Sunday, November 17, 2013

Restoring the 1950s Economy as a Solution to the Financial Crisis

The economy needs demand and investment to produce goods and services. Demand and investment come from the same source, income. If more income is saved, there is less available to create demand and vice versa.

At this time savings need to be reduced to increase demand. The usual means to do this would be to lower interest rates. But rates are already near zero, and this hasn't caused savers to start spending. So what is the mechanism to do this? Tax the savers, and reduce the taxes on spenders, to zero if necessary. If need be, let the government issue the funds to provide the infrastructure, free health care, education, and retirement benefits to the spenders, so more of their income can go to spending.

This is essentially what was done in the decades immediately after WWII, when the highest marginal tax rates were near 100% and the government was spending on roads, education, the GI Bill, and Social Security and Medicare had been implemented.

Instead, what we have done since the 1980's is reduce the highest marginal tax rates and taxes on capital gains, allow offshore tax havens, privatize education, let our infrastructure deteriorate, bust unions, and deregulate business to allow almost all of the rewards of productivity to go to savers. And, now the austerity advocates are on a path to destroy Social Security and Medicare.

Isn't it clear that we have to restore the balance between spending and saving that existed the fifties and sixties?

Tuesday, November 05, 2013

Simplifying Econospeak

The following paragraph is an example of how to talk to the average voter about how the economy works, could work, or should work without resorting to economic jargon.

“The federal government is the people's agent, and they have authorized it to issue money so they can have a convenient way to buy things and pay their taxes. Taxes can be viewed as reimbursement for infrastructure, education, research, and defense projects the government has undertaken on behalf of the people. If the economy is so weak that people cannot find employment or resources are being underutilized, the government can either lower taxes or issue more money. If the economy is so strong that production of goods and services cannot meet demand, the government can increase taxes or stop issuing money. That's how the economy can be stabilized.”

Implicit in the above description of the economy, but not required to get the point across, is the fact that government is the sole issuer of money, taxes are not collected and then used, but instead the government can issue money to pay for what has been legislated to be done and then collect taxes after the fact to reflect what goods and services the people have received. In times of a weak economy the government can reduce taxes and defer reimbursement for services rendered, or in times of an overheating economy, the government can accumulate taxes it will need for future projects to take some steam out of the economy.

The federal government is not like an individual, a company, or a state. The federal government is the exclusive issuer of money. Any other entity is only a user of the money. To get money they have to engage in economic transactions, or borrow the money from an entity that has money to lend or grant. If they borrow, it results in debts that must be paid off later.

Any money the government issues increases the money available to the private sector to save or spend. If the private sector elects to spend, it will increase demand for goods and services, which could exceed the economic resources of the country. This will result in a rise in the prices of assets, consumer goods, or labor. At this point the government must increase taxes or stop issuing money to bring demand back into line with supply.

The fact that federal deficits and debt are not mentioned reflects their lack of importance in the scheme of things. The "national debt" is not a debt owed to anyone. It can be viewed as the net amount of money the government has issued over time. It may fluctuate up and down, but it is not something that needs to be paid off or compared to GDP. To think of it that way is to think that football teams need to pay back the scores they have run up in a game.

Over time, the population increases and the economy grows. This requires more money in circulation so it is up to the government to provide it. If it doesn’t, the economy will stagnate.

To the extent that the government issues money to further foreign interests or which results in foreign claims, the amount of money issued in that way could arguably become an important issue.

The average voter doesn't want to hear about economic theories or jargon that only an economist or economic analyst would understand. They just want to know how the economy is supposed to work. If economic concepts are explained in a simple, but factual way, people will start to accept them and turn away from the propaganda and misinformation that currently pervades the national economic conversation, much of which is only applicable to countries that don’t have their own money, or whose money is backed by a commodity like gold or silver.

Saturday, November 02, 2013

Occupy Should Work Within the Democratic Party

Trying to work around the two major parties in the US is a fools errand. The grassroots effort of Occupy should be directed at informing workers where their interests lie and organizing them to change the government.

The Democrats under FDR used to represent middle and lower class workers. Since the advent of the DLC and the Clinton administration, the Democrats have moved into Republican territory by accepting Wall Street influence. That is not their natural constituency. They have been able to do it only with the help of the main stream media, which is driven by money. The great mass of the electorate resides in the middle and lower classes. Now they rely mainly on the main stream media for their information, which is selling them a bill of goods on behalf of the 1% and the Washington consensus. To organize them around their real interests requires a door to door and internet media campaign to take over the Democratic Party and move it back to where it was under FDR.

The Republican Party is in disarray, and there is already a strong progressive element in the Democratic Party that is for reducing inequality, single payer health care, minority rights, environmental protection, a safety net, and a place for government in the economic landscape. People like Bernie Sanders and Elizabeth Warren are examples of the type of people that can be elected to national office. People like them can be recruited to local and state offices. The only problem now is voter reliance on the mainstream media and the political advertising propaganda it presents. A sustained grass roots effort on a personal level can turn that around. It's just a matter of personal contact to educate workers where there interests lie. This is the only way to overpower money in politics.

The demonstrations in the seventies around civil rights and the Vietnam war were ruthlessly handled by police and the military, which do what the government tells them to do. The same happened to the current Occupy movements in New York and elsewhere. The only way to give the middle and lower class workers a voice is to inform them of their real interests and organize them to change the government.