A think tank in the UK has pointed out (as the IMF did in less vocal tones about Europe as a whole) that focusing on reducing government deficits is actually leading to greater debt. The UK has taken an approach of tax increases and spending cuts to keep debt from going too high. But the reduction in consumer spending from taxes and reduction in government spending has slowed economic growth, meaning that there is a smaller tax base from which to generate revenue. The typical Keynesian picture seems vindicated: the government should spend in hard times, and save in good times. Important to keep in mind here in the US when conservatives (and many Democrats too for that matter) talk about cutting government spending. Granted Republicans won’t raise taxes, but as I have repeated over and over on this blog, they aren’t serious about cutting deficits either. But for the sake of argument, let’s assume they did cut spending significantly. Especially if the economy is in its current state, then that would slow down growth, decreasing the tax base…you get the idea.
I’ve come to realize I have a certain assumption of how I think political systems work that underlies a lot of my opinions so I thought I’d lay it out. It’s really very simple, but I think it explains a lot. It can be summed up in one sentence:
Power over social decision-making requires organization.
“Organization” is to be interpreted very broadly here. It could be a business, a political party, a union, or any other organization. There are many advantages to organization. An organization can collect information and distribute it to its members, rather than each individual having to do his own research, collect information from its members to advocate on their behalf (what political science calls issue articulation) and channel money and resources to influence the political process.
If we assume the above paragraph to be true, then applying it reveals some interesting insights. Who is organized in the US? Clearly, major corporations have the largest organizations and resources available to them. While tiny in comparison to the business sector, labor unions organize about 10% of the labor force. There is a vast array of non-profit organizations advocating many causes, which have some impact, but they have far fewer resources than the business community. So it should come as no surprise if government policy disproportionately serves the interests of the wealthy. It can also be seen if we look at the background of three of Obama’s cabinet posts:
Treasury Secretary Tim Geithner: son of VP of Public Relations of Ford Motor Company, began career at Kissinger Associates
Secretary of State Hilary Clinton: Yale Law School and on the board of directors of TCBY (1985-1992), Wal-Mart (1986-1992), and Lafarge (1990-1992)
Attorney General Eric Holder: In addition to Justice Department positions, he was an attorney with Covington and Burling, an international law firm that represents major corporations.
This is not to suggest any conspiracy, but to point out that a) corporations are organized and b) their interests and those of the government tend to align. What about someone like Bernie Sanders, the progressive Senator from Vermont? Isn’t he proof that politicians don’t have to be supported by big business? Sanders actually proves the point quite well, since the vast majority of his top campaign donors are labor unions. That is why he is able to be the most leftist Senator. UMASS Boston Professor Thomas Ferguson has actually done some great work on what he calls the “investment theory of party competition,” outlining how political parties align to those who are organized (mostly business), while the wishes of the electorate play a secondary role. He in fact shows that one reason the New Deal was successful was due to an alignment of labor union and capital-intensive industry. An excellent documentary about his ideas is below.
I feel like I never stop learning from Paul Krugman. His latest blog post discusses the fact that the “fiscal cliff” of automatic spending cuts and tax hikes should be welcome to conservatives if they are consistent. After all, they will significantly reduce the government deficit and all we hear from Romney/Ryan is how debt is such a big problem. Krugman makes another important observation: Republican agreement that the fiscal cliff will hurt the economy is actually agreement with the Keynesian view, i.e. reduced gov’t spending and increased taxes reduces aggregate demand. Why won’t Republicans go along with this deficit reduction? First, because it doesn’t reduce the deficit in a way that gives the lion’s share of the benefit to the super-rich. Second, and this is me not Krugman talking (although I imagine he’d agree), conservatives don’t actually care about the deficit, as deficits have increased under Republican presidents during the last 30 years. If you can cut taxes for the rich and cut spending on everyone else, who cares about the deficit?
