from what has happened every time we have done it…added more national debt.

With Clinton we put that genie back in the bottle and balanced the debt with slightly higher taxes and full employment policies. Only to have Bush the Second come along and make our financial problems literally ten times worse.

We must do what Clinton did. We must bite the bullet and raise taxes. The current tax rates do not support the government, even as it has been trimmed back over the last several years. Top earners pay 35%, which after deductions actually provides the Treasury with something like 23% of that income. Consequently, more high income earners…those at the top rate, have more incentive than at any time since the 1920s to keep their tax refund and put it in the bank.

When tax rates are 60-70% at the top level, and taxpayer keep only 30 to 35%…all the numbskull commentary notwithstanding (“People know how to spend their money better than the government”—George W. Bush)…not only do tax revenues go up, but investment in business skyrockets. In the 1950s and 1960s, when the top rate was 91%, investment was at an all-time high until the Clinton era.

When President Clinton raised taxes in the early 1990s, the economy which had been in the doldrums under the first President Bush…took off. But the most effective top rate is even higher on very high earners, probably around 65%-75% on gross income.

At very high rates of taxation, people become motivated to invest money before it gets to the point of taxation. Private investment is crucial to a growing economy. Financial paper trading, which is what we have today, leads only to eventual speculation. Real investment creates whole new industries. People are motivated by capital gains rates, 50% lower.

The top tax rate when Reagan came to office was around 75%. He dropped it to 50%. But it was on a much lower annual income, less than $100,000. If we were to reschedule tax rates at the first Reagan level, 50% on all income over, say $250,000, we could then put a top rate of 60-70% on incomes over $1 million.

The overall tax rates could look something like this: 65% over $1,000,000; 50% $350,000 to $1,000,000; 35% $175,000 to $349,999; 25% $100,000 to $174,999; 15% $35,000 to $99,000; and 5% under $35,000.

The point of raising taxes is not simply to pay down the national debt. It is to change behavior so that the rich do not become a moribund, static rentier aristocracy but an integral part of the growth of this country.

While someone who may have inherited a hotel chain may feel that they are involved, they are not involved unless they are actively adding more to the economy. A country does not stay static, with thirteen colonies or with 48 states and 125 million people but grows…in our case to over 300 million people with an economy that has worldwide influence.

Capital gains taxes probably do not need to be raised. They should be designed to offer returns for income from investment for individuals of all income levels. Capital gains should accrue to the affluent for their individual incomes and for pensioners for their 401K plans, which should be both insured and portable.

Until everyone has a portable 401K from day one and until investments can be handled by an agency of the federal government, or a secure private organization, there is no great social benefit in keeping capital gains taxes exceptionally low. At present, certainly no more than 1% of Americans own the majority of stock in major U.S. corporations.

We need to eliminate all tax breaks and incentives to locate off shore. Because of tax laws put into effect during the Bush-Cheney era, we now have corporate tax incentives for companies to locate manufacturing abroad or manufacture abroad with foreign contract labor.

We need to lower the corporate tax rate to 20% and remove almost all deductions. Corporations should pay a minimum tax rate equivalent to at least 5% of sales. There is no reason that a corporation in the United States should not offer up at least 5% of sales for the privilege of operating in the greatest market the world has ever known. If a company has $100 billion in sales, their tax bite should not be less than $5 billion, with no exclusions.

What are the motivations for levying taxes? Do we try to punish the rich for having more money and not sharing it? If they are huge philanthropists, should we not then lower their taxes? What about people who make money from gambling or alcohol or pornography? Should they not be taxed more?

Shouldn’t people who work hard every day, go to school, get two degrees, work 55-60 hours a week, have student loans and kids and need two incomes…to make their lives better…shouldn’t they get some kind of a tax break?

Even if we could figure out which kindly old billionaires have lived like paupers and distributed their money like Rockefeller, tossing out dimes to children, we can’t make individual decisions based on merit or goodness or kindness—or reprehensible behavior. Taxes are not about reward and punishment. Criminal laws are for reward and punishment.

