The Democratic Party is at a crossroads. In defeat–and the Democrat’s were resoundingly defeated in every branch and at every level of government in the 2016 elections–lies an opportunity for change. What type of Democratic Party will emerge? Will it be one defined by blind obstructionism, or one defined by pragmatism?
I do not believe blind obstructionism is in the best interest of the Democratic Party or the American people. It is simply not in the Democratic Party’s DNA. To stoop to the GOP’s level would be to cede the moral high-ground at the exact moment when any reasonable nonpartisan cannot help but realize just how different the two parties truly are. These are the swing voters the Democratic Party needs to attract.
This is not to say the Democratic Party should be anti-intellectual, or willfully ignore historic experience and scientific consensus–it should stick to its principles and have red-lines. If Trump’s first week in office is any indication, there will be plenty to oppose without being blindly obstructionist. By carefully picking its battles the Democratic Party will have more political capital and public support when there is a core issue it really must fight for.
Because of these beliefs, I have created two running lists that I will keep updating going forward:
Developing countries that invested in quality jobs from the early 2000s grew nearly one percentage point faster every year since 2007 and were better able to weather the economic crisis than comparable economies, according to a new report by the United Nations labour agency.
The annual report of the International Labour Organization (ILO), The World of Work 2014, focuses this year on the relationship between good jobs and national development through analysis of 140 developing and emerging nations.
“Decent work opportunities for women and men help trigger development and reduce poverty,” Guy Ryder, Director-General of the ILO,” said in a news release on the launch of the report, subtitled Developing with Jobs.
“Social protection, respect for core labour standards and policies that promote formal employment are also crucial for creating quality jobs that raise living standards, increase domestic consumption and drive overall growth,” he added.
“In view of the evidence, it is essential to make decent work a central goal in the post-2015 development agenda,” stressed Raymond Torres, Director of the ILO Research Department.
Quality jobs are an important tool for escaping poverty traps. In a recent post, I said that economics is always context sensitive; this does not mean, however, that certain things–such as quality jobs–are not important in all contexts. Whether in a rich or poor country, societies poorest are unable to escape poverty traps because they do not save–they either spend their entire income on survival or short-term luxuries to distract them from life’s problems. While “extreme poverty” (living on less than $1.25 /day, adjusted for purchasing power parity) is confined to the world’s least developed countries (LDCs), relative poverty exists everywhere. While the exact income level needed to escape a poverty trap (the inflection point on the graph above) is context sensitive, the general relationship holds in all contexts.
Underpinning the universality of relative poverty is the inverse relationship between marginal propensity to consume (MPC) and income; the lower ones income, the greater percentage of it they will consume. The flip side of this is low savings–the higher one’s MPC (ranging from 0-1), the lower one’s MPS (MPS + MPC = 1). This inability to save perpetuates a vicious cycle of low productivity, low wages, and low savings resulting in inadequate investment in “human capital” (education, healthcare, etc), which is what causes the low level of productivity in the first place–a poverty trap. While different income groups in different countries have different levels of MPC/S, this general relationship between income, consumption, savings, investment and poverty holds in all contexts.
The U.N. report cited at the beginning of this post focuses on quality job creation in developing countries; I would like to shift the focus to America’s political economy. No politician, particularly in a democracy, would ever say they are opposed to creating quality jobs. Therefore, we must assess the different ideological / policy approaches to quality job creation, in order to determine which approach is most likely to succeed:
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Liberals:
Invest in human capital, particularly needs-based investment (which, due to low levels of income / savings, these people cannot afford themselves) to boost worker productivity, physical capital (infrastructure projects), and growth markets (such as renewable energy) to boost economic output and create jobs in a depressed economy (counter-cyclical fiscal policy).
Raise the minimum wage and support collective bargaining (unionization) to increase take home pay for “blue collar” workers.
Reduce taxes and regulations as much as possible (starve the “beast”). Rely on private actors, market forces, and trickle-down economics to result in the optimal allocation of resources.
