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They are Fooling Nobody

Bad ideas/theories that benefit the plutocracy don’t die easily. Case in point: ‘trickle down’ economics. It doesn’t work but both political parties, to some extent, keep practicing it. However, we are not fooled.

Catherine Rampell, on the New York Times website, wrote about a recent Gallup poll that showed that rich people think the economy is ‘growing’ while poor people believe the economy is in a ‘depression’. These results are not very surprising. We largely have two economies - one in recovery because of bailouts, stock market and commodity prices and another in depression because of unemployment, stagnant wages, foreclosures and high gas and food prices. Two very different economies indeed.

The reason for these two economies or this uneven recovery is largely due to how government policy reacted to the global financial crisis. First, there was the massive bailout of Wall Street that did nothing to help the rest of the economy. Second, the 2009 economic stimulus that weighted more toward tax relief and tax gimmicks than investments in infrastructure or even a direct jobs programs (such as a Job Guarantee). Both political parties were part of these very short-sighted policy decisions.

When it comes to fiscal policy (how government spends/invests and taxes) who benefits really matters. Consider the last ten years - fiscal policy, mostly in the form of huge tax cuts for the rich and huge subsidies to corporations (including big drug companies through Medicare part D), has favored the rich and increased the budget deficit. The deficit soared but job growth wasn’t very impressive even before the Great Recession, income inequality grew, and then of course the global financial crisis. No trickle down effects to be seen.

This is what “trickle up” fiscal policy would look like (very rough outline):

1) Short—term - full payroll tax holiday for workers and extension of unemployment benefits long-term unemployed (99ers);

2) Job guarantee program;

3) Significant investments in infrastructure;

4) Huge reduction in defense spending;

5) Taxes: a) Raise top tax rates; or b) implement a ‘hut tax’ - tax based on cubic feet of home(s) and c) tax cut for middle and lower brackets;

6) Elimination of all corporate subsidies.

You get the idea. If we want to experience a strong recovery for most people then it’s necessary to have fiscal policy that favors those who need and would use the benefits in a way that will help the economy. Yes, that means poor and working class families. We tried (and continue) benefiting the rich and corporations but it’s just doesn’t work. 

Bottom line: when it comes to fiscal policy income distribution and who benefits really matters.

Good luck.

 

 

Distractions. Distractions.

We certainly don’t want to focus on the serious economic challenges that we face. We certainly don’t want to shake the confidence we have in our economic and political system. So, what do we hear from politicians and amplified by traditional media: junk about a birth certificate and what stupid thing someone from Alaska said about something.

Distractions. I seriously believe that if we heard more about the following items there would be a lot more civil disobedience:

1. 19% of Americans have tapped into retirement savings for urgent financial needs. What is happening to change this? Nothing, unemployment is still high and most economic projections call for continued high unemployment.
2. Unemployment is near 20% for some groups. What is happening to change this? Nothing, unemployment is that 3000 pound gorilla sitting in the corner that politicians want to ignore.
3. 1 in 3 renters in Chicago (and 1 in 4 across rest of U.S.) spend more than half of income on housing expenses. What is happening to change this? Nothing, cost of living is continuing to increase and wage growth is stagnant.
4. Americans depend more on federal aid than ever. What is happening to change this? Nothing, the article says that the trend will continue. But what little discussion outside the mundane in Washington and many states has been how to eliminate or diminish the social safety net.
5. Food prices continue to rise. What is happening to change this? Nothing, we could end the subsidy of ethanol production. Ethanol is having an impact on the demand for corn.
6. Gas prices continue to rise. What is happening to change this? Nothing, Saudia Arabia pretty much controls the price of oil and more domestic drilling isn’t going to change that.

These are very significant economic challenges but that are not being discussed by the plutocracy in Washington. Instead, besides the birth certificate nonsense, we hear more about deficit hysteria.

The political system is bankrupt. We can no longer expect nor rely on our elected officials to address our economic challenges. We must address these challenges and develop solutions ourselves. We can do this.

Good luck.

 

 

 

In Search of Countervailing Powers

Too many people wrongfully equate capitalism with democracy. They are not the same - one is an economic system and the other is a political system. But the economic system can have a significant influence on the political system.

It should be no surprise that we live in a plutocracy where those with money control the political system. This plutocracy is very much a reflection of our economic system. Our capitalist economic system fosters huge inequalities and provides huge government assistance to those corporations and individuals that control the political system.

In 1951, John K. Galbraith developed the theory of Countervailing Power in his book American Capitalism: The Concept of Countervailing Power. The theory goes like this:

In a properly functioning market (capitalist) economy prices for goods and services are set by free bargaining. However, our current economic system gives massive powers to large corporations who then tip the bargaining process in their favor. To restore a balance in the bargaining process there has to be Countervailing Powers in the form of trade unions, citizens’ organizations and government regulators to offset corporations excessive advantage.

Galbraith’s concept of Countervailing Powers translates well in the political context. Absent these Countervailing Powers big corporations and those who run these big corporations have excessive advantage in the political process. Just consider the Wall Street bailout, the lack of criminal investigations of Wall Street fraudsters and BP/Transocean’s actions (or lack of actions), including influence they had over regulators, before and after the Gulf Oil Spill Disaster.