Tax laws must first, as fairly as possible, generate enough revenue to pay for the essentials of government, not only in good times, not only in bad times, not only in war times, not only in peacetime, but, on the whole, on the average, for the most part….all the time. Ability to pay, needs of society, incentives to improve our quality of life…as for example in anti-pollution tax incentives or penalties…all these are factors.

In using taxes as a motivator, we need to be very careful that our goal is economic and social but never moral. If a high tax will end smoking…that is a good thing. If a high tax on ammunition would cut the rate of murders and violent incidents with guns, that would be a good thing. If fewer people die from smoking, our collective health care bill goes down.

If we can cut our police forces and our homeland security forces and our courts by reducing gun violence and accidents our domestic law enforcement costs go down. Those kinds of outcomes are the kinds of motivators that we should seek…within reason, and within the other parameters, such as ability to pay, etc.

If a tax will bring businesses back to the United States from foreign lands, restore industries and create jobs…that would be good for the economy and for workers. If it damages our relationships with a foreign country…then consideration must be given to that alternative outcome. Taxes can help us shape our society.

Taxes are seldom the ultimate resolution of anything. They don’t make a company successful or kill it off. But we must always be cognizant of unintended consequences. We must use tax revenues to create and maintain services for all members of society. We should continue to do so as often as necessary and whenever possible.

2. Employment

Someone once said….everybody has to be someplace. Usually that someplace for the most part is at work. We need to focus on work. Not on industries. Not on incomes. Not on profits. Not on goals of society.

We need to focus on those 8 hours a day that each man or woman spends making a living. We have to make it dependable, some kind of job for everyone. We might even try to make work satisfying.

We must insure that workers provide enough value to employers that they will pay a wage that sustains at least a minimal lifestyle. If a person cannot survive on minimum wages, then what is the purpose of work?

Only when we focus on individuals in the workplace instead of the workplace or the broader implications of employment on society will we begin to create an atmosphere where people will go to work with vigor and dedication.

Workers must have the opportunity to learn and grow and have satisfaction. This is not mere generosity or altruism. We know now that good working conditions make an enormous contribution to productivity.

Before workplace stability comes education. We need to begin to tailor our educational system to the needs of society. We sometimes see education as a business in which we generate enough income or a large enough endowment to build more buildings or labs or athletic facilities.

We need to tailor our universities to become learning laboratories, bringing forth graduates with at least the minimum level of scholarship needed to match that of the rest of the world. The backbone of a trained workforce is a good educational system. And a well-functioning workforce is the backbone of industry.

Education provides the groundwork, the understanding of words, meanings, mathematics, equations, and the subtleties of complex situations. We must begin to think of the day when we will turn out the appropriate number of architects, computer analysts, doctors, physicists and engineers to anticipate the needs of society.

This means that many universities must create study programs that they do not now have. They must find ways to increase mathematics and science courses. If we need 100,000 engineers, for example, then we need to collect the number of chairs in engineering of all types and determine how to produce the number we need.

This is where employment policies, full-employment legislation, such as parts of Europe has had for years, stabilizes the number of jobs and provides internships, early retirements and stepped improvements in position to coincide with greater experience and accomplishment. We need to offer positions to those who graduate with the right kind of education. Apprenticing in a skill is equally as important as learning the discipline itself.

We need to reduce the costs of education. To get the best people, we must find a way that they can afford the education. Education and health care are not areas that can or should be done for profit. Health care, if it provides necessary service is, at best, a non-profit industry.

Eventually, some key job functions may be subsidized by government, such as general physicians and teachers. Like health care, jobs in education are not done for a high income or wealth accumulation. They run counter to the normal profit motive and must be handled that way in the educational process.

We need to do away with the need for unions–not unions–but the need for unions. A single worker cannot negotiate with a corporation. Workers must have arbitrators who are honest brokers. Until that happens, however, and we seriously tackle the problem of workers’ rights we are forced to encourage more unions. If we do not, individual workers will have only two choices, slave wages or anarchy.