I usually don’t repost others material, but I want to share a great piece by Daniel Ellsberg, of Pentagon Papers fame, about why it is important to defeat Romney. I post this as an elaboration on the back and forth on ZSpace and here that I had with Terri Lee, who supports a voter boycott. I don’t think the number of people who support a voter boycott is all that large and I certainly doubt large enough to influence the election. However, I think it is indicative of a “screw the system” mentality, where understandable anger prevents good judgment, replacing practical thinking with some idea of a moral high ground. This is a great danger for the left, because it prevents the left from relating to and gaining the sympathy of the average American. While voter boycott supporters like Lee may be morally right in condemning US actions abroad, what do they expect to accomplish when they say trying to improve the lives of Americans who suffer economically is selfish? As she said on ZSpace: “Sacrificing the lives of real people elsewhere to gamble on the possibility of gaining some slight, temporary benefits for people here, seems rather selfish and inhumane to me. As long as the US has a capitalist system, benefits will be taken from workers and the poor while greater benefits are lavished on the wealthy and corrupt.” So we should wait to help Americans until capitalism is gone?
Paul Krugman often states his opinion that consumer demand, held back by large debt, is what is keeping the US economy from recovering fully and that government stimulus is in order. I am frankly not the best at economic statistics, but I did a little research that seems to support this. First, total household debt payments took a nosedive starting in 2009. This can mean two things: 1) people have less debt to pay off or 2) people do not have enough income to pay off their debts.
It is evident that there is less debt in the economy, but that is because the willingness to lend and ability to pay have created a credit crunch since the 2009 recession began. So gross household debt declined…
but real disposable income per capita is still struggling to maintain pre-2008 levels and is below what it would have been if growth had remained constant (to be honest, I don’t understand the short term 2008 spike):
There is a definite trend for periods of higher incomes to lead to higher debt payments (and the reverse as well.) So if household debt is holding back consumer demand, then government stimulus could help people dig their way out of debt. And just in case you think that excessive government is the problem, the growth rate of government expenditures is about what it was pre-2008 and is actually levelling off (Blue is government spending, Red is taxes collected).
A Reuters article today on local elections in the Palestinian West Bank demonstrates rather obvious bias in media coverage. One article by one news agency is not all that important obviously, but the image portrayed is rather usual in mainstream commentary. The title of the article is “West Bank vote held to help plug Palestinian democracy gap.”
By itself the title is true enough, as there have not been elections in the Occupied Territories for six years, but reading the article puts everything on the shoulders of Palestinians, as if only they could get their act together then they could have democracy. The article points out that Hamas won 2006 parliamentary elections, but then goes on to observe that Hamas’ victory was “an outcome nullified by the civil war that followed a year later.”
This description leaves out three obvious facts. Immediately after Hamas won the election, the US, Israel and Europe threatened and proceeded to cut off aid to the Palestinian Authority, and encouraged Arab nations to do so. It is disingenuous to leave out that the election results led to a call by the world’s superpower for isolating the party that won. Secondly, there was indeed a civil war between Fatah and Hamas, but the article leaves out that the US was military supporting Fatah, leading to Hamas taking preemptive action to take over Gaza. Third, Israel launched a massive war designed to punish Hamas and the Palestinians of Gaza, for which Amnesty International accused Israel (and to a lesser extent Hamas) of war crimes. None of these facts described are controversial, but there is no threat of receiving any flak for putting the onus on Arabs rather than discuss the full context when it makes the US role seem less than magnificent to put it mildly.
I’ve been looking back at material I read a long time ago by Robin Hahnel, economics professor emeritus at American University, and it got me thinking about the problem of externalities in market systems. As basic economics tells us, an externality is an effect of a purchase on a third party in addition to the buyer and seller. Thus, when someone buys gas for their car the gas company tries to get a maximum price and a buyer a minimum price, but air pollution does not factor into the price determination. It is basically supply and demand. There can be positive externalities too. An increase in electric cars reduces the amount of pollution. As Hahnel pointed out in his excellent book, The ABC’s of Political Economy (the link will take you to the full book in pdf format), a fundamental problem with markets is that they underprice goods with negative externalities and overprice goods with positive externalities.
