Political Dysfunction at Root of U.S. Economic Malaise

U.S. Economy: Standing on the Brink

Lately, the economy is looking pretty good.  Unemployment is declining, wages are rising, consumer spending is up.  Things are going so well, the Federal Reserve Bank is poised to start raising interest rates.

What’s not to like?

Well, quite a bit, actually.  As was pointed out in a previous article in this series, the long term trend is ugly.  Economic growth since 2000 has averaged less than 2%, compared to growth rates of 3% to 4% in the 1950’s through the 1990’s.

Now, a 1% to 2% decline in economic growth may not sound like a lot, but it represents millions of jobs and the difference between rising standards of living and stagnant wages for millions of Americans.

There has been a lot of debate about the causes.  Bad trade deals; the decline of unions; failure to raise the minimum wage.  And yes, we can (and should) reject the Trans Pacific Partnership (TPP), fight back against efforts to eviscerate worker bargaining rights and raise the minimum wage to $15 an hour.

All are good and worthwhile initiatives. But they are a little like the well-meaning family doctor who treats the symptoms of a major disease, but doesn’t think to look for the root cause.  Meanwhile, the patient winds up clinging to life in a hospital bed.

A slight upward blip in employment and spending doesn’t alter the fundamental trend – the U.S. economy is seriously ill and we need to find a cure, not just treat the symptoms.

Enter the Federal Reserve.  The Fed pumps money into the economy and holds down interest rates, and the patient actually shows a slight improvement.  But that simply masks an underlying disease that continues to worsen.

Fed policies – aggressive bond buying coupled with low interest rates – probably saved the U.S. economy from falling off a cliff following the Great Recession of 2008.  But monetary policy has run its course.  Continued reliance on the Fed alone has only served to over-inflate asset values, drag down productivity and exacerbate income equality.

What’s lacking is “fiscal stimulus” – or, in other words, budget measures to spur economic growth and productivity.  Such policies might include increased Federal investment and tax incentives to stimulate investment at all levels of government and in the private sector.

Uh oh – that would require action by Congress!  The cold, hard truth is that Congress is so dysfunctional it can’t pass a budget on time, let alone come up with a coherent fiscal policy in the face of persistently slow economic growth.  And since the Fed is effectively out of ammunition, the next recession could be far worse, and last far longer, than the last one.

What can we do about it?

Well, for one thing, Democrats must be more aggressive in challenging Republican orthodoxy that tax cuts (mainly for the rich) actually stimulate economic growth, and all government spending and taxation are inherently evil.

In fact, spending on infrastructure is not spending at all in the traditional sense– it’s investment in future growth.  And It is almost unthinkable that with the economy sputtering, and interest rates near zero, that the government is not borrowing aggressively to rebuild this country’s crumbling infrastructure.  Such policies would create millions of good paying jobs, lift wages and reduce income inequality.

And while we are at it, let’s not forget we need to invest in people, to ensure the next generation is well educated, productive and poised for the jobs of the future in areas such as clean energy and technology.

Far too much money in this country is sitting on the sidelines, or being paid back to stockholders in the form of buybacks and dividends.  We need tax policies that actually spur investment to upgrade plant and equipment, not reward people who churn paper for a living or companies that stash their profits overseas to avoid taxes.

We also need a fairer and more progressive tax system.  Taxing capital gains at a much lower rate than wages and other earned income (21% top rate for capital gains v. 39.6% for earned income) is the very definition of a rigged system that favors the rich over the poor and middle classes.   Donald Trump should know; he is one of the main beneficiaries of that rigged system.

It is past time that capital gains tax rates were raised just to restore some measure of fairness into a system that has become heavily tilted in favor of wealthy (e.g. those who derive most of their income from assets) at the expense of working men and women.

These are reforms that won’t happen overnight.  Entrenched interests, in particular the financial services industry, are formidable opponents with deep pockets who exercise out-sized political influence behind the scenes.  Meaningful reforms will take time, and will require a level of effort and political will that has been absent in recent decades.

Bernie is right – it will take a political revolution.  But It’s a revolution that needs to come sooner rather than later before political dysfunction turns what amounts to an economic slowdown into another major recession.

