Sunday, September 05, 2010

Eliminating Welfare and Developing a Mixed Economy

It’s been fairly well proven that both totally state controlled or totally free market economies don’t work. Why don’t we just admit it and define what roles government and free enterprise should play in the economy?

People have lost track of what the depression era programs really were. I won’t go through all the details here because they are spelled out in the government document,  Job Creation Programs of the Great Depression.  But, they were carefully thought out programs that were designed not to compete with private enterprise and had control over worker behavior far beyond just the work environment. At the beginning of the depression there was no safety net to speak of so the CCC, WPA, and PWA became the safety net. When workers can’t get work in the private sector, they are willing to settle for less freedom in their lives and lower wages to make a basic living. Conversely, if private sector jobs are available that pay higher wages and give them more freedom they will gravitate toward them. This insures that the private sector will always have a pool of available workers.

What I am proposing is that welfare and unemployment compensation be replaced with permanent versions of the depression era workfare programs and others like them. These programs would be limited to paying the minimum wage and would include government supplied health care similar to Medicare and pensions for retirees similar to Social Security. They would involve closer control over people’s lives, as was the case in the depression era workfare programs. With such a safety net, regulations on business could be relaxed, and businesses that are too big to fail now because they would jeopardize the welfare of the citizenry, could be allowed to fail. The incentive to return to the private sector would always be there due to the higher wages and greater freedom.

In prior posts here I have shown how periodic failures of our economic system, manifested by recessions, depressions, and asset and debt bubbles which collapse, are due to the imbalance of wealth and income between investors and wage earners. The broad middle class creates the demand for products and services which is needed for business to create jobs. Since business and capital sit atop the economic pyramid and decide how the fruits of productivity are allocated they periodically succeed in diverting more and more of the fruits of productivity to investors and managers and less to wage earners. This happened in the late nineteenth century, again in the first half of the twentieth century, and has now happened again in the first part of the twentyfirst century. This happens because the wealth accumulation results in a takeover of government by a wealthy oligarchy. Unless wage earners rebel, there is not much they can do about it.

If a safety net of the type I propose is put in place, any attempt to short change workers, as wealth is transferred to investors and managers, will result in more people ending up on the workfare programs and higher taxes for business and people in the private sector. The workfare workers will still be earning an income to sustain demand, but the private sector will soon see a shortage of workers. They will realize that they will need to pay their workers more to get them off  the workfare rolls and reduce their taxes. This will cause wages to rise again in the private sector allowing taxes to be cut, and rebalancing the income and wealth that is necessary for a healthy economy that is less subject to cyclical crises.

If you have further question about the workfare programs or the interaction of inequality and economic instability read the government document cited above and my prior posts on the subject.

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