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Conservatives will point to a low unemployment rate (currently 6.3%) to prove that additional stimulus spending is not needed. Liberals will counter with evidence of wage stagnation and “working poor” to argue that greater labor market intervention is needed. The question then becomes, what is a quality job? Is it simply having a job, or is a minimum salary (perhaps that inflection point) needed? Further clouding the issue is the apparent disconnect between productivity and wages, implying that simply training low wage workers–the typical remedy for escaping “poverty traps”–may be insufficient to create “quality jobs” (and hence the growing minimum wage movement).
History has resoundingly and repeatedly debunked the concept of “trickle down economics” yet it keeps coming up in mainstream political economy discussions–something Paul Krugman would call a “Zombie Idea”. The reason this “zombie idea” persists is relatively straightforward–vested interests with large levels of wealth perpetuate this view through the mainstream media. They state any additional costs (taxes, regulations, wage increases) will cause massive job loss despite record high corporate profits (after taxes) and stock values , and (relatedly) historically low corporate income tax rates.
I leave my readers with this question; which plan to create quality jobs sounds more likely to work to you? Take that answer to the voting booth with you during the 2014 midterm elections, because quality jobs are the key to sustainable human development, economic growth, and social cohesion.
When you ask an American about the future risks facing their country, the answer you get will likely vary depending on political affiliation. Those who lean left (“liberals”) will likely mention climate change, while those who lean right (“conservatives”) will likely mention social spending / national debt. (According to a recent Gallup poll, peoples views also tend to align based on age; understandably older respondents care more about economic growth, while younger respondents favor environmental concerns):
According to Pew Research Center surveys conducted last year, 25 percent of self-identified Republicans said they considered global climate change to be “a major threat.” The only countries with such low levels of climate concern are Egypt, where 16 percent of respondents called climate change a major threat, and Pakistan, where 15 percent did.
By comparison, 65 percent of Democrats in the United States gave that answer, putting them in the same range as Brazilians (76 percent), Japanese (72 percent), Chileans (68 percent) or Italians and Spaniards (64 percent). If you combine Democrats and independents into one group, 52 percent called climate change a major threat, according to Pew. That’s the same broad range of concern as in Germany (56 percent), Canada and France (54 percent), Australia (52 percent) or Britain (48 percent).
Over all, between 40 percent and 45 percent of Americans in recent Pew polls have called climate change a major concern (with a similar share of independents giving that answer).
The Republican skepticism about climate change extends across the party, though it’s strongest among those who consider themselves part of the Tea Party. Ten percent of those aligned with the Tea Party called climate change a major threat, compared with 35 percent of Republicans who did not identify with the Tea Party.
According to those most concerned about climate change, continued inaction will lead to multiple catastrophes: coastal flooding, ecosystem / food-system disruption, air and water quality degradation, and an increase in extreme weather events to name a few. “How could we leave such a future to our children?”, they ask.
According to those most concerned about economic issues, continued fiscal irresponsibility will also lead to a plethora of adverse consequences: rising interest rates, [hyper]inflation, and ballooning national debt (never-mind that these two consequences are incompatible, as inflation erodes debt). The Government will be unable to pay for future public programs, contributing to the general “decline” of American. “Forget that ‘global warming’ conspiracy, how can we leave thisfuture to our children?” they counter.
Both sides paint dire pictures that are entirely separate from one another. Both arguments appeal to “the children!!” to augment their political beliefs. So which argument holds more merit? Well lets look at the facts:
It’s been an extraordinary six weeks for climate scientists. Any lingering doubts about the immediacy of climate impacts on the lives of Americans are now permanently laid to rest, thanks to four extensive reports from thousands of scientists.
It began with a straight-talking, no-nonsense report called “What We Know” from the world’s largest general science organization (AAAS) earlier this spring that laid out in clear detail why the entire scientific community no longer has any doubts whatsoever about the nature and extent of the climate risk to our economy and communities.
Weeks later, the second and third of successive reports from different arms of the Intergovernmental Panel on Climate Change (IPCC) issued separate, detailed reports on the current science around climate change impacts in the world, and the potential costs to society and the economy right now if we don’t change our energy patterns.
And then this week, a report written by hundreds of American scientists culminated this six-week run of world-class, peer-reviewed science reports with the congressionally-mandated National Climate Assessment that laid climate impacts literally at the doorsteps and window panes of most Americans.