This is the third article in a four-part series “Fix the Economy, Stupid.”

Hillary’s Economic Plan – Nickel and Diming the U.S. Economy and American Workers

Hillary's Economic Plan

This is the second article in a four-part series, “Fix the Economy, Stupid.”

Listening to Hillary Clinton’s speech on the US. Economy last Thursday (August 11), she sounded as if she was fighting hard for the little guy, the American worker, those who have been left behind by bad trade deals and companies moving production offshore to hold down labor costs.  But dig a little deeper and what you find is a plan that is woefully inadequate to meet the country’s investment needs and stimulate renewed economic growth.

As was pointed out in last week’s article, the U.S. economy is in serious trouble.  Growth in Gross Domestic Product (GDP) has averaged just about 2% since 2000, compared to average growth rates of 3% to more than 4% in prior decades since the 1950’s.

With the notable exception of Bernie Sanders, Democratic politicians have been slow to acknowledge the issue, in part because it’s seen as tarnishing President Obama’s legacy.    The reality is that under the circumstances, Obama has done about as well as could be expected given the Great Recession of 2008 and the Congressional gridlock that followed.

Enter Hillary Clinton.  She acknowledges the need for greater investment in U.S. infrastructure, and touts her plan as “the biggest investment in new, good-paying jobs since World War II”.

Well, not exactly.  She proposes to spend $275 billion over five years, or an average of $55 billion annually, less than 0.3% of GDP, and a mere 9% increase in current Federal investment – investment levels already far too low by orders of magnitude.

Some $25 billion of the $275 billion would be used to fund an “infrastructure bank” designed to attract an additional $225 billion non-Federal investment.  That’s not a bad idea for the long term, but it’s not going to stimulate growth or move the needle short term.  It seems like something designed to make the numbers sound bigger than they are, but not alienate her conservative supporters.

Bernie Sanders has proposed infrastructure spending of more than three times the amount recommended by Hillary – $1 trillion through 2020.  Meanwhile, the American Society of Civil Engineers estimates the cost even higher — at $1.4 trillion through 2025 to repair existing infrastructure, or bring it to a “state of good repair,” as they say in engineering parlance.

Quality public infrastructure is a key to the efficient functioning of modern economies.  Allowing it to deteriorate as it has in the U.S. is fiscally irresponsible.  Our highways, airports, ports, railways, water and sewer systems and electric power supply grids are all in need, not just of repairs, but major upgrades.

If you include upgrades in the estimates, the real cost is probably in the tens of trillions to modernize our infrastructure and bring it into the 21st century.  Just as one example, most advanced European and Asian countries already have high speed rail, with trains routinely operating at speeds of more than 200 mph.  In the U.S. our fastest train, Amtrak’s Acela, which runs between Boston and Washington, travels at an average speeds of just 65 mph.

The longer we put off much needed infrastructure investment, the higher the costs and the greater the disruption to our economy.  Now is the time to act.  The economy is faltering badly; interest rates are at historic lows.  Effectively, the cost of borrowing is next to zero.

Hillary Clinton’s economic plan is, in reality, no plan at all.  Her proposed spending levels are too meager to lift the economy, create significant numbers of new jobs, or make a real dent in our huge investment needs.  By pretending to offer a plan that falls so far short, Hillary Clinton is actually putting the future of the U.S. economy, and its workers, at risk.

Next week, in part 3 of our 4-part series “Fix the Economy, Stupid” we’ll examine why mainstream politicians continually underestimate investment needs; why that is a cause for worry; what we can do help remedy the situation, and possible sources of funding.

The Big Picture of U.S. Economy – It’s Ugly

Economic Growth Rates

Last week, the unemployment report came out for July.  The U.S. added 255,000 jobs, more than economists had forecast, and suddenly the economy is doing great, everything is back on track, and the Federal Reserve is likely to raise interest rates later this year.

If you follow the economy through the daily media or the gyrations of the stock market, you are likely suffering from whiplash.  Up one day; down the next.  We’re in a recovery; no, we teetering on the brink on recession.  Ouch, my neck hurts.

Sometimes, it is useful to take a step back, look at the big picture.  But if you do that, be prepared.  You might wind up with more than just a crick in your neck; you are more likely to experience pain deep in your gut.