Strong labor unions ended a century of strife, confrontation and violent disputes. We cannot return to an era of violence and worker suppression. Every worker who has a particular skill has a great deal of pride of accomplishment. Craft guilds should be encouraged, with apprentice, journeyman and master levels so that American workers in specific fields will become the best skilled workers in the world.

With modern computers almost every worker could have an identity that would provide his or her experience which would automatically carry with it a general wage rate. Wage and hour laws must be set at the minimal amount legislators agree is a living wage.

Current laws on assistance to the working poor, like the earned income tax credit, could be expanded as part of a new and larger negative income tax.

One thing that we have learned is that top-down economics is not good for anyone. The rich become lazy and isolated. The Middle Class focuses on earning wealth to the exclusion of personal satisfaction. And the poor, a growing number as a result of the misguided goals of the former two, becomes desolate and indigent. On the other hand, a benevolent Capitalist society can raise all boats.

If an American corporation decides to use Asian workers to make a product but sell it here in the U.S.A., then that product must pay an import duty or a market surcharge of some kind that compensates American workers for lost opportunities. These funds can be channeled into trust accounts to be used for domestic industry development and re-training.

While estimates vary, but actual imports and Asian products imported by major U.S. corporations indicate that a 5% surcharge could raise $20 billion a year. In five years this could restore a major segment of American industry and make it competitive for decades to come.

3. Trade Policy

As already discussed, we cannot compete with China or other parts of Asia or India with unskilled labor. More and more, even the highly skilled labor jobs are being done in Asia simply because we have retarded our educational system with foolish, useless agendas and endless political-religious arguments while our children fell behind in world education standards.

We cannot compete with slave wages or third world wages of less than $2 per day. And so we must compete with skill. Yet our next generation does not, according to worldwide standards, have those skills.

Young people in America are behind approximately 25 to 30 other countries in mathematics. You run out of advanced countries quickly after France, Germany, Great Britain, Switzerland, Spain, Italy and the Scandinavian countries. And our numbers in places like Alabama and Mississippi or the South Side of Chicago are much worse obviously than our average.

Some kinds of protectionism are necessary. For example, a company like Sensata, which has a profit of a billion dollars and is owned by another company, Bain Capital, should not be able to send 200 jobs to China while they are making huge profits here with domestic workers.

We must create legislation to keep profitable manufacturing here. Greed should not be the only motive for sending jobs abroad. If already profitable companies like Sensata want to make products in China but sell them here, they should be treated to tariffs on their products like any foreign competitor.

American companies who sell products here that they make abroad, should pay a “market surcharge” of approximately 5% (or more.) The revenues from this surcharge would be used to retrain laid off workers, joint venture small startups in potential new industries, and to create a large pool of funds to introduce and train people in hi-tech manufacturing techniques.

U.S. Imports in 2012 were $2.7 trillion. Much of that is made up of U.S. products made elsewhere in the world and shipped here for sale to Americans in the U.S. market. For example, Walmart alone, if taxed at 5% of all imported products made by U.S. manufacturers abroad, but sold here, would kick in literally billions each year. This could be the way to re-establish the United States as a major manufacturing country.

Yes, it is true that Walmart products would probably go up by 5 cents per dollar. But the total amount of money, across all corporations could produce more than $30 billion into a manufacturing trust fund that would educate and train workers for better jobs.

Education and employment are intricately connected these days. If we fail to provide the kind of education that our students need, we always face the risk of the loss of Democracy, which depends on a good basic education for all. No one can make an intelligent decision or the right vote without a good education.

We see those results in some of the politicians elected with mindless Tea Party support. We have seen it in those senior citizens with signs saying “Hands off my Medicare” while supporting privatization of health care.

Communism or Fascism can only take over in democracies where the people are fooled by propaganda. Americans are beset with propaganda by certain groups hoping that they will not understand the truth. We must educate our young people so that they do know the truth and can recognize lies when they see them.