Climate change isn’t a computer model, a fuzzy prediction, a cute picture of polar bears on shrinking icebergs, or some far-off, distant threat that people who aren’t born yet will have to deal with. It’s here, now – and it’s disrupting our lives.
It’s affecting food prices through extended droughts and flooding basements in extreme rainfall events – the types of dry and wet extremes that scientists have been telling us for years would be part of a changing world. Now we can see these things with our own eyes, out our own windows.
The scientific consensus is that climate change is real, it is man made, and the adverse effects–while more pronounced in the future–are already beginning to occur.
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National Debt:
There are two sides to national debt, revenues (taxes) and expenditures (government spending). Whenever expenditures exceed revenues, the government must either take money from its surplus (which we do not currently have), or issue new debt to finance its spending. Every dollar of debt has an interest rate attached to it, the government’s borrowing cost.
With large annual deficits, an increase in interest rates on bonds would indeed cause a great increase in government debt. However, the fiscal responsibility doomsday theorists have been proved wrong:
In what sense did economics work well? Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy.And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment.
For example, many seemingly knowledgeable people — bankers, business leaders, public officials — warned that budget deficits would lead to soaring interest rates and inflation. But economists knew that such warnings, which might have made sense under normal conditions, were way off base under the conditions we actually faced. Sure enough, interest and inflation rates stayed low.
And the diagnosis of our troubles as stemming from inadequate demand had clear policy implications: as long as lack of demand was the problem, we would be living in a world in which the usual rules didn’t apply. In particular, this was no time to worry about budget deficits and cut spending, which would only deepen the depression…We needed more government spending, not less, to fill the hole left by inadequate private demand…Since 2010, we’ve seen a sharp decline in discretionary spendingand an unprecedented decline in budget deficits, and the result has been anemic growth and long-term unemployment on a scale not seen since the 1930s.
To be sure, eventually interest rates will increase and deflationary pressures will subside–the economy will emerge from it’s “liquidity trap“. Here’s the good news,emergence from the liquidity trap corresponds with near full employment (not zero unemployment, but the “natural” rate of unemployment). Interest rates and inflation will not rise until the economy is in much better shape, meaning increased interest costs will be at least partially offset by a decline in “automatic stabilizer” spending (spending on poverty reduction programs–SNAP, unemployment insurance, etc.–which increase automatically during economic downturns).
Factoring for automatic stabilizers, Krugman’s analysis shows that we are barely running a primary deficit at all. True we should not leave past debt for future generations, but we should also not under-invest in current generations / pursue wrong-minded economic policies because of past policy follies. When you invoke the specter of “the children!!, consider current generations of children and young adults who have been seen their futures compromised / delayed due to political failures.
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Going Forward:
On one hand, the risks associated with inaction on climate change are real and rising. On the other hand, the risks associated with high levels of national debt have proven overblown and are partially self-correcting. That is not to say there are long-term drivers of debt which must be addressed in order to reign in long term fiscal deficits. But the U.S. Government has the benefit of being a reserve currency and a “safe haven” for investment–both factors pushing down the interest rate our government pays to borrow money. We can pay down our debts responsibly and counter-cyclically, when the economy recovers.
The common perpetrator in both these future risks–national debt and environmental degradation–are corporate interests and the politicians that enable them. Consider these historic tables of government tax revenues by source (pg. 34-35). Personal income tax contributions have been fairy stable, while corporate income taxes have decreases drastically over the past decades.
The greatest threat to our Nation’s future is not public / social spending, it is our continued inability to pursue comprehensive tax reform (including carbon taxation).
Corporate profits are at an all time high; perhaps big corporations do not need a healthy domestic economy to prosper in a globalized world. But people, as ever, still need to have their basic needs met. It is up to our leaders to ensure these corporations, which benefit from every element of public spending (infrastructure, technological innovation via public R & D, a skilled workforce), pay their fare share towards financing necessary government expenses.
Please turn out and vote in the 2014 midterm elections. Regardless of your political affiliation, demand bipartisan Congressmen with a history of not being beholden to corporate interests. Despite pervasive cynicism, we the people still hold the power in this country.
At its winter meeting in Washington, the RNC approved by voice vote a resolution in favor of abolishing the 2010 Foreign Account Tax Compliance Act (FATCA), set to take effect in July, marking the party’s first explicit attack on the law.