Our systems clearly lack the necessary Countervailing Powers. The lack of Countervailing Powers is a major reason for the emergence of the plutocracy in the U.S. This poses a huge challenge for those who support and believe in democracy but one we can meet.

We have to create new Countervailing Powers because the old ones either don’t exist anymore or have been co-opted by the plutocracy. Yes, this includes unions. We can do this - we have done it before.

The idea “think locally, act globally” is very relevant to creating new Countervailing Powers. Organizing our economic systems at a local level can be a very important first step in creating new Countervailing Powers. Cooperatives can help.

Cooperatives can be a valuable contributor to the creation of new Countervailing Powers. Cooperatives are locally organized, locally owned and democratically managed. They can used in many different contexts. In urban areas, the grocery cooperative is the most common cooperative. In a grocery cooperative, the members own and democratically manage the grocery store. Another very important form of a cooperative is the worker cooperative. A worker cooperative is a business where the workers own and democratically manage it. We can do this.

For additional information on cooperatives check out the following websites: National Cooperative Business Association and U.S. Federation of Worker Cooperatives.

Good luck.

There are Alternatives/Solutions

Some people would like us to believe that there are no alternatives or solutions to our current economic predicament. Workers should be grateful to have jobs and they should just shut up. They are terribly wrong.

One very promising alternative or solution are worker cooperatives. A worker cooperative is a business model where the workers own the business and democratically govern it - one member one vote. Worker cooperatives can potentially improve the quality of life and standard of living for workers.

“Oh, but that’s socialism or communism.” Ah, NO! It’s a matter of economic survival for millions of working families. Our economic system is not very friendly towards workers particularly low wage workers. Just consider the millions of working poor or the number of workers that don’t have employer sponsored health insurance.

I recently did a case study on Union Cab of Madison Cooperative, Inc. Union cab is a worker cooperative - a cab company owned by its drivers, dispatchers and support staff. Part of Union Cab’s mission is providing a living wage and a safe and democratic workplace for its worker owners. Despite significant business challenges, it does a good job of delivering on its mission. It may be the only cab company in the country that offers health insurance (and pays 60% of the premiums) for worker owners. 

Worker cooperatives are for profit businesses. They have to make money. But profits and shareholder returns, like in traditional businesses, are not the number one priority for worker cooperatives. There’s a deeper commitment on the part of worker cooperatives. A commitment to the worker owners, their families and the communities that they serve.

The following are the cooperative principles that provide guidelines for worker cooperatives and other forms of cooperatives:

1) Voluntary and open membership
2) Democratic member control
3) Member economic participation
4) Autonomy and independence
5) Education, training and education
6) Co-operation among cooperatives
7) Concern for community

For more information please check out the U.S. Federation of Worker Cooperatives’: Democracy at Work Institute. Again, it’s a matter of economic survival. These very significant economic challenges require bold alternatives/solutions and not just more of the same.

Good luck.

Fallacies Abound

It seems that every time a politician in Washington speaks about the deficit he or she is more than likely wrong and is spreading misinformation about it. This is especially true of President Obama. Don’t be surprised to hear a few fallacies tomorrow in the President’s speech on the deficit.

Here are just a few of the fallacies that have been heard in Washington:

• ‘We are running out of money.’
• ‘We are broke.’
• ‘Households and businesses are cutting back so should the federal government.’
• ‘Shared sacrifice’

Items 1, 2 and 3 are part of the biggest fallacy in economics (IMO). The fallacy is that the federal government is the same as a household or business. It’s way different.

Federal government is the monopoly issuer of a currency - U.S. dollar. We can only wish we had this authority. Imagine being able to buy whatever you wanted or give to whatever cause you wanted to give to because you had your own currency and it was accepted almost everywhere.

This means that as the monopoly issuer of currency federal government is not revenue constrained when it comes to running a deficit. It could run deficits for a long time - in fact it has. This also means that the federal government can never run out of the currency.

Households and businesses are USERS of the currency. So we are financially constrained. We can only use the money we have and of course borrow. But unlike the federal government, if we don’t pay that debt back we can go bankrupt. Federal government, as issuer, does not share the risk of bankruptcy or insolvency.

Again, the fact that the federal government is a monopoly issuer of a currency is a big deal. It means it can never go broke, or run out of money. As for the fallacy that it should cut back at the same time as households and businesses, imagine if back in 2009 the federal government decided that it was going to cut back at the same time that households and businesses were. What do you think would’ve happened with the economy? Hint: it would’ve been really ugly. 

This last fallacy would be funny if people were not actually economically impacted by thoughts behind it. This notion of ‘shared sacrifice’ is a complete fallacy - or more like a lie. We hear it constantly from politicians. How is it ‘shared sacrifice’ for someone on fixed income forced to live with less income and pay more in co-pays for medicare while someone making $300,000 per year or more only pays slightly higher taxes or in the case of the republican plan even lower taxes? How is it ‘shared sacrifice’ when one socio-economic group bears the brunt of unemployment and foreclosures and plummeting housing prices while another group receives a bailout and recovers nicely and gets a tax cut to boot?

Good luck.

 

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