Political Economics

There are many views about how to move the US out of our current economic recession. At their interesting Presidential Nominating Convention, held in Tampa last week,  the GOP restated its confidence in the natural business cycle - a nineteenth century idea which suggested that the normal economic cycle of boom and bust could be best controlled by reducing taxes which would allow more money to be spent in production and industry, thus increasing the money in circulation and causing business to flourish and more jobs to be created. A noble thought - and one which had some credence during the era of growth and development of manufacturing. Unfortunately, the US no longer leads the world in basic manufacturing. Our leadership is in advanced technology and finance - neither of which has very heavy short term employment fluctuation.  As a result of this change in our economy, there is more emphasis placed on the growth of small business - which mostly provides for direct consumer needs and is very sensitive to economic fluctuation. this part of the economy FOLLOWS the business cycle and is very difficult to stimulate directly; tax increase and decrease has little or no direct effect. If you want to stimulate small business, you have to somehow provide more of a demand for their services and products. If these small businesses are booming, they hire more employees - because they need them - because there is increased demand for their services and products. How do you increase the need for small business needs and products?  By direct input of money into the system so that more people can afford the products. How do you do that? By targeted government action - investing in the infrastructure; both physical (roads and bridges, etc) and cultural (teachers, police, firefighters, etc) with moderate increased taxation; or sadly, by developing a wartime economy - with very high taxes (in the name of necessity for survival) Of course this can be accomplished without increased taxation -just borrow the money (Sound familiar?) That's what the last several Republican administrations have done - now they want us to let them do it again, promising us that somehow the increasing deficit and debt will go away if they just lower taxes for everybody.

Class Warfare

Most Americans don't like to think or talk about our class system - when we do we tend to think of ourselves as "Middle Class", whatever that means. Actually our social class system is pretty well defined and fits generally into a four-six step structure:

Real Upper Class - The multi-generational Super Rich. This group - about one or two percent of the population - controls almost half the personal wealth of the nation.

Semi-upper, Upper Middle Class - The professional and business leaders. This group of those with advanced university degrees and solid job security make up about 20% of the population.

Middle Class - Upper working class - This group - many of whom have college training - make up middle management and skilled workers. This group was probably the largest social class group and has been hit hardest by the economic changes of the past decade, seeing its real income either stagnant or decreasing.

Working Class - Semi-skilled and industrial workers - Many members of this large group has seen their comfortable "middle-class" lifestyle disappear as the US has moved from an industrial to a technological world economy. Members of this group are mostly HS grads. Those who have individual skills or technical training in those areas of the economy that are growing (personal services, medical services, etc) are generally doing OK but have seen their real income decrease  in recent years.

Lower Class - the seldom - or chronically unemployed. This class - many of whom are minorities- have been hit hardest by the current "Great Recession" Many of them have taken two hits - no jobs and receding unemployment benefits.

This description of the existing American class structure is over-simplified and many sociologists have recently come up with their own alternative groupings, but all, or most of them, seem to be based on real family income, educational attainment, and group attitudes.

Historically, the rise of a large American middle Class seems to be tied to the New Deal politics which prevailed after the Great Depression of 1929- 47. This deliberate attempt to use government-financed programs to lift the Working Class and fading agricultural Classes into a more affluent Middle Class included the introduction of Social Security, federally financed mortgages [FHA], the National Labor Relations Act, The National Recovery Act, and ultimately the GI Bill educational benefits for veterans.

 All of these programs made real class mobility  possible, and despite the rather high income tax rates that accompanied them, led to an exceptional rise in real income for all social classes - including most notably  the Upper Class. As a result of those government-led programs, the US became the most powerful nation on Earth; helped of course by the destruction of Europe during World War II.  Curiously enough, US efforts to revive the world economies by distributing American tax monies (The Marshall Plan) to rebuild the world's economies further increased the US GNP and led to even greater prosperity.

The decline of the American "Middle Class "apparently began with the political shift away from government led economic programs starting with the "Reagan Revolution"in the 1980s. The idea that government was "…the problem not the solution…" in an age of  increasing world economic pressures and competition was a popular one  - if somewhat misguided. The collapse of the US middle class majority can be linked to that shift in government policy. Even though this concept has been prevalent for over thirty years, this has not stopped the government from increasing the federal debt and deficit several fold - mostly by lowering the income tax rates and thus reducing government income while at the same time greatly increasing government military spending. Payments on the debt this caused  has further decreased the limited amount available for social programs

  Attempts to lower this debt recently have led to further cutting of those federal benefits which many of the lower middle class depend upon and increasing the pressure on state and local governments. 

The housing/financial bubble collapse of 2008 led to a general world-wide financial collapse with the resulting economic ruin to the lives and hopes of many Americans in the "Middle Class".  The upper classes generally benefitted from this downturn. Their investments were soon either guaranteed by the government [the famous "Wall Street Bailout"or they were able to move financially into areas which were positively affected.

