To Help Address Inequality, Invest for Growth

Democrats in particular often have a tendency to lose sight of the big picture. Hillary Clinton’s economic proposals are a case in point: a whole laundry list of initiatives, many of them important and worthy, but nonereally getting to the heart of the core issue facing America – which is stagnating economic growth.

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The Federal Reserve Bank has done its bit by buying bonds and holding down interest rates. But the net effect of Fed actions has been to inflate asset values, which is turn has contributed to the inequality of wealth and income in the U.S.

Congress, on the other hand, has completely failed to do it job. Even though we have inflated asset values and increased asset-related income from dividends and stock appreciation, taxes on wealth and asset income are at historic lows, further exacerbating inequality.

Meanwhile, government investment in infrastructure and other fixed assets has declined significantly since the great recession of 2008, with all levels of government failing to step up to the challenge.

How “stupid” is it really that at the very time when the real cost of borrowing is near or below zero, Congress (and state and local governments) ratchet back on investment? Especially when the overall condition of our infrastructure – roads, bridges, transit and airports – is so awful.

No wonder we have an inequality problem in this country. We have inflated asset values; kept asset related taxes low; reduced investment in infrastructure and failed to maintain reasonable levels of growth in the economy that Americans depend on for jobs.

Beware Another March to War In Neoconservative Opposition to Iran Deal

Republican and neoconservative opposition to the nuclear accord reached between Iran and six global powers has been as unwavering as it has been nonsensical. It’s been unwavering in that they opposed it before negotiations began, they opposed it while negotiations were occurring, and oppose now it that negotiations have concluded.

The argument they have made against reaching an agreement is that Iran can’t be trusted. Neoconservatives have also argued that Iran will get nuclear weapons at the end of the deal–although Benjamin Netanyahu has been telling anyone naïve enough to listen that Iran will get the bomb in the few years … and he’s been saying that since the early 1990’s!

If we are really going to have bomb Iran anyway, wouldn’t this nuclear deal be the perfect strategic play for the United States and Israel? We’re giving up sanctions in exchange for regular inspections and valuable intelligence on Iran’s nuclear program.

If Benjamin Netanyahu and neoconservatives in the U.S. were genuinely concerned with Iran’s acquisition of nuclear weapons, they would want more intelligence on it. They would support this nuclear accord because it allows regular inspections of Iranian nuclear facilities.  To the argument that Iran will inevitably “cheat”, this agreement will make it easier for us to detect when and if Iran does cheat.

One suspects that Israel and its neoconservative allies in the U.S. don’t really care about gathering real intelligence on Iran’s nuclear program.

Just like the decision to invade Iraq in 2003 was made based on trumped-up intelligence, for neoconservatives, one suspects the decision to bomb Iran has, likewise, already been made, and no amount of real intelligence is likely to get in the way of their proposed March to War.

Poll: View that Economy is Rigged Transcends Racial Divide

A New York Times / CBS poll conducted July 14 to 19 finds a fairly sharp increase in people, white and black alike, who think race relations in the US are deteriorating. 68% of black respondents said relations were generally bad, while 57% of white respondents felt that way.   Prior to this year, this level of pessimism in race relations in the U.S. has not been seen on a sustained basis since the 1990’s, according to the data.

The good news is that, in the wake of the Charleston, SC church shootings, a majority appear to recognize the problem and we now seem open to at least having the conversation. The bad news is the conversation is not easy; the problems are deeply ingrained in our society, and they won’t be easy to fix.

Among the problems that need to be addressed, and there are many, is a general lack of economic opportunity that the NY Times / CBS poll suggests transcends the racial divide. The poll found that whites and blacks, at 57% equally within each group, share the view that it is “mainly just a few people at the top who have a chance to get ahead”

Perhaps if we were to do a better job of leveling the playing field for all our citizens – white, black, Hispanic and Asian – it would make the conversation on improving racial discrimination go just a little easier, and yield results a little quicker.

David Brooks: Mangling Economic Theory to Justify Poverty-Level Wages

July 25, 2015 – There are two contradictory justifications corporations, and their mouthpieces, use to argue against the minimum wage.

The first is Inflation Theory, which says that any increase in the wages paid to the lowest-income workers is immediately counter-acted by a society-wide increase in prices.  New York Times columnist David Brooks, in The Minimum Wage Muddle, explains Inflation Theory this way:

“The costs of raising the wage are passed onto consumers in the form of higher prices. Minimum-wage workers often work at places that disproportionately serve people down the income scale. So raising the minimum wage is like a regressive consumption tax paid for by the poor to subsidize the wages of workers who are often middle class.”

