Jonathan Schell at The Nation gets at something essential, something glaringly missing, from Obama’s State of the Union Speech on Tuesday:
It’s true that the United States educational system is measurably slipping. It’s also true that the country’s infrastructure has decayed badly. And yes, the United States would benefit from whatever technical innovation it can bring off, just as any country would. But none of those problems, needful of attention as they are in their own right, is the chief cause of the United States’s economic doldrums—its stubborn high unemployment, its persisting housing bust, its galloping economic inequality. These were the fruit of an economic crash brought on by a misguided, corrupt, incompetent, larcenous, unregulated financial establishment. The relevant remedies are not better technology or some contemporary equivalent of sending a man to the moon. (In any case, although Obama insisted “We do big things,” he didn’t offer one.) The remedies needed are a re-regulation and reconstruction of the financial system, plus a major, Keynesian style stimulus program to create jobs and purchasing power, and so to jar the economy out of its stupor. But none of that was in Obama’s speech. On the contrary, his proposal to freeze spending for five years threatened more economic stagnation.
The basic cause of the American economic predicament is that purchasing power (that is, the inflation-adjusted paychecks ordinary workers get) has not appreciably increased in over 30 years. People not making enough money to keep the economy growing means the economy can’t grow.
Actually, not quite true.
The economy can still grow, but since wages aren’t increasing (except for a few people at the top, who, precisely because there aren’t very many of them, can’t make up for the shortfall in consumer spending) the only recourse for consumers is buying things on credit cards – i.e., growth financed through debt. This is exactly what we’ve seen in the years since the median wage stopped growing:
The thing is, financing economic growth by increasing personal indebtedness is literally not sustainable, because eventually, the credit cards are maxed out, and then everyone needs to pay down their debts before they can begin spending again. While this is happening, the economy shrinks, since people are not spending on anything except essentials. This results in layoffs, which means some people can no longer keep up their debt payments, which results in bankruptcies, which results in the banks who are owed that money raising interest rates to cover the increased risk, which results in more bankruptcies, which means more trouble for banks, etc.
Eventually, confidence in the entire system begins to erode, which leads to a general panic and the entire financial system grinding to a halt.
See October 1929 and September 2008 for an idea of what that looks and feels like.
It’s an experience that it is best to avoid, if at all possible. In fact, I think it would be a good idea to come up with policies designed to prevent that situation from ever happening again.
Growth through debt leads eventually to systemic crisis – we know this.
Growth from rising incomes leads to sustainable and widely-shared prosperity – we know this.
If two things happen, the United States would be poised for its greatest economic upsurge in history.
Thing Number One: Debt needs to be paid down, and the acquisition of new debt needs to be discouraged.
I propose that there is a one-time, 20% federal tax on all financial assets over $2 million – assets in IRA’s and 401(k) plans would be exempt, provided the particular accounts were held on, say, September 15, 2008 (this would prevent using retirement accounts as an anticipatory shelter.) Yes, the stock and bond markets would take a hit; can’t be helped, and the stock market is way over-valued anyway, by historical standards. The stock market should be there to finance capital investment, not to enrich Wall Street greedheads.
Such a tax would generate revenues sufficient to pay off the entire national debt owed by the United States government – and also enough to both balance this year’s budget, and to send every taxpayer a check for $20,000. Tell them: “This is YOUR bailout.”
THAT should be sufficient to get things moving in a big way.
There should also be a new regulation making it a crime to offer credit to someone whose personal debt is more than, say, 20% if his or her annual income.
Thing Number Two: Going forward, the aim of economic policy should be to get the real median wage growing on a consistent basis.
How? Here are some basic, proven ideas.
1. Give workers a bigger voice in how profits are distributed. A great way to do that is by encouraging union membership. Let me put this bluntly: the government ought to do everything it can to encourage unionization across all economic sectors. A good start would be repealing the Taft-Hartley act, and passing the Employee Free Choice Act.
2. Use the tax system to discourage out-sized payouts for corporate executives and banksters. Restore the tax brackets (adjusted for inflation) to what they were in 1955. Top marginal tax rate: 91.5 percent.
This will discourage the obscene paychecks Our Reptilian Corporate Masters currently award themselves, and encourage them (through deductions) to do economically beneficial things with the money.
3. Re-regulate the financial sector. Restore and strengthen the Glass–Steagall Act. Break up the big banks to the point that the insolvency of one won’t threaten the economy. (While I’m at it: impose a retro-active tax of 100% on all non-salary compensation of every executive of every financial institution that received federal bailout money. It might not prevail in the ensuing litigation, but it would be fun to watch them squirm. I mean, screw these people.)
All this would, of course, cause keening howls of outrage and pain on Wall Street and the executive suites of America’s corporate headquarters, and confusion and alarm amongst the Wall Street Fetishists on CNBC. There isn’t a violin small enough.