 The rich got richer and the poor got poorer - pretty quickly.

A general return to higher tax rates - especially for the upper income groups [That, after all, is where the money is] could allow the federal Government once again to lead the US into economic prosperity by enabling the federal Government to develop and encourage those policies which enabled US economic growth in the past. At the most basic level these policies should include massive investment in education, retraining, and infrastructure. These investments will inevitably lead to over-all economic growth . The increased taxed on the "Super-rich"will be a very good investment for them. Historically, in every case increased taxes have led to income increases for them far in excess to any taxes they paid.

What do we want from our government?

What do we want from our government?

A brief suggestion about how we can live happily ever after

The Federal, State, and local governments in the US share the responsibility for giving citizens those inalienable rights we hold so dear. We have given the government responsibilities in a number of expensive areas : 

Protection (Armed Services, Police, etc), 

Infrastructure (roads, utilities, Parks, government owned structures,  legal protection, etc), 

Health (Food & Drug Adm, Medicare, Medicaid, EMR, etc), 

Social programs (Social security, unemployment ins,) education in all its forms, foreign and domestic aid, etc)

Economic programs: (money supply & regulation, debt service, etc)

In all these areas the government actions are subject to political control and considerable public scrutiny.  The government is subject to public view more than any other social  or economic institutions.

 Despite constant cry about waste and bureaucracy, our government is actually pretty frugal and well-run. Most of its operating problems are probably the result of conflicting political control and demands. These sorts of problems are the result of our democratic legislative process and will always be with us.

  

  Government income comes from a small number of pretty well defined sources: Mostly Taxes.

The Federal Government collects income taxes in a rather complicated manner - mostly from withholding of part of salaries or other financial transactions, but it does depend upon voluntary filing and compliance. Other federal taxes include excise (on certain consumer products - everything from gas to tobacco) and tariffs on imported goods. State and local taxes are mostly income and  sales taxes, property taxes and excise taxes. 

  Another major source of income is the issuing of bonds - important to keep all levels of government going when expenditures exceed income and,  as the backup guarantee for savings and mortgage investments. The Debt Service (mostly interest on government bonds) mentioned above is an important government expenditure - how much it is depends on the confidence investors (bond buyers) have in the government.

  All governments try to balance their income and expenses. It is obvious that massive capital outlays - building and replacing infrastructure - unexpected catastrophic expenses, etc, cannot be pay-as-you-go - that's what the government debt (bond sales) are for. A frugal and economic government will not use its borrowing power to pay regular ongoing anticipated expenses. 

 A fairly simple solution to the current US deficit problem - which stretches from the Federal to  Local spending would be to decide which responsibilities we want the government to assume and then tax ourselves enough to pay for them.  Who gets taxed for how much is a political decision, but it seems to me that at the least we should go where the money is and tax the wealthiest in proportion to their wealth. A millionaire can afford a 40% income tax rate that would crush a factory worker trying to feed a family on the 2010 median income (approx $35000). Currently most millionaires pay less than 12% of their gross yearly income. Most corporations pay far less than individuals (In 2009, corporations paid approx $138 billion of over $2.1 trillion in income taxes collected.)

Obviously the current tax collection system has some loopholes.

Here are some of my suggestions:

 Determine what responsibilities we want the government to assume - those I have listed above are a much abbreviated list of the most essential.

  Determine the most efficient way to provide them consistent with our values. An example would be Medicare:           

  If it is made universal and for-profit insurance providers were removed from the programs, it would be cheaper and US citizens would pay a smaller percentage of their income for health care - as do most citizens of the world's developed nations.

 Generally removing private for-profit companies from basic government services should make those services more economical - if the services are administrated fairly and openly.  No citizen should be required to participate in offered services, but all citizens should be taxed to fund democratically decided government responsibilities.

Determine what amount of income the government needs to provide those services and responsibilities and tax everyone accordingly in the most fair and least hurtful manner. As a matter or principle, all citizens should pay some tax, however slight, as their civic responsibility.

The current political suggestions that we cut taxes and spending as a way of getting out from our current recession- generated  economic problems is precisely what Hoover and his administration tried in 1929-33, with disastrous results. To repeat the same solutions continually and expect different results is one definition of insanity.

The Fall of American Democracy

Historically, the rise of democracy, both in the US and around the world has led to a lessening of aristocratic political power. This does not mean that the upper classes have not tried to subvert democracy to their own ends. Probably in modern times, the high point of democracy in the US was that period of the New Deal through the first decade after WW2 (1932-55) This was the high point of union membership and most Americans were of like mind as far as their economic and social viewpoints were concerned. This was also a period of great prosperity for all classes despite the much higher top income brackets ( 0ver 80% for part of the time, never less than 60%. If the Bush tax cuts are renewed, the maximum bracket will remain 35% ). Even during that period a sizable part of the citizenry was denied basic civil rights in some states. The Civil Rights and "Hippy" movements marked the beginning of political polarization and the American individualistic basic values along with the marked economic boom led to a lessening of interest in unions and politics, allowing the politically focused upper classes to gain control of political parties which first acted in concert and now are violently opposed. The American "Tea Party" movement is basically that of disaffected middle class white americans who feel dispossessed of their political control. It has been fairly easy for wealthy TV demagogs and their even wealthier corporate backers to take control of the movement and steer it into supporting policies which will, if implemented, probably be directly opposed to the average TP member's interests (e.g. changes in Medicare and Social Security).

