03.30.11
Economic disconnect, we need jobs
There is a fundamental economic disconnect right now, we need jobs. The Left Labor Reporter lays it out pretty well right here, Right-wing economic policy is about profits, not jobs.
The right wing’s conventional wisdom holds that higher profits translates into more jobs, but in 2010 that didn’t prove to be the case. The US Commerce Department reports that US corporations’ profits in the fourth quarter of 2010 were up 29.3 percent over 2009, but these profits generated only an average of 60,000 new jobs in 2010. There was better news in February when the economy generated 192,000 new jobs, a welcomed but still modest figure.
“US corporations are “sitting on over $1.5 trillion of cash right now, writes economist Robert Reich on his blog. “They won’t invest it in additional capacity or jobs because they don’t see enough customers out there with enough money in their pockets to buy what the additional capacity would produce.”
If states like Texas continue to cut public sector payrolls, there will be even fewer customers out there with enough money to buy what the private sector produces and there will be even fewer new jobs for our growing population.
That describes the failed promise of the GOP’s tax scheme, aka trickle-on economics, to a T. The theory, the so-called Laffer curve , has never lived up to it’s promise .
On the conservative side of things, the thrust of the Laffer Curve has been political – offering the potential for a “Two Santas” mode of budgeting that has allowed Republicans to woo the electorate with tax cuts without offering unpopular spending cuts, as well as to portray Democratic efforts to balance the budget through raising taxes as counter-productively. In addition to the immediate partisan implications, the Laffer Curve has been able to define the tax debate in such a way that taxes are seen as distorting the economy away from a pattern that is a priori assumed to be the most efficient and optimal pattern possible. In other words, any effort to expand the state will be ultimately inefficient and self-defeating.
A progressive counter to this theory would be to ask – what about government spending, or in other words, social consumption? Because what the Laffer Curve leaves out, and this is endemic of conservative thought, is what taxes pay for. Keep in mind that the premise of the Laffer Curve is that revenues decline because people stop working when taxes eat up their income. However, if we think of taxes as financing the collective or social consumption of goods – what scholars sometimes call the “social wage;” think things like Social Security and other forms of government-provided income – then a decrease in after-tax wage income might be matched by an increase in the social wage, such that real income doesn’t change at all and eliminating any disincentive effect. Indeed, when we think about the actual distribution of income, taxes, and public benefits, for many people the change in income might actually be positive.
In other words, the Laffer Curve doesn’t necessarily bend at all. Instead, as we move from left to right on the X axis, tax revenue might increase or hold steady, and the only thing that shifts is the distribution of income between the individual consumption of consumer goods from wage income (i.e, the “market wage”) to the social consumption of collective goods ( i.e, the “social wage”).
Since it took over as our country’s preeminent economic theory, thanks to Ronald Reagan, the real-world results of the Laffer curve have been devastating for most Americans. The rich got richer, and everyone else got poorer. Profits up, wages down. Who ever would have thought that taxing less, would bring in less money and create massive deficits? And that lower taxes on the rich would only allow them to fatten their bank accounts and bankrupt everyone else?
What’s lacking in this debate is someone to speak out against it. Like someone with a bully pulpit, that’s a Democrat…anyone coming to mind? Watch this segment from TRMS last night. About 4:30 mark she starts talking to economist Dean Baker.
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Baker also has this take-down of recent lies about Social Security.
The hottest sport these days in Washington is seeing how many incorrect or misleading statements about Social Security you can get in one column. All the major media outlets are fully on board, anxious to convey any misinformation that reflects badly on the program. And there are plenty of deep-pocketed funders like Wall Street investment banker Peter Peterson who are happy to finance the effort. Hence we are seeing a plethora of pieces decrying the high-living seniors who are getting fat on their Social Security checks.
The President’s inability and unwillingness to fight for the the pillars of the Democratic Party, Social Security in particular, is disappointing to say the least. This, Why I didn’t sign deficit letter, is more along the lines of what Democrats and many Americans hoped that Obama would be fighting for – jobs and the middle class.
Years of underinvestment in the public sector—in infrastructure, education and technology—mean that there are ample high-return opportunities. Tax revenues generated by the higher short- and long-term growth will more than pay the low interest costs, implying significant reductions in deficits. Any firm that could borrow at terms similar to those available to the U.S., and with such high return projects, would be foolish to pass up the opportunity.
So, too, increased progressivity of the tax system—shifting the burden from low and middle income Americans, who have seen their incomes decline, to upper income Americans, the only group in the country that has prospered for the last decade—would have double benefits. The shift would stimulate the economy in the short run, and reduce the growing divide in the country in the long run.
With a quarter of all U.S. income going to the upper 1 percent, and America’s middle class actually facing lower incomes than a decade ago, there is only one way to raise more taxes: Tax the top.
A corollary of this inequality is that slight increases in the taxes at the top can raise large amounts of revenue. Just making the tax system fairer and more efficient at the top—eliminating the massive corporate welfare hidden in the tax system and the peculiar provisions that allow the speculators and bankers who helped cause the crisis pay far lower taxes than those who work for their income—would go a long way toward deficit reduction.
We need jobs. Our economy will not be sound again until we put people back to work. Our federal, state, and local governments shedding jobs will only hurt our economy more. It’s unbelievable to me that what got us out of the Great Depression last century is being ignored this century.