As shown in the accompanying graph, economic growth in the U.S. has averaged just about 2% in the last decade and a half.  That’s down from more than 3% in the 1970’s through the 1990’s and more than 4% in the 50’s and 60’s.  The latest figures for the first seven months of 2016 have the economy growing  just 1% year over year; optimistically, the very best we are likely to do is 1.5% to 2%  in 2016.

Many Democratic politicians, President Obama included, would have you believe everything is fine, even as they reluctantly acknowledge that perhaps wage stagnation for the vast majority of Americans is a problem.  Well … yea.

Republicans, meanwhile, continue to spew supply side propaganda while pretending it bears some relation to real economics.  Donald Trump touted his “economic plan” (sic), released earlier this week, as tax reductions for “middle income” taxpayers.  Not surprisingly, that statement is misleading at best.  Trump’s proposed tax cuts mirror those of House Republicans and are heavily skewed in favor of wealthy taxpayers, as TDV documented in the July 8 fact sheet, “Under Republican Tax Proposals, the Rich Get Richer.”

Why the long-term economic slowdown with wage stagnation as its core?  The answer is obviously complex.  Economists and talking heads debate whether the cause is increased international competition, bad trade deals, a decline in worker bargaining rights, loss of manufacturing, slackening consumer demand, automation of the workplace, or all of the above.

Well, all of those factors no doubt contribute to the economic malaise the U.S. finds itself in today.  But there may be an overarching cause that very few really talk about – political dysfunction.

That is not just something that happened in the past.  Now and in the future, political dysfunction and outright mismanagement of the economy continue to pose a threat to the security of all Americans.

Economic policy has two major components – fiscal and monetary.  Largely due to the dysfunction of the U.S. Congress, one of those, fiscal policy, is virtually non-existent.  It is not just that Congress can’t pass a budget.  Essentially there is no coherent fiscal policy; no guiding principles by which to foster growth and prosperity, and our economy as a result is at serious risk.

It’s a big problem. It not getting near enough attention.  It needs to be talked about more, and it needs to be fixed.

More about the faltering U.S. economy and what can be done to fix it, including monetary policy, in upcoming articles in TDV’s four-part series: “Fix the Economic Stupid.”

 

Book Review: Makers and Takers by Rana Foroohar

Rana Fohoohar

… subtitled The Rise of Finance and the Fall of American Business, Rana Foroohar’s book is an in-depth look at the dangers posed by a financial services industry bent on maximizing short-term profits at the expense of real investment in the U.S. economy…


Finance and economics are complex subjects.  Throw politics and public policy into the mix, and it is understandable that candidates such as Bernie Sanders tend to duck the specifics and talk in broad rhetorical flourishes about “the Billionaires” and “Wall Street.” Meanwhile, many ordinary folks, with demanding jobs and families to raise, often tune out altogether.

But that is a mistake, because the ordinary folks of “Main Street” are getting hammered by an economy in which productivity and growth are at historic lows and wages are stagnating.  Something needs to be done.  But what?  It is not an easy task to fully capture the dimensions of the problem or possible solutions.

Enter Rena Foroohar, an assistant managing editor at Time Magazine, whose book does a thorough job of looking behind the curtain of the financial services industry.  Foroohar documents, in great detail, the evolution of the industry in which the business model has morphed over decades from lending primarily to Main Street to milking existing assets to generate fees and income.  In so doing, the industry, once an engine of growth, has effectively stifled real investment and is a major reason why U.S. economic growth is at historic lows.

Foroohar cites many examples of how “financialization” (as she calls it) works for the benefit of the “takers” in the financial services industry, but not the “makers” of Main Street.  The industry earns most of its profits on debt, encourages excessive borrowing which over-inflates asset values and contributes to the boom and bust cycles that have plagued the U.S. economy over the past several decades.

Many large, publicly traded companies that once routinely reinvested profits for growth, are now under heavy pressure by “shareholder activists” to plow profits back into stock buybacks, dividends, acquisitions and mergers.  Increasingly, profits come not from growth and expansion, but from cost reduction which, in turn, reduces demand for labor and leads to wage stagnation.