The examples just given demonstrate this. When you buy gas, you may pay $3.50-4.00 per gallon, but there are additional costs. For example, an analysis of several studies on the externalized costs of gasoline by the Victoria Transport Policy Institute makes the observation that inpatient admissions among Medicare recipients to hospitals is 19% higher in high pollution areas. That’s partially tax money covering the costs of gasoline. Meanwhile, the benefits of an electric or hybrid car are not included in its price. This means that society bears the costs of gasoline usage and forgoes the benefits of electric cars.
If we are to have less pollution, the government needs to tax gas at a higher rate and subsidize electric cars so they can be sold at a lower price. I am using this as an example to illustrate the point, but the reality is that externalities are an inherent part of any economy and in a market economy the only way to address them is government intervention. Think of all the added costs of negative externalities in the form of environmental damage from a whole host of products. Or the poor nutritional value of fast food, which is very cheap to buy. We also have less incentive for renewable energy.
The fact that externality problems are inherent in markets makes in daunting to think of the government intervening to fix every imbalance. But markets cannot address externalities from within. Robin Hahnel and Michael Albert have developed a method of accounting for externalities in their vision of Participatory Economics, but that is in the context of a future society with far different economic institutions. I personally think their long-term vision is on the right track, but what is the best approach to externalities in the short run? I would love to hear suggestions.
Wanted to take the time to promote two worthwhile endeavors:
1) Free Press is an organization based in Massachusetts challenging corporate consolidation of media. Especially relevant given my recent post on the media’s terrible performance on presidential debates.
2) ZNet is launching a new social networking site called ZSocial. It is still in beta testing mode, so a lot of bugs still to fix, but it looks really nice and is an excellent way to connect people on the left. If you join and want to friend request me, type in “Weiss” in the search bar in the top banner of the website (across from “ZSocial”) and my name and pic will come up. The search field under contacts isn’t operational yet.
To understand that political debates should be about substantive issues, all you have to do is talk to a high school student who actually debates. Click below (embed code isn’t working for some reason). Skip to 3:53 and the girl being interviewed makes what is an obvious point to anyone who knows the first thing about debates: you should make “warranted arguments” and “in-depth analysis.” After that it’s worth skipping to 8:30 where the girl says the candidates should stop speculating and actually debate policy. If we can bring politics and the media that reports on them up to a high school standard, maybe we can have real debates.
The post-debate analysis offers a chance to see a severe problem with our media, which is its focus on who “won” a debate and how the debate will effect the presidential race, rather than focus on the issues being debated. For example, a headline piece from Politico.com discusses how Obama’s apparent strategy of appearing calm and “presidential” backfired and allowed Romney to be more in control. The same is true of headline pieces from CNN and Reuters. Demeanor and ability to hold one’s own in a debate are important leadership qualities but the media’s obsessive focus on these diminish the opportunity for democratic debate. After a debate, citizens should be primarily talking about their impressions of the different candidate’s policy proposals. If this were the case, a debate could be a catalyst for democratic participation, as citizens would become more informed about the issues.
We can see the effects of the second-tier status of policies and issues by looking at how misinformed voters are. For example, in a World Public Opinion survey of voters in the 2010 national elections, 40% thought TARP was initiated under Obama, not George W. Bush. Liberals had their own misinformation, believing that the US Chamber of Commerce was using large amounts of foreign money to fund campaigns. Worst of all, the study found that people were more misinformed if they watched more news.
This is not an issue of liberal vs. conservative news outlets, since the focus on style is across the board, from FOX to MSNBC. Democracy Now had a better focus by allowing 3rd party candidates to contrast their own views with Obama and Romney. The value of 3rd parties is open to debate, but at least the focus is on issues. I can’t think of a better example of the need for alternative media such as Democracy Now or ZNet.