This is going to be one of those connect the dot blogs, so bear with me, and no it is not about Denny Hastert or Hillary’s emails. It is about America’s tomorrow. I have maintained that the number one threat facting America is Global Warming. However the number one political issue will be the economy. If we tackled Global Warming we could go a long way to solving the economy, but that is a blog for another day.
You know that old refrain, it is the economy stupid? Well it is. But the economy doesn’t seem to be fixable and that is because almost everything we assume we know about the economy is wrong. Let me start with the obvious. The country has been on a path that assumed that trickle down worked. If we made a business friendly climate where the wealthy could keep and reinvest their earnings, the rest of us would enjoy the benefits of this through job creation and a “rising tide.” Except it did not happen.
What we have is a lackluster economy where wealth is being transfered to the wealthy and the middle class is losing ground. Investment is non-existent. During the Bush years, George cut taxes on the wealthy, de-regulated to his hearts content, and jobs went nowhere. The Republican Miracle is being played out in Kansas and other red states where cutting taxes just bankrupted the treasury withouth the jobs and revenue.
And this has not been a partisan thing, both Democrats and Republicans have had a hand in it. The conventional wisdom was that if Wall Street was doing well, the rest of us will. You can split hairs and say well Democrats have thrown up some roadblocks in terms of regulations to control pollution and help out the poor with safety nets, but all in all, everyone bought into this theory. Except our economy doesn’t work like that anymore.
I have been frustrated over the years, because as a Paul Krugman student, I knew he was on to something and was being totally ignored. When the economy started to fail, he argued this was not about supply, but demand. Unless we give people the means to earn money, and spend it, the economy was going nowhere. He was dead right and his predictions about interest rate and inflation have been dead on. And as I noted he has been totally ignored. Paul calls the people who have been calling the economic shots VSPs, Very Serious People. They couched reserve and austerity to give the system back its confidence (supply side thinking) and their bitter medicine fit our need to feel we have done something wrong (the debt), but in our present circumstances it was exactly the wrong advice.
These people have controlled our policy decisions, sadly our President is one of them, and we have not done the things we need to do to start to heal our economy. Okay that is my history lesson. We all know that the economy is lack luster, jobs are a joke (yeah there are jobs, but not good paying ones), and wealth is rushing faster and faster into the hands of the wealthy with no reinvestment. So what the hell is going on. Okay, hang on to your hat, here are the breakthroughs. Let’s start connecting the dots.
To review: The rich are getting richer, the middle class is losing ground, and wage growth is stymied. Trickle down doesn’t seem to work. Enter Mike Konczai with The Proof That Centrism is Dead. Basically Mike is talking about Krugman’s VSPs. I suggest you read the entire piece, but I am going to quote freely:
An optical illusion has shielded centrism from critique. Centrists position themselves as anti-ideology, representing a responsible compromise between liberals and conservatives. The word conjures sobriety and restraint, caution and moderation—all of which sound compelling in uncertain economic times.
But institutionalized centrism is more than that: It’s an elite group of thinkers and writers, popular in Washington, DC, and favorable to business leaders, who told a very specific story about what was happening during the Great Recession. They populate the opinion pages of The Washington Post and think tanks like the Bipartisan Policy Center, and they influenced officials like former Office of Management and Budget director Peter Orszag.
Circa 2010, they argued for a “sensible” response to the Great Recession: reduce the deficit to fix the short-term jobs crisis, privatize Medicare, and focus on the long-term economy—since, they claimed, working Americans would eventually bounce back during the recovery. Democratic candidates took these positions seriously. Yet each element of the centrist story has turned out to be absolutely false.
He then goes on to list how they got it wrong over and over again. How everything they predicted did not come to pass. Then he points out the obvious:
Yet six years into the recovery, wages are still down for most workers. Since 2000, median family income has dropped by 7 percent. Workers have never been more educated, but the result is just fiercer fighting for jobs. Corporate profits have skyrocketed, and 76 percent of the recovery has gone to the top 1 percent. How can centrists continue to focus on the long term and business confidence when all the fruits go to such a small group?
This failure explains why liberal politicians will sound more confidently liberal in 2016: The dominant ideology pulling them toward business interests has failed. Thus, liberals can analyze the economy within a structural framework that isn’t muddled by a commitment to wrongheaded corporate prerogatives.
Okay dot one, trickle down no longer works and the VSPs/Centralists whom we have all looked to for sensible guidance in our economy have failed us. All the stuff we thought we should do did not help. Now comes the big dot. Maybe the way we think our economy works is not the way it really works. Note that if we get Republican leadership in 2016 they are going to double down on trickle down. Cut the safety nets to afford tax cuts to the wealthy and “they will cereate jobs for all of us”. But if our economy doesn’t work this way, this is the road to disaster.