Other examples of “financialization” cited in the book include excessive fees on financial transactions which do little to generate real growth and often wind up hurting consumers.  Commodity trading, a major source of Wall Street revenues, inflates the value of goods needed for everyday life, including food.  Private equity investors (or “shadow banks”) are increasingly buying up residential properties and raising rents even as the overall economy sputters.    Retirement savings, such as 401ks, are also at risk, subject to high “advisory” fees and the gyrations of an increasingly volatile stock market.

Meanwhile, our tax and regulatory policies have become so complex that many government officials don’t fully understand the regulations or have the resources they need to properly enforce them.   Lobbyists routinely exploit loopholes in an overly complex system.  That, in fact, is a major concern with the Dodd-Frank bill, passed in the aftermath of the Great Recession to regulate the financial services industry.  As an example, writes Foroohar, “The loopholes make it possible … for banks and hedge funds to continue their opaque, risky trading of foreign-exchange derivatives in international markets (something former Treasury secretary Timothy Geithner personally signed off on)”.

Meanwhile, tax policies tend to reward debt and asset ownership over productivity.  Interest on debt is tax deductible; retained earnings used for R&D and investment is not.  Large companies can use “inversions” to buy up or merge with foreign companies, stash income overseas and avoid taxes.

Compounding the problem are the policies of the Federal Reserve which has pumped trillions into bond buying programs, the net effect of which was mainly to inflate asset values disproportionately benefiting the wealthiest Americans.

The result is an economy in which productivity and real wages lag because so much time and effort is devoted to fee generation and extracting income from assets, paper and otherwise, rather than producing real products and services that underpin a productive economy.

How to fix the problem?  It is not going to be easy, because the financial services industry is so large – “It represents about 7 percent of our economy but takes around 25 percent of all corporate profits, while creating only 4 percent of all jobs,” according to Foroohar.  And it fields the biggest lobbying organization in the Nation, one that is heavily invested in maintaining the status quo.

There are a couple of straight-forward fixes Foroohar recommends, including simplifying regulations and being more transparent; increasing capital requirements for banks so they put more of their own equity at risk, rather that borrowing; reinstating Glass-Steagall so that commercial and investment banking are separated, and reforming the tax code so companies invest for growth (not just funnel money to shareholders).

More broadly, Foroohar suggests we think in terms of a “new growth model” in which, among other things, we reduce the role of the finance industry, reform tax policies to encourage more productive investment in goods and services, and bring a broader group of stakeholders into the process, including labor.

These are worthy goals.  They won’t happen overnight.  But Foroohar’s book, though perhaps a little dense and “policy wonkish” at times, is nonetheless an important contribution to the debate.  Her book clearly lays out the issues and recommends reasonable approaches to move the financial services industry away from short-term income generation and towards productive investment to help fix a broken economy.

Voices from the Past: FDR on the “Economic Rights” of All Americans

RooseveltPictureEconBillofRights… Including the right to a living wage, housing, and health care.  More than 70 years later, Bernie Sanders says he is a “Socialist”, but he sounds a lot like Franklin Roosevelt in arguing, in effect, for a new “New Deal.”


It’s January 1944.  Franklin Delano Roosevelt is nearing the end of his third term.  He is just back from the Cairo and Tehran Conferences where he met with the leaders of Britain, Russia and China.  The purpose of the meetings was to discuss strategies for defeating Germany and Japan and how the Allies would manage the peace once the war had come to an end.

Returning home, FDR is concerned that, once the war is over, the country may repeat the retrenchment and isolationism that followed W.W. I.  He uses the occasion of his 1944 Annual Message to Congress, his first major speech after returning from the Mideast, to argue that Americans need to pull together not just to win the war, but to build a strong and robust post-war economy.

But that can’t happen, FDR believes, if large segments of the population are left behind, as they were in the Great Depression, an era of massive unemployment and poverty that marked the initial years of Roosevelt’s presidency.

To ensure that doesn’t happen again, FDR proposes an Economic Bill of Rights to supplement the political Bill of Rights handed down from the founding of the Republic.  He envisions the U.S. as an economic powerhouse second to none in the world – a country in which no one lives in poverty or wants for the necessities of life, including a living wage, a decent home, quality medical care and education.