If that sounds somewhat nonsensical, it is. Inflation Theory is flawed because inflation is relative—it does not matter if the price of an apple goes from 50 cents to a dollar so long as everything else doubles in price, including wages. And it is blatantly misleading to characterize minimum wage workers as “middle class”; if they are a head of household or supporting a family, they are living in poverty.

But while inflation is neither inherently good nor bad, inflation benefits debtors and hurts creditors.

Inflation has a two-fold benefit to the working poor who carry significant debt (mortgage, student loans, credit cards).  First, workers earn more money. The lowest income earners (minimum wage), receive the biggest benefit, but those making just-above minimum wage will also see a rise in wages.  Second, they can more easily pay back outstanding debts. This is the principle reason right-wing economists use Inflation Theory less is that there are clear winners (low-income workers, especially those with debt) and clear losers (the wealthy).

Which brings us to the Job Loss Theory. Job Loss Theory, unlike Inflation Theory, has the advantage of at least purporting to be supportive of low-income workers. Job Loss Theory holds that if the price of hiring workers goes up, firms will hire less workers.

As David Brooks explains Job Loss Theory:

“You can’t intervene in the market without unintended consequences. And here’s a haunting fact that seems to make sense: Raising the minimum wage will produce winners among job holders from all backgrounds, but it will disproportionately punish those with the lowest skills, who are least likely to be able to justify higher employment costs.”

Although Job Loss Theory is superficially supportive of low-income workers, the breakdown in the logic results from treating human beings as commodities. If Job Loss Theory were true, then the minimum wage would result in a sustained high unemployment. But no one—no economist, dare I say not even David Brooks—has the audacity to try to link, over time, the real minimum wage to unemployment.

We’ve highlighted David Brooks’ column for two reasons:  1) the shocking arrogance of a political commenter writing things like “here’s a haunting fact that seems to make sense” and 2) the use of both Inflation Theory and Job Theory to justify keeping low income workers in poverty.

Of course, David Brooks mangled economic theory left out the fact that any full-time minimum wage employee working full-time in any State in the U.S. feeding a family of four is living in poverty. And that’s under the ridiculous Department of Health and Human Services Guidelines that say that a family of four can live on less than $25,000.

What Recovery? Economic Growth is Anemic

In our previous article – Progressive Taxation: Not on Hillary’s Agenda – we touched on the laundry list of proposals the Democratic front-runner was offering to help fix the economy. Many were good ideas – others like implying it is OK to tax millionaires and secretaries at the same effective rate – not so much.  We don’t need a laundry list of great ideas – we need a basic acknowledgment that something is fundamentally wrong – and that it needs to be fixed.

EconGrowthByDecadeVer1What’s wrong is that the rate of economic growth is this country has been slowing over time to the point where it is barely keeping up with population growth. As shown in the above graph, from an average growth rate of more than 4% in the 1950’s and 1960’s, the rate of growth slowed in the decades from 1970 until 2000 to just over 3%, then slowed again to an average of under 2% since 2000.

The big issues of our day – lack of good jobs, stagnating wages and income inequity all stem in part from the fact that our economy is not keeping pace. How does the U.S. compare to other countries? What are some of reasons behind stagnating growth? And how do we fix our broken economy? These are some of the issues we will be discussing in upcoming editions of The Democratic View.

Progressive Taxation: Not on Hillary’s Agenda

Hillary Clinton’s economic policy speech this past Monday at the New School of New York was a laundry list of progressive proposals– like raising the minimum wage, strengthening worker protections, social security and health care and investing more in infrastructure and early childhood education. See a video of her speech c-span.org.

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Photo credit: http://blogs.newschool.edu/news/2015/07/hillary-clinton-economic-vision/

It was a speech, however, that was long on great ideas but short on specifics –for example how will she raise the revenue needed to implement all the initiatives she’s outlined.

It is one thing to talk about “tax reform” and another to detail specific revenue raising proposals.

Mrs. Clinton did talk about closing corporate loopholes and eliminating the special treatment of “carried interest” on profits paid out to executives and fund managers.

But these might best be described as nibbling at the edges of tax reform. When it came to broad-based reforms of the kind needed to pay for her many initiatives, Mrs. Clinton came up woefully short:

“… those at the top have to pay their fair share. That’s why I support the Buffett Rule, which makes sure that millionaires don’t pay lower rates than their secretaries. “

It’s a sad commentary that the best the Democratic front runner can muster is to say that millionaires should not pay lower rates than their secretaries.

Whatever happened to the concept of progressive taxation?

Have we forgotten a core Democratic principle – that people who earn more and benefit more from our economy should pay a higher effective tax rate?

Apparently we have, since virtually no one took Mrs. Clinton to task for effectively saying it is OK to tax millionaires and secretaries at the same rate.