4. Natural Resources.

Soon, oil will run out. The term “peak oil,” the time when new oil field discoveries only slows the point of total exhaustion rather than builds more is already upon us. We are using up available oil right now.

Since the advent of oil exploration in the United States, oil companies have paid the U.S. government, plus or minus a little, about $100 billion in royalties for oil extracted from U.S. public lands or Native American lands. Oil taken from U.S. Federal lands amounts to approximately 35% of all U.S. oil production.

In 1995, in an effort to stimulate oil production, the Clinton Administration decided to forego royalties on oil drilled in the Gulf of Mexico until a barrel of oil on the world market reached a price of $34 a barrel. When the Bush Administration came into office in 2001, Gale Norton, Secretary of Interior, an oil-industry lobbyist, simple ignored the collection of royalties, even though prices of oil had climbed above $80 a barrel.

When some of the long-term government employees of the Interior Department, whose job it was to collect these royalties, began to object they were either fired or reassigned. The amount that we know categorically has been lost from 1996 to 2000 is over $1 billion.

The individuals in the Interior responsible for collections say that the amount is actually over $80 billion. To give one example, in 2007, the oil and gas industry earned $77 billion from government leases and paid no royalties.

This is the kind of money that is going into the pockets of some people who own huge stock positions in companies like EXXON/Mobil, BP and other major oil companies, the profits from which are in the billions…often even without paying any taxes, on top of not paying their fair share of royalties!

So we need to stop giving away the wealth from our natural resources, charge higher royalties, insure that they are paid, and do the same for minerals and timber and any other resources that belong rightfully to all American taxpayers.

5. The Budget and National Debt

What we must all realize is that our national debt is a scandal and almost certainly a crime that has gone unindicted and unpunished. And it continues. Since 1981, the Republican Party has acted as sponsor for a group of Americans, a segment of America, who have discovered that dedication to greed and political corruption can accomplish more in our current society than hard work and imagination.

The Republican Party and some Democrats have aligned themselves with certain powerful forces in the United States, not merely as supporters of policy but as usurpers of government. For the last 20 of 34 years, the government has been taken over by tyrants. These corporatist swindlers have spent or caused to be spent, approximately $14 trillion of the $16.7 trillion of current national debt.

About $900 billion was owed before Ronald Reagan came into office, incurred for a variety of reasons…World War II, the Viet Nam War and as the result of sudden economic crises, like the oil embargos from the Middle East.

The rest was incurred by Reagan and the first President Bush before President Clinton could balance the budget in his second term. It was so bad under Reagan and the first Bush, that the Clinton Administration incurred more than a trillion dollars of debt and four years before the budget could be balanced.

For some time now, our federal government, specifically Congress, has been dominated by the money and influence of lobbyists. The 12,633 lobbyists in Washington, D.C., spend over $3.3 billion dollars a year to influence Congress. For the 535 members of Congress– House and Senate—that amounts to $6,128,000 each. And how much do you contribute to each of these? Not even close. And so whom do you think gets more attention?

In January of 2010, the Supreme Court handed down the Citizens United decision which basically says that any corporation or any individual can contribute as much money as they wish to any candidate. As a result, in the November 2010 mid-term elections, money flowed like wine.

Just one organization, Karl Rove and Ed Gillespie’s Crossroads (Republican) organization spent $39 million to elect Republicans. The Chamber of Commerce spent $33 million almost exclusively on Republican and Republican Tea Party candidates. Overall, in the 2010 election, over $3.7 billion was spent altogether by all special interest groups and campaigns at all levels.

The complete removal of rational restrictions has opened the floodgates for the rich and powerful Right Wing, anti-middle class forces, the Republican forces of greed, who subsequently elected an entire spectrum of narrow, often fanatically religious, highly militarist or simply anti-government Tea Party candidates.