Normally Roosevelt would have delivered his speech in person before Congress.  However, FDR was apparently ill with the flu and chose instead to deliver the speech by radio as a fireside chat from the White House.

The following excerpt speaks directly to Roosevelt’s call for an economic Bill of Rights:

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.”

People who are hungry and out of a job are the stuff of which dictatorships are made.In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.

Today, we are experiencing some of the slowest economic growth in modern history.  Wages are stagnating and people are finding it increasingly difficult to find decent jobs.

This is the type of economy, Roosevelt warned, that is “the stuff of which dictatorships are made.”

Of all the candidates,  Bernie Sanders in particular has been unequivocal in his call to tackle poverty and wage inequality in the tradition of FDR and the New Deal.

Sanders writes:

Let’s be clear, it is a national disgrace that 46.5 million Americans are living in poverty today, the largest number on record. It is a national disgrace that at 21.8 percent, the U.S. has the highest childhood poverty rate of any major country on earth … Here in the United States, significant progress has been made but much more needs to be done to provide dignity and opportunity to all Americans regardless of income.

Franklin Delano Roosevelt has a “Special Place in Heaven” among liberal Democrats.  And from that special place,  we strongly suspect that FDR is cheering Bernie on and praying that he will finish the work that FDR began more than 70 years earlier.

 

 

To Fix Economy, U.S. May Need a Second Keynesian Revolution

The U.S economy is hurting.  Despite massive stimulus programs and historically low interest rates, the economy remains mired in a slow growth cycle characterized by low labor force participation, wage stagnation and a lack of adequate investment.  To get the economy moving again, we may need to draw on lessons learned from past generations.

PictureOfKeynesJohn Maynard Keynes was a British economist who departed from neoclassical theory to argue that government held the power through monetary and fiscal policies to mitigate boom and bust cycles and stimulate economic growth.  In the U.S., Keynes theories were embraced by Franklin Roosevelt as a cornerstone of the “New Deal” that helped lead the U.S. out of the Great Depression and through World War II.

In the Post-War Period of the 1950’s to the 1970’s, the “Keynesian Revolution”, as it came to be known,  underpinned one of the most robust periods of economic growth in the Nation’s history.

In the 1970’s and early 1980’s, however, double digit inflation helped give rise to “supply-side” economics which argued that excessive government taxation, spending and regulation were at the root of the problem.  Supply-siders maintained that, contrary to Keynesian doctrine, lowering taxes and reducing government spending would help tame inflation, lead to an increased supply of good and services and stimulate a sustainable level of demand.

Meanwhile, wealthy individuals and corporate interests in the U.S enthusiastically embraced supply-side economics because it argued for lowering high marginal tax rates.  To generate public support, supply-side economics was sold as a pro-small business, anti-government initiative to unleash the creative energy of the private sector to generate economic prosperity.

For a while it actually seemed to work.  Inflation was brought under control when the Federal Reserve under Paul Volcker aggressively raised interest rates in the 1980’s.  Republican and Democratic administrations lowered marginal tax rates. And the economy boomed during much of the 1990’s.

If anything, supply-side economics worked too well – until it didn’t.  Not only were taxes lowered, but government regulation of the financial services industry, for example, was weakened to the point that credit become much too easy.  An asset bubble ensued in the late 1990’s and 2000’s, led by the housing market.  Bad loans were re-packaged into complex financial instruments, known as “Credit Default Swaps,” that few people, including rating agencies and government regulators, understood.  And it all came crashing down in a wave of defaults leading to the Great Recession of 2008 and 2009.

The U.S. responded with a combination of monetary and fiscal stimului.  It was labelled by some as a “Keynesian Resurgence.”  On the monetary side, the Federal Reserve aggressively bought bonds under a “quantitative easing” program that pumped billions into the banking sector to help keep interest rates low and increase lending and investment.  And the Administration and Congress did their part by adding about a trillion dollars to government spending programs over a several year period starting in 2009.

However, the stimulus programs were offset by cuts at other levels of government; by consumers ratcheting back their spending as housing values plummeted and unemployment increased, and by banks and businesses reluctant to take on additional financial risk in a slow growth environment.