FATCA will require most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more. The law was enacted after a scandal involving Americans hiding assets in Swiss bank accounts to dodge U.S. taxes.
Critics have blasted the law as an unfair government overreach and invasion of financial privacy.
“The Republican National Committee … urges the U.S. Congress to repeal FATCA,” said the measure, staking out a campaign position ahead of 2014’s mid-term elections.
Tax watchdog groups that support FATCA slammed the Republican vote. “It is mind-boggling that a major political party would even consider endorsing a resolution to facilitate tax evasion,” said Heather Lowe, director of government affairs at anti-graft watchdog group Global Financial Integrity.
“Repealing the law would cripple the U.S. and global efforts to fight offshore tax evasion,” she said in a statement.
The Center for Freedom and Prosperity, a group that advocates for lower taxes and financial privacy, praised the RNC vote. “The GOP’s adoption of FATCA repeal to its platform is a major victory for taxpayer privacy rights,” said the center’s Director of Government Affairs Brian Garst.
Repeal is unlikely and the issue was not expected to resonate with average U.S. voters, said lobbyists on both ends of the political spectrum. But they said Republican opposition to the law could help the party raise campaign funds.
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It is certainly mind-boggling that a major political party would endorse such a view. And even if a repeal is unlikely, this issue should “resonate with the average U.S. voter”. In an era of constant budget-battling and debt-ceiling standoffs (the next one is right around the corner), where stimulus spending is unthinkable and welfare programs are constantly coming under attack (even though both are extremely important during an economic recovery), it is important for Americans to understand the main drivers of U.S. government debt. Once you understand these main drivers, it is obvious why this G.O.P. position on FATCA is unconscionable.
A quick simplified lesson: There are two sides to government debt, receipts (tax revenue) and outlays (spending). While there are certain drivers of long-term spending which must be reformed (social security, and medicaid, and defense spending specifically), these long term issues have little to do with economic recovery fiscal policies (government stimulus spending and “automatic stabilizers“).
RECEIPTS, OUTLAYS, SURPLUS/DEFICIT(–)% GDP | PERCENTAGE COMPOSITION——————————————————————| OF RECEIPTS BY SOURCE
Year
GDP (in billions of dollars)
Total
Individual Income Taxes
Corporation Income Taxes
Receipts
Outlays
Surplus or Deficit (-)
1992
6,242.0
17.5
22.1
-4.7
43.6
9.2
1993
6,587.3
17.5
21.4
-3.9
44.2
10.2
1994
6,976.6
18.0
21.0
-2.9
43.1
11.2
1995
7,341.1
18.4
20.6
-2.2
43.7
11.6
1996
7,718.3
18.8
20.2
-1.4
45.2
11.8
1997
8,211.7
19.2
19.5
-0.3
46.7
11.5
1998
8,663.0
19.9
19.1
0.8
48.1
11.0
1999
9,208.4
19.8
18.5
1.4
48.1
10.1
2000
9,821.0
20.6
18.2
2.4
49.6
10.2
2001
10,225.3
19.5
18.2
1.3
49.9
7.6
2002
10,543.9
17.6
19.1
-1.5
46.3
8.0
2003
10,980.2
16.2
19.7
-3.4
44.5
7.4
2004
11,676.0
16.1
19.6
-3.5
43.0
10.1
2005
12,428.6
17.3
19.9
-2.6
43.1
12.9
2006
13,206.5
18.2
20.1
-1.9
43.4
14.7
2007
13,861.4
18.5
19.7
-1.2
45.3
14.4
2008
14,334.4
17.6
20.8
-3.2
45.4
12.1
2009
13,960.7
15.1
25.2
-10.1
43.5
6.6
2010
14,348.4
15.1
24.1
-9.0
41.5
8.9
2011
14,929.4
15.4
24.1
-8.7
47.4
7.9
2012
15,547.4
15.8
22.8
-7.0
46.2
9.9
2013 estimate
16,202.7
16.7
22.7
-6.0
45.5
10.6
Government expenditures will go down when we experience full economic recovery (and not just a recovery for the top 1%)–that’s why welfare programs are known as “automatic stabilizers”. What will not automatically change are tax receipts, which are at their lowest levels since 1950. The American public has been paying a fairly constant portion of total federal taxes over the past 6 decades through income taxes–between 40-50%. Corporate taxes have fluctuated wildly; between 1940 and 1967 they made up 20-30% of federal tax revenue, since 1980 they have hovered around 10%.