It has seen the disastrous support of the gun lobby and the health insurance industry’s attempt to stop the Affordable Care Act. In the meanwhile a majority of Americans in poll after poll say that they favor control of guns and an affordable health care system in which all are able to have at least basic health care services.

The best way to understand the debt is to look into how we got here. When George W. Bush came into office, the country had a $5.6 trillion national debt and a budget that was in balance.

Moreover, not only was the budget in balance but the Congressional Budget Office projected surpluses as follows: in 2001, $281 billion; 2002, $313 billion; 2003, $359 billion; 2004, $396 billion; 2005, $433 billion; 2006, $504 billion; 2007, $572 billion; 2008, $635 billion; 2009, $710 billion; 2010, $795 billion; 2011, $888 billion.

That is a total of $5.6 trillion, which would have meant that, had it been accurate or even close, we would have nearly balanced the budget by 2011. No national debt at all.

But we didn’t. George W. Bush and Dick Cheney had other ideas. Two tax cuts and two wars and a huge giveaway to the pharmaceutical companies made the budgets look a little different. We went in the opposite direction.

In 2001, we actually lost $143 billion. In 2002, we lost $382 billion (but still did not forgo tax cuts). In 2003, we went into debt by $560 billion, 2004, $572 billion, 2005, $416 billion; 2006, $281 billion; 2007, $247 billion, 2008, $431 billion, 2009, $1 trillion, 2010, $1.1 trillion; 2011, $1.2 trillion.

Instead of a country with almost no debt and a budget that was churning out hundreds of billions of dollars a year in surplus, the Bush-Cheney legacy was a total of $6.2 trillion additional debt through 2011, and a grand total of $11.8 trillion in debt by 2008.

The Bush Administration left us the legacy of two wars and the Second Great Depression. This added another $4 trillion, with no end in sight. We are now a total of $16.7 trillion in debt, and with Republican obstruction of job creation, we continue to add about $1 trillion a year.

6. The Solutions

The way out is pretty clear. When we had near full employment (which, with transfers, moves, layoffs, company closings and consolidations is about 5%) we were losing about $250 billion a year. The reason for our budget deficit was basically a dual problem. The Bush-Cheney regime had cut taxes twice. And they had two very expensive wars.

Then in 2008, because of Wall Street speculation and careless regulation, the entire economy crashed. Almost overnight we had 15 million unemployed. The budget shortfall, from lack of tax revenues from the unemployed, lack of revenues from failed corporations, lack of revenues from corporations and from individuals up and down the income scale who had lost much of their personal wealth caused a huge drop in government revenues.

On the spending side, the government under Bush’s Treasury Secretary Hank Paulson, bailed out banks with a $700 billion fund and then the new President initiated a $787 billion stimulus program that stopped the falling unemployment (which took 8 months) and began to pay out unemployment and welfare for 15 million Americans.

All these things led to a $700 billion dollar shortfall each year, on top of the deficits that Bush had already been running (which you saw above)…and now we had $1 trillion deficits every year. But before the crash, Bush II was running deficits of about $250 billion to $400 billion.

It is worth reminding ourselves that the country does not remain static. The $5.6 trillion in debt that comprised 57% of GDP when it was stopped under Clinton would be about 37% of GDP today. So the key is clearly: Don’t do what Bush did.

The key difference between the two sets of budgets—before the crash and after the crash is clearly unemployment. Before the crash in 2008 we had roughly 5% unemployment (which crept up to 7% as things were falling off the table in October 2008.) After the crash we were looking at 10% unemployment or 15 million people unemployed.

So the key is to restore full employment. Private industry will not invest because the economy is in the doldrums and there is no demand. And Republicans in the House and Senate have voted over 240 times to kill any job creating bills.

This means we much change minds. Government must step in and create the demand. There are hundreds of different job categories in which there are enormous needs.

Alternate energy in its many forms, including renewable energy, long life batteries, solar, wind and the electric grid itself need to be addressed. Communications taken to rural areas could open up whole new areas of the country, beautiful, vibrant areas for business development.