Graph_GovtSpendingAsPctOfGDPAs illustrated in the graph at left, government spending at all levels as a percent of Gross Domestic Product (17.7% in 2015) is now at the lowest level since 1950.

In hindsight, the so-called stimulus after the Great Recession seems a minor blip up on an otherwise persistent downward trend line.

A similar trend is evident when looking at economic growth rates (see graph below).  Today the economy is struggling to maintain 2% growth in Gross Domestic Product (GDP) – the lowest average rate in generations.

AnnualGDPGrowthSo, as you listen to the Presidential candidates debate economic issues, bear in mind that, if you cut through the populist rhetoric, much of what you are hearing is a debate on how to fix the U.S. economy.

Bernie Sanders is effectively arguing for a Keynesian approach, similar to the New Deal, with relatively high marginal tax rates and government sponsored investment in people and infrastructure to stimulate growth.

Hillary Clinton may not identify as a “supply sider,” per se, but her approach to economics is much more traditional and conservative, looking to constrain government, keep marginal tax rate low, and rely more heavily on the private sector to stimulate growth.

It is a debate worth having, but at the end of the day the U.S economy is hurting badly, more so than many of our political leaders are willing to admit.

Realistically, it may take a “Second Keynesian Revolution” to restore the economy to sustained pre-Great Recession rates of growth.

Book Review: Robert Reich on “Saving Capitalism”

RobertReichVer5Robert Reich’s new book “Saving Capitalism: for the Many, Not the Few” is in many ways a path breaking work. It essentially argues that  we have taken our eye of the ball.  We have been preoccupied with a false dichotomy – arguing the merits of free markets v. government – when in fact government is what enables the functioning of free markets in a capitalist system.

Failing to adequately account for the the inter-connection of markets and government, Reich argues, has created something of a blind spot in our political system.  Operating outside the public eye, often with the tacit acquiesce of elected officials, those with outsized financial resources are able to write rules and regulations in such a way as to benefit themselves at the expense of everyone else.   For their part, politicians tend to turn a blind eye because they benefit from political contributions and, increasingly, lucrative consulting work after leaving office.

The net result is that the benefits of economic growth and productivity in this country are primarily going to a very small group at the top of the income scale. Most others, meanwhile, are seeing their wages stagnate or decline relative to inflation. As Reich (and many others including TDV) have argued, this trend towards wage stagnation and inequality poses a serious threat to the future of our democracy.

The trend has been exacerbated, in Reich’s analysis, by the decline of “countervailing power”, or institutions such as labor unions that, in the past, have acted as a check on the power of big money interests. That, combined with the flood of money into politics courtesy of the Supreme Court’s “Citizens United” decision, has effectively created an entrenched oligarchy that writes the rules of our economy in the shadows with little or no public accountability.

The strength of “Saving Capitalism“ is the book is extremely well researched and written. There are many detailed and well documented examples of how laws and regulations, or lack of adequate oversight and enforcement, has been skewed to benefit a privileged few.   Reich cites examples in the areas of contract, labor, patent, and anti-trust law; international trade, education, corporate governance, tax policy, Congressional gerrymandering, and regulation of the banking and stock and bond trading, among others. In many cases he proposes detailed reforms to make the system fairer and more equitable.

A former Labor Secretary in the Clinton Administration, and currently Professor of Public Policy at the University of California, Berkley, Reich is a bit of a rock star in liberal circles. He has some 14 books, many path breaking studies including bestsellers “Aftershock”, “The Work of Nations,” and “Beyond Outrage.”

saving-capitalismBut, ultimately, Reich’s latest book seems to fall a bit flat. Economist and New York Time columnist Paul Krugman makes similar point in a review for the The New York Review of Books, entitled “Challenging the Oligarchy”, and TDV agrees. Despite an engaging thesis and great research, the book concludes by professing optimism that the America will right itself, much as it did during previous eras in American history, including the Progressive movement the early 1900’s or the New Deal in the 1930’s and 1940’s. Yet, Reich offers little in the way of specifics as to how those reforms will be enacted into law and enforced when the wealthy interests about which he writes are as firmly entrenched as they are today.

At a minimum, it will probably take a popular uprising reminiscent of the Progressive era combined with formidable leadership recalling FDR and the New Deal. It remains to be seen whether we’ll get there anytime soon but, if and when we do, Reich’s book will be a valuable resource to help guide much need and long overdue reforms.