The American public continues to pay its fair share, while corporations get a pass (and actually get huge bailouts and subsidies). America, in reality, has a regressive tax system. This low effective corporate tax rate stems largely from tax loopholes; a difficult problem to address rooted in corporate lobbying (money buys influence buys loopholes). Overcoming this problem will take an overhaul of the government tax code and a change in the current lobbying system, neither of which is an easy task.
Much less contentious should be targeting offshore cash holdings. While loopholes at least (allegedly) contribute to job creation, offshore tax evasion is a crime which robs the U.S. of vital tax revenues with no benefit to society. But even this “slam-dunk” reform is being challenged by the G.O.P.
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Privacy Narrative:
I thought it was interesting that the Center for Freedom and Prosperity, a conservative think-tank, used the privacy narrative to justify the G.O.P. stance on FACTA. This reminded me how Matt Taibbi, in his book “Griftopia”, explains how the wealthy sell financial sector deregulation to the lay-man.
According to Taibbi, financial regulation is equated to local / state level government regulation–the average person, who experiences government overreach in their day-to-day lives, feels for the “poor banker trying to earn a buck”. Of course this equation is false; however, many people do not know enough about our political system to understand this fallacy, especially when their favorite news outlets are driving this false narrative home.
It seems that something similar is being attempted with this privacy narrative. One of the main issues of the day is NSA “spying”. Perhaps conservatives are trying to latch onto this privacy narrative to drum up popular support for repealing FACTA. I think this is a tougher sell, although financial deregulation sounded like an impossible sell until pundits begin selling it. It is therefore important to expose this fallacy to the general public before the narrative hits the newsroom.
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Next time you hear an argument about “fiscal responsibility”, remember the G.O.P is the party of offshore tax evasion. Social spending programs and the tax code need to be overhauled; these issues will take time to remedy and must be addressed with care, they cannot be attached to short term issues like economic recovery or the debt ceiling.
Enabling offshore tax evasion by repealing FACTA benefits nobody except those who engage in offshore tax evasion–this should not be a contentious issue. Those who engage in such activities do not deserve our understanding or support, regardless of your stance on NSA surveillance.
I took particular interest in a recent Politifact article highlighting House Speaker John Boehner’s assessment that “There’s no plan from Senate Democrats or the White House to replace the sequester.” This statement should not seem right to anybody who follows politics, the news, or simply has not been living under a rock for the past few months (years?). Have the democrats really dropped the ball, or is this more political jockeying by the Do-Nothing GOP? Unsurprisingly, it is the latter. The President and Senate democrats have proposed plans, just not the plans their opponents agree on. Politifact gave Boehner’s comment its worst possible rating “Pants on Fire”.
Democrats, both in the White House and Capitol Hill, have proposed alternatives to the sequester that involve cutting bloated programs and closing tax loopholes to raise revenue. The “Sequester”, as most know by now, cuts programs indiscriminately of their importance to overall economic and social security and without taking into consideration whether the program runs efficiently or not. This undesirable result was meant to be undesirable in the hopes of forcing congress into passing a more acceptable deal. Unfortunately, Congress was unable to envision its own incompetence, and the sequester became fiscal policy starting last Friday.
But how could Boehner openly deny Democrats having offered alternative plans, when they clearly have (you can go on the White House website and “click a prominent button that says “SEE THE PLAN.” It leads to a page titled “A Balanced Plan to Avert the Sequester and Reduce the Deficit.”?”)
The answer given by Boehner’s representative would be comical, if it did not represent such a high ranking U.S. government official:
“A plan must demonstrate it has the ability to pass a chamber of Congress to be worth anything. We’ve twice passed a plan. We’re still waiting for the Senate to pass something, anything,” Buck told PolitiFact in an email.”
So the Do-Nothing-GOP has decided the democrats have not offered an alternative plan because they have made it their party’s goal to strike down any plan the Democrats offer. This sounds more like self-fulfilling economic suicide than two sides working towards an agreement that will work for the American people.