Education could use tutors for our most challenged young people. This could easily become part-time jobs for many of the highly educated people who are out of work and have been for some time. Roads and bridges, sewers and water systems, public buildings and entire areas of communities could use skilled construction workers. We also need more people to work in many areas of health care as we ramp up to handle care for 40 million more Americans.

Five million jobs will create at least 5 million more. This is a very low estimate of the employment multiplier. And those 10 million jobs mean we would be out of the Bush Depression. We know that some jobs will fall away after a time. We also know that once demand reaches a certain point, private investment will return. The jobs created by private industry will begin to turn the economy completely around.

How long will this take and what will it cost? The costs for the first year will be something like $300 billion. The good news is that the jobs created will help eliminate about $300 billion in unemployment and welfare costs.

Unlike unemployment, the 5 million direct government jobs created will pay the government back something like $40 billion in taxes. And the growth in the economy will create another $10 billion in revenues. The new jobs from the economic multiplier will create another $30 billion in revenues.

So by merely taking the money from welfare and creating jobs, we have added a net $80 billion buy switching from unemployment and welfare to jobs. The additional jobs from the economic multiplier will erase the remaining welfare costs, and so we now have a budget that has a deficit of something like half of the previous budget deficit and going down as the economy grows.

The Obama administration, through a variety of methods, has already trimmed the federal government back to 2008 levels. A slight jiggling of the Defense budget, a couple of points increase in the GDP, and a little luck with private investment and we could be in surplus again.

Now let’s talk about surpluses. We hear a lot about problems with Social Security. Social Security has always been in surplus. The problem is that the Bush Administration had us in so much debt that we had to borrow Social Security funds to pay for things like wars.

What the American People do not seem to understand is that we have been in surplus with Social Security since it began. We tweaked it, raised the payroll deduction in 1984, but we have always been in surplus and have a current bank account that is $2.5 trillion in surplus.

Every year Social Security takes in about $900 billion. And it pays out about the same amount. For many years the surplus has been there to account for the time when baby boomers will retire. Actuarial accountants at CBO and SSI have known this and planned for it for 30 years. What they didn’t plan on was Bush and Cheney stealing Social Security.

So Social Security was borrowed, some say stolen. But it is there in IOUs from other departments of government, so to speak, like Defense, and must be repaid when the budget is in surplus. This is not like taxes. We dedicated those funds to our post-work years, to help with our retirement. It is a trust fund. All American citizens are owed their share of Social Security funds.

To extend the life of Social Security even farther into the future, we need to raise the cap on Social Security payroll deductions from those who make $113,000 per year up to a new total of $250,000 per year. This will automatically give us enough revenues for 50 years or so. We have known for a long time that we would, just as in 1984, make a little adjustment to the system to make sure that we are covered as the population grows.

Many “Conservatives” (people who used budget deficits now to try to restrain spending for the poor and elderly and sick rather than wars) say that the bigger problem is Medicare. But the fact is that Medicare is simply one part of a bigger problem still…health care costs.

In the rest of the advanced world, the average health care cost is about 6% of GDP. That is the cost of all medical services, hospitals, surgeries, visits, drugs and doctors. In the United States that cost is 18% of GDP.

The reasons are pretty simple. We have a health care system run for profit. Because health insurance companies make huge profits, they cannot restrain others from making profits and so the cost-carousel goes round and round. But Medicare and the VA, two government systems are different.

While the private health care systems, according to the impartial and careful Congressional Budget office, have an overhead of around 12%, the Medicare system has an overhead of only 2%. So that is six times greater. The number is even higher when one considers that some health insurance plans, those for small business and for individuals often have administrative costs that run to 20% or even 30%.

Medicare is one standard we might look to for lower health costs. Six times lower than current costs mathematically says that we could have health care costs under the Affordable Care Act as low as 3% of GDP. That would mean costs lower than Europe.