Hillary’s Infrastructure Plan Comes Up Short

HillaryClintonCroppedHillary Clinton has proposed investing $275 billion over five years in American infrastructure – roads, bridges and transit systems. There is just one problem: $275 billion is just a fraction of what is actually needed to restore and repair American infrastructure. The amount that should be invested, according to the American Society of Civil Engineers in their 2013 Report Card for America’s Infrastructure, is $3.6 trillion through 2020, an average of about $450 billion a year.  That’s about 8x the annual average amount ($55 billion) that Hillary has proposed.

Now, Hillary says all the right things. Here’s and excerpt from the briefing materials on her website, Hillary Clinton’s Infrastructure Plan: Building Tomorrow’s Economy Today:

“According to the White House Council of Economic Advisers, every $1 billion in infrastructure investment creates 13,000 jobs. Moreover, the vast majority of the jobs created by infrastructure investment are good-paying, middle-class jobs — paying above the national median. And beyond creating good-paying jobs today, infrastructure investments promise to enhance the productivity of the American economy tomorrow — helping to boost the incomes of working Americans in the future. Every dollar of infrastructure investment leads to an estimated $1.60 increase in GDP the following year and twice that over the subsequent 20 years.”

The problem is if the need is so great, and the benefits so compelling, why invest so little? Is it because those on the Republican right will attack her for proposing higher spending levels? Probably. And therein lies the problem. Democrats, Hillary included, continue to be intimidated by tax cutting zealots of the Republican right and their big business allies.

Spending on infrastructure is not spending in the traditional sense that the term is used – done right, it is “investment” in the future of our country, in our children and grandchildren, in the creation of good, solid, middle class jobs, increased productivity, and future economic growth.

Democrats need to tell that story. Hillary’s plan is a step in the right direction, but it comes up way short on proposed spending levels.

Supply-Side Voodoo and the Need for Meaningful Tax Reform

For decades, Republicans and their wealthy patrons have outflanked the Democratic Party on the issue of tax reform. Republicans have successfully propagated the “supply side” myth that tax cuts stimulate demand and economic growth. And they have wrapped their bogus message in a veneer of anti-government rhetoric that has effectively resonated across the country.

Three of the top Republican contenders – Donald Trump, Jeb Bush and Marco Rubio – have recently come out with detailed tax proposals and all contains additional large tax breaks for the wealthy in a system that is already heavily regressive. See “Democrats Need to Stand-Up to Special Interests and Reform Regressive Tax Policies”.

As Paul Krugman wrote in Friday’s New York Times in an Op-Ed piece entitled “Voodoo Never Dies”:

“Of course, once the Republicans settle on a nominee, an army of hired guns will be mobilized to obscure this stark truth. We’ll see claims that it’s really a middle-class tax cut, that it will too do great things for economic growth, and look over there — emails! And given the conventions of he-said-she-said journalism, this campaign of obfuscation may work.

But never forget that what it’s really about is top-down class warfare. That may sound simplistic, but it’s the way the world works.”

With the exception of Bernie Sanders, Democrats, meanwhile, have been largely silent or timid on the subject. Sanders has come out strongly for progressive tax policies, calling for, among other reforms, a rise in the top personal income tax rate from 39.6% to 50% and increasing the capital gains tax on the wealthiest Americans.

But other Democratic have not been quite as forthcoming. Hillary Clinton’s wishy washy approach was discussed in a recent TDV blog, “Progressive Taxation: Not on Hillary’s Agenda.”

With respect to Sanders, the “hired guns” that Krugman speaks of are probably keeping their powder dry for now, waiting to see if his candidacy actually survives. It will be interesting to see how the issue is handled in the upcoming Democratic debate on October 13.   Will other Democrats besides Sanders finally stand-up and be counted?  Or will they effectively duck the issue, unwilling to take on the hired guns or, in some cases, their own Wall Street contributors?

One thing you can be sure of: Without some sort of meaningful tax reform, it is going to be  difficult to pay for the investment that America so desperately needs to stimulate economic growth and improve educational opportunity and health care for all Americans.