Or, conventional wisdom kills.
The economic truisms we live and breathe with every day aren’t challenged, yet they direct policy. Are they true? Do they work? Did they work in the past?
In Jeff Madrick’s article in Harper’s Magazine, “Revised History” the author makes it clear that the victor writes the history books. For the rest of us, we must seek out a factual, provable explanation begging to be offered.
Unfortunately, “conventional wisdom” crowds out the marketplace of ideas. As the great economic theorist and author of The Great Crash of 1929, John Kenneth Galbraith, said about the myths that whitewash counterfactual arguments, “The conventional view serves to protect us from the painful job of thinking.”
One accepted myth is that the reason for America’s prosperity is small government, widespread education and technology. Madrick:
The first [myth] might be that America owed its rapid economic growth in the 19th century to the small size of its federal government. This widely accepted narrative neglects the many regulatory and legal reforms that went into effect in those years, reforms guaranteeing fair competition in business and the right of ordinary people to buy land.The conservative message that went mainstream is that the double-digit inflation of the 1970s was due to the Fed pumping too much cheap currency in the money supply, therefore lenders demanded higher rates which in turn led to the slippery slope of inflation. Madrick offers Alan Binder’s exhaustive study of the cause of 1970s inflation as a counterfactual. Binder was no slouch. He had been Fed vice chairman:
The myth also ignores state-financed investments in canals and railroads; the development of free primary (and later, high school) education paid for with taxes; and the building of sewers and water-sanitation systems in cities, which controlled disease. It overlooks high tariffs, imposed by the federal government, that spurred the development of manufacturing.
This is not to mention the economic benefits of slave labor (hardly a laissez-faire arrangement), which required government enforcement. For good or ill, intervention by the state into economic life was a reality of the time.
Two years’s worth of major crop failures led to soaring food prices and the Arab nations’ oil-price hike, which quadrupled artificially low prices of approximately $3 a barrel to $12 a barrel by 1974.Yet the most unshakeable myth is that tax cuts and deregulation grow an economy. We watch as income inequality grows and jobs grow fewer and pay much less. We saw how deregulation gave the financial sector a chance to gamble away all our wealth and after they bankrupted themselves, they were punished with government transfusions of bailout money.
Now we are treated to a new myth, that austerity cures budge deficits. If anyone is paying attention to austerity measures in Europe, budget deficits are getting larger, not smaller, because economy activity has trickled to a puddle. In America we are seriously talking about closing off social insurance that everyone pays into until a person is 70. A laid-off person aged 45 is having a tough time convincing an employer he/she is able to do the work well at his/her advanced age. What are the unemployed 45-70 going to do to survive if they can’t get a job?
A simpler and more equitable way to raise funds for social security is to eliminate the social security cap. Social security taxes are capped at $110,000. A person earning $110,000,000 pays exactly the same amount of social security taxes as a person making $110,000. Take away that man-made division and the social security insurance program will be in the black for years to come. Raise the capital gains tax. Put the wealth to work for the good of the country and the individual. These are all painless methods of closing the deficit: shared sacrifice.
Opinion makers are also suggesting we turn Medicare, with its 2% administrative fees, into a voucher program administered through private insurance companies with their average 20% of administrative costs. Not even taking into account how many people will sicken and die under such a limited amount for necessary care, perhaps we can root out more Medicare fraud. That’s the purpose of government regulation. To balance the budget and keep some of our frayed safety net tied together.
The implacable assertions of “my way or the highway” make it impossible to reintroduce the practices of John Maynard Keynes.
Keynes theory simplified, is thus: when demand is low and there are no private buyers, let the government be the buyer of last resort. When demand is high then private and/or public enterprise becomes the buyers of last resort. When the economy is bad, when there is too much supply and too little demand, people are laid off, they have no money to spend on goods and services, businesses suffer and lay off more of their employees, and on and on in an endless loop. Tax revenues dwindle.
The government has the heft, reach and resources to do things on a nationwide level. It can deal with large, detailed problems, develop solutions, innovations and implementation. Some examples: The Space Program, the Interstate Highway System, Hoover Dam and many others. One shining Keynesian model is The Tennessee Valley Authority (TVA), a federally chartered corporation that provided navigation, flood control, electricity generation, fertilizer manufacturing and economic development for an area that had been particularly hard hit by the Depression. The unemployed got jobs and they built the solid technological infrastructure that’s still working today.
There are many more examples of how government does and should play a central part in the economic heartbeat of America. All this double-talk about austerity is simply the demand for money redistribution, only not progressively. The redistribution flows upward, from the working poor to the beleaguered middle class into the pockets of the 1%. The top 1% has seen its wealth increase considerably even since the 2008 economic collapse whereas the rest have seen their wages stagnant or even halve.
This is not trickle down, this is trickle up.
The sticking point: what can we the people do about such inequity?