“’Republicans want tax reform. We want to bring rates down for all Americans so that we’ve got a fairer tax code,’ Mr. Boehner said. ‘But to arbitrarily pull out a couple of tax expenditures and to say, ‘Well, we ought to use that to get rid of the sequester.’ Listen, every American knows Washington has a spending problem.’”
Does the U.S. really have a spending problem, or do we have a revenue problem? Let’s take a look at the numbers:
The blue line represents Federal government receipts (revenue), the red line represents Federal government outlays (spending). A number of interesting takeaways from this graph:
1) The U.S. was running a budget surplus until Bush gave that surplus away in the form of tax breaks (notice the blue line sharply going down around 2000) and spending on the “war on terror” (notice how the red line goes up when around the same time period).
2) Federal government receipts are at their lowest point since the 1960s. This is partially due to Bush Era tax cuts (which have expired for the wealthiest Americans thanks to “Fiscal Cliff” negotiations, which is probably what the current small uptick represents) and partially due to exploitation of tax loopholes (and other forms of tax evasion, such as moving profits abroad).
Government spending is supposed to rise during a recession, the only reason this is a problem is because the surplus secured under President Clinton was squandered during a period of economic prosperity by President Bush. Instead of pursuing counter-cyclical fiscal policy, (save up during the good times to spend during the bad times) Bush did the opposite.Therefore, we have had to rely on deficit spending instead of spending out of a “rainy day fund”. While not exact science, if government receipts had stayed at Clinton-era levels, it appears our deficit would be about half of what it currently is (around 40% of GDP instead of 80%).
In an ideal world, we would be able to pass another stimulus program to jump-start the economy and reduce unemployment. As interest rates remain low, the government could worry about paying back this deficit once the economy is producing at its full potential. The deficit is a manufactured problem, a legacy of “starve-the-beast” fiscal policy championed by the GOP. The problem is that starve-the-beast does not work, you can reduce the amount of resources the government has, but you cannot reduce the programs people rely on to survive (especially not during times of high unemployment). What you get instead is a large government deficit.
A balanced approach to deficit reduction would be reasonable during healthy economic times. In the current economic climate, however, the red line will continue to come down on its own as the economy recovers and less people rely on entitlement programs. The blue line is the one that requires government action.
“He had written a piece suggesting that if only Republicans knew how much Obama has been willing to offer, they might be willing to make a deal. Jonathan Chait set him straight, informing him that no matter what Obama put on the table, Republicans would find a way to say that it’s not enough. And sure enough, a Twitter exchange lets Klein watch that process in real time, as a top Republican consultant, confronted with evidence that Obama has already conceded what he said was all that was needed, keeps adding more demands.
So Klein admits that Republicans just don’t want to make a deal. Their objections to the deals on the table aren’t sincere; if convinced that Obama has met their demands, they just make more demands.”
The GOP has no interest in getting a deal done if that deal involves raising revenues. This is an absurd position, as government revenue is at its lowest point in decades. A balanced approach to avoiding the “Sequester” is not what the doctor ordered; fiscal stimulus and greater government revenue is the optimal fiscal policy for the American public. But the idea that we have a spending problem, and not a revenue problem, is wrong. A balanced approach is still better than the alternative, but the GOP is refusing to consider even a balanced plan to end the Sequester.
By refusing to consider any deal increasing revenue, the GOP has doubled down on its “Do-Nothing” approach to governance, to the detriment of the American people and American economy. The GOP manufactured this deficit with “starve-the-beast” fiscal policy, now it is manufacturing a need to reform entitlement programs NOW (these are long term issues, while the Sequester and stubbornly high unemployment are immediate problems that are not being addressed).
The GOP is the party of the 1%. and the 1% are not being hurt as badly as the rest of us by the Sequester, so why should the GOP budge if it’s constituents are happy? Hopefully in 2014 the GOP receives 1% of the seats in Congress; representation based on those it truly serves. It has become clear that the Democrats need a complete majority in the Federal government if there is any hope of reversing the high unemployment and inequality and low levels of social mobility that have come to define contemporary America.
Normative Narratives 