For example, average health insurance premiums for a family in the U.S. are about $14,000 a year, with the employer paying about $10,000 and the worker about $4,000. So let’s scale that cost to a new reality…public management of health insurance. Theoretically, Medicare would cut the total to $2,400 and the shares would be, approximately $1,600 for the employer and $800 for the worker.

Of course, given current costs, this kind of drop is not realistic. Here is what is realistic. The realistic costs are these. Instead of $14,000 per year, with a Medicare overhead, we can safely say premiums will amount to no more than $4,800 and the shares would be $3,200 for the employer and $1,600 for the employee. Sounds pretty dramatic but that is where Europe is right now.

How do we know this? We know the overhead costs for both private health insurance and for Medicare. We know European percentages of GDP and U.S. percentages of GDP. So we can make accurate projections that U.S. costs, while the numbers tell us that the drop could be below European costs, will be at least that low…6%.

How can we be so sure? We can for a little known reason. It is because the Veterans’ Administration runs its own very efficient (at least over the last 20 years) health care system. In every comparison, health care economics researchers say that the VA is actually lower in cost than Medicare by a wide margin. So we know for certain that Medicare and Medicaid are not even the lowest we can go.

This would solve our health care problems. Current costs of approximately one out of five earned dollars for health care is outrageous. Whatever adjustments we might make in health insurance premiums will lower to the taxpayer in the long run, and, if we adopt Medicare as payer…until it reaches 6% of GDP. This will close the budget gap completely.

7. The Sum of Our Solutions

Here is the economic solution. Private industry drives the economy. Government can become so big, if it grows in the wrong way that revenues needed to run it can clog up the economy and slow it down.

Corporations spend too much on taxes and too much time on regulations. These must be minimized. But unrestricted, unrestrained business is what has landed us in this disaster.

We need to definitely and totally end lobbying as we now know it. That is the first and most important action that must be taken before anything else. Otherwise nothing can be achieved.

We need more revenues coming from a changed tax structure. Different incentives, not necessarily wholesale reduction in tax legislation. Revenues should balance the budget.

We need to create jobs here in the U.S. and create disincentives for sending jobs abroad.

We need to move to Medicare-type administration of health care as quickly as possible.

We need to fix Social Security slightly so that we can forget about it and know that it is there without problems.

We need to create huge alternative energy programs, not merely for jobs, but to begin the long process of changing over from fossil fuel to renewable energy. Oil companies who attempt to inhibit that process should be legally barred from participating in any new energy programs.

We need to evaluate our military posture to investigate new forms of defense, new assessment of potential enemies, risks and better coordination of security within the United States. We need to streamline our military response and increase our diplomatic activity.

We need to decide on an immigration plan and then shut the southern border down tight until illegal immigration stops. Only then can we sign off on an immigration policy that will have long range benefits for everyone.

We need end homelessness and hunger in the United States. We need to see if we can create a minimum wage that pays for a minimal standard of living without causing inflation that would defeat the purpose or damage those on fixed incomes.

The old arguments were between a planned economy, with a high-degree of public involvement versus an almost completely private-industry based economy, with a tiny government. Neither is the right course.

We cannot revisit industry without regulation and we cannot have government extending itself so far into the private sector that it cuts off profitable, highly-competitive businesses. Private industry is paramount. It provides the jobs. Government must be there to observe industry in the public interest. The word “public interest” is the key, regulation in the public interest.

So there can be a new paradigm. It is a government that works efficiently to provide individual services, social context, such as standards for industry, and protection at home and abroad.

It is a government that for the most part keeps its hands off industry so long as industry does not damage lives or restrict competition. And in the latter, if we have free competition that allows larger companies to continue to absorb smaller ones, to the largest size possible, then industry must accept much stronger regulations to insure the protection of citizens and society.

It may turn out, after decades of conflicting theory and inadequate response to changing economic conditions that economics is one of the lesser sciences or perhaps no science at all.

Basic economics…how we make our living and how we create a rational society…these things are important. Perhaps they are too important to leave to the economists.

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