Health Care Debate

I've been watching the president's group meeting with Demo and GOP congressional leaders and find it about as I expected - a bunch of politicians taking the opportunity to spout sound bites.
The seem unable to come to grips with a few self-evident - to me at least - facts.

1. The US healthcare system is expensive for a number of reasons - our attitude toward healthcare, the fact that it's controlled by insurance companies, and the lack of effective oversight.
2. To start from the point of view of what's good national health care, instead of how can we reign in insurance costs is a better way to go.
3. Just about every other solution to this problem used by other countries is both cheaper and more satisfactory as far as results go.

A logical solution would be to develop a national healthcare system which covers everybody and for which everybody who can afford it pays.
Our current total expenditure on health care is over 2.5 Trillion dollars a year or about $8162 per capita. Canada, Germany, and the UK, who have the next most expensive systems each spend about half that amount per capita, yet we decry those systems as being unsatisfactory. Unlike the US, these countries have no loud political or popular demands that their systems be changed.
In the US, private insurance expenditures seems to be rising at a rate twice that of government (medicare).

A government managed program, paying private physicians (as in UK and Canada) and paid for through a tax increase would result in a substantial decrease in over-all healthcare expense. Medicare expenses are, for example much less per capita than private insurance (Medicare does not pay at the insurance rate which is inflated as the higher the payments, the more the private insurers make. he increased taxes should be a good deal less than the private health insurance premiums - for one thing, a single payer system would have a far larger pool to in which to spread the tax/pay-outs.

The question remains, will the American citizens like such a system? The seniors certainly seem to like Medicare - which is such a system.

Happy New Decade

Happy New Decade

I find myself in the rather strange position of looking at this one not as a beginning, rather as an ending.
I will be 80 in April, which rather limits my expectations about greeting 2020 - but you never know.
I've been blogging probably longer than you have - blogging certainly has changed - not always for the better - and I certainly have seen a world change - not always for the better. Unlike many of my generation, I am not particularly dissatisfied by the world that emerged from the twentieth century.
I really enjoy the opportunity to have a few friends I have never and will probably never meet. Their viewpoints and ideas are fascinating and certainly help color my own. Thanks, you guys.
A phenomena most young folks don't seem to understand is that many of us old farts don't think of ourselves as old and come up against our age-related disabilities with somewhat of a shock. Also many of us have a lot of trouble seeing the world through "new eyes" and worry that the world we grew up in and found comfortable no longer exists and isn't coming back.
I do not count myself among that group, rather I really like this Brave New World.
I would caution my younger readers that the "Age of Excess" is over. The world you grow up in will will be one where a lot more thought about expending energy, resources, and income will be necessary. I think "Living within your means" will be a lot more prevalent than the "Spend, Spend, Spend - uphold our way of living and our economy" ideas your parents grew up with.
As a child of the Great Depression, I find this changing attitude somewhat familiar and satisfying.

Happiness

Happiness is a repaired computer.
My long personal computing career has always been limited to Apples - my first was an Apple-II purchased in Feb. 1982 - I was by no means the "first on the block" but they were just becoming popular. That was followed by an Apple IIe and an Apple IIGS. I still have a software IIGS simulation program that lets you run apple-2 stuff on a Mac (not the new ones with the intel chip, however) I finally threw out boxes and boxes of 7.25" floppies a few years ago - some with the first "Basic" programs I ever wrote. I still have boxes and boxes of 400K & 800K 3.5" floppies if anyone wants them
I stuck with Apple IIs for about ten years, waiting until 1993 to get my first Mac - a color classic. A couple of years later I bought my last Desktop - A powerMac 7500 which I tinkered with and added to until I got my first laptop - a PowerBook G3 "Lombard" in 1999. It still works very well, thank you, even though the battery is shot.
Three years later I purchased a titanium PowerBook G4 which also is still running despite a broken hinge. That's the one I've been using since my latest - a MacBook Pro 17 - lost its internal HD.
This is the first catastrophic failure I've had that I couldn't fix myself - I'd actually replaced the HD in the Lombard - just took careful tinkering and tiny fingers - but fortunately there is an Apple re-seller - Guru in town who was able to remove the HD, strip out and save most of the data, and replace it with a faster, bigger one - all in less than 48 hours.
Unfortunately I had not backed up finances, photos, correspondence, etc since last June, so I was much relieved when he was able to retrieve most of the data. I'll back up more often in the future - I keep telling myself.