Now Democrats see the effect of the problem (as oppsed to the cause) in our economy, economic inequality. Many want to treat that effect with things like equal pay for equal work, raising the minimum wage, taxing the wealthy more, and that certainly would help, but we are treating the symptoms here, not the disease. What is it in the way we have set up our economy to operate (through laws, regulations, trade policy, and tax policy) that favors the wealthy and leaves the rest of us out in the cold while they are raking in their dough? That is where some really smart people(Neil Abernathy, Adam Hersh, Susan Holmberg, Mike Konczal) led by Nobel laureate, Joesph Stiglitz comes into the play.
They said, we can’t just move the deck chairs around on the Titanic and tax the wealthy, we have to fix the root problem with a wholestic approach to fixing our economy and they came up with a plan to do just that, called Rewriting the Rules of the American Economy. This plan is a 115 page document that lays out exactly what has to be changed in our economy and the justification of why this will fix the problem. But the key to this plan is not all the changes they recommend, but the root problem they found in the way we have structured our economy that defeats flowdown. So before you read this report, let’s look at Dylan Mathews’ analysis on Vox that gives you the context in which to understand why these changes are so critical and make sense.
Okay, what is it that makes our economy dysfunctional, wealth is gained but not reinvested in jobs and production? Here is how Dylan frames it:
Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages.
Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something’s gone wrong.
In You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics, Vox’s in resident economics writer lays the root problem for us in his analysis of Stiglitz’s plan. In a word, rents. I will try to make this simple. Through laws, rules, regulations, treaties, and the tax code, we have made an economic system that makes it more profitable to seek rents instead of investing in new production and jobs. Rent seeking is basically investing in things that return a rent on your investment , but builds or creates nothing. Here is how Dylan explains the concept:
Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents. A patent or a copyright, for example, can be a valuable financial commodity to own, even without being productive in the way a factory or tractor is.
To see the distinction, imagine you have $300 million and can either invest it in a startup or use it to buy the rights to the Beatles’ songs. In the former case, you’re providing money that a company can then use to hire people, produce goods, and generally create wealth in the world. In the latter, you’re producing nothing; you’re just grabbing something that someone else produced and claiming the proceeds from it.
“Rent-seeking,” as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments.
And that is what has happened. Stiglitz and his co-authors show how we have rigged the whole economy this way, whether it is Wall Street and too big to fail, to copyrights and marginal tax rate for the wealthy. They all increase rent seeking as a way to growth wealth instead of real production and jobs. So the key is to remove these rent seeking incentives in our economy and that is where Rewriting the Rules comes in. They look at all the incentives we have built into the system for the wealthy to primarily use rent seeking as a path to increase wealth, and then recommend how we can restructure our economy to work for all of us.
So here it is in a nutshell: We have an economy that is not working for anyone but the wealthy. The conventional wisdom that came from VSP/Centralists that we have all been following, says reduce the debt and make the world business friendly, solve our structural employment problems, and the market place will solve all problems. This has failed miserably. Along comes Stiglitz and his co-authors to show how the economy has been gamed over many years to reward rent seeking, making money on money, instead of investment in production and jobs. That is why there is no flow down. And then Stiglitz and his co-authors, give us a plan forward. Anthing less will just be more of the same, moving those proverbial deck chairs around on the Titantic.
Now you start to see the real fight in 2016. Republicans will want to do more of the same flow down strategies, simply accelerating what we are already seeing. Hillary and Bill have been big supporters of the centralists. She may get some of the populist changes, but not a systemic program like Stiglitz proposes that would really fix our economy. From Dylan Mathews’ analysis:
Hillary Clinton has yet to lay out a detailed economic platform, but knowing the people she listens to on the matter, and judging from her 2008 campaign, it’s not too hard to guess what it’ll be. She’ll call for a bigger safety net for working parents: more child care subsidies, paid leave for new mothers and fathers. She might call for a slight increase in taxes for the rich. But she’s always been a fan of markets. Her agenda — like President Obama’s, like former President Clinton’s — has been defined by a faith that markets are creating wealth reasonably effectively, and that their major flaw is they don’t distribute income as evenly as they should. Let businesses do their thing, redistribute a bit, and you’re basically set.
Enter Bernie Saunders who gets it. Without Bernie we won’t have the debate we so badly need to see how we must make basic structural changes in our economy to make the market place work of all of us. He will use Stiglitz plan to propose a real cohesive approach to making the economy work for all of us. Hilllary, forever triangulating and trying not to look like she is leaning too far left, will come up with deck chair movements which is way better than Republican full speed ahead, but still far short of what we need. If this debate really happens and the ideas I have written about get into the public mainstream, hell, we might actually fix something for a change. You know, it is that science and data thing.
There. Did I connect the dots for you? Did you say, Aha! If you get this, I path forward is really fairly simple and now we are arguing from analysis and logic, not ideology.