Wednesday, October 14, 2015

Deficits, the Laffer Curve, and Jeb's 'Deja Voodoo'

There was a time when Republicans were known as the frugal party that obsessed over deficits and balanced budgets. As the sociologist Mark Mizruchi writes, in his outstanding historical study of the corporate elite during what he believes was the period of corporate moderation and pragmatism from the post-WWII period into the 1960s, “The interesting feature here is the groups willingness to acknowledge that spending cuts could not be viewed as the sole solution to the deficit without at least some level of tax increase…this contrasts with the American business community of the post-2000 period, which has been unwilling to even raise the possibility of a tax increase, despite a deficit far greater in magnitude than that experienced during the 1960s.”

But one can pre-date the shift in ideology back to the 1980s when Reagan proposed sharp tax cuts for the rich. These proposed tax cuts posed a serious dilemma for Republicans who, on the one hand, loved low taxes, particularly in the upper brackets and on corporate profits but, on the other hand, were concerned with deficits.  At that time there was recognition of the positive relationship between tax rates and tax revenue (the laft-hand half of the curve below).

The Laffer (laugher?) curve, presumably originally drafted on a cocktail napkin, was designed to show that the Republicans could have their cake and eat it too. The purely hypothetical curve showed how lower tax rates could actually increase revenue on the assumption that it would stimulate such an outburst of new investment that the resulting increase in growth, and the taxes that this growth would yield, would more than compensate for the lower tax rates.  This was famously described by GHW Bush as “voodoo economics.” But it today remains the foundation for the logic of supply-side economics and the trickle-down/rising-tide-lifts-all-boats fraud.

Every time it has been tried, during the Reagan years, during the GW Bush years, and most recently by Governor Brownback in Kansas, it has produced exactly what one would logically expect – massive budget deficits.

This brings us to Presidential candidate Bush III (aka Jeb!). He has recently proposed a tax plan that is nothing more than warmed over supply-side doctrine with lower tax rates for the top bracket and corporations as the presumed solution to slow growth.  In an interview, Jeb was told that economists, who had evaluated his tax plan, predicted a loss of revenue into the trillions. In response, Jeb simply parroted the bankrupt and empirically unsubstantiated supply side mantra based on the Laffer Curve :
“Lower taxes will create a renaissance of investment in our country…the dynamic effect of growth will create far more revenue than any of the exotic tax plans that are being proposed by the left…the dynamic effect of tax policy creates economic growth that narrows the deficit.”

Yes -- in the words of the economist Robert Kuttner --  another case of deja voodoo!

Thursday, October 1, 2015

Class Warfare Florida Style

Florida Governor Rick Scott, and the state’s economic development arm, Enterprise Florida, recently teamed up to promote Florida’s business climate to Kentucky businesses. In a radio ad, they asked Kentuckians if they were tired of unions and high taxes, and touted Florida as a place that has neither “as a right-to-work state, with no income tax”. While Scott and his corporate functionaries tout these as state assets, they are actually liabilities for the majority of Floridians.

 Starting with the so-called “right-to-work” law; it is a less than transparent, but highly effective, vehicle for weakening the ability of workers to organize, collectively bargain, and negotiate with their employers over conditions of work. It prohibits mandatory union membership and the collection of union dues from workers represented by a union that collectively bargains on their behalf and is responsible for the wages, fringe benefits, and working conditions enjoyed by all employees. Under this law, workers are able to enjoy the benefits that derive from a union workplace without joining the union and paying union dues.

In order to appreciate the implications of such a law, consider an equivalent type of organization – the homeowners association. The right-to-work law would be equivalent to allowing residents who move into a neighborhood the freedom to opt out of paying annual homeowner association fees. While all residents would benefit from the amenities and community upkeep that enhances their property values, they would be free to choose not to pay the annual levy. This would obviously undermine the viability of neighborhood associations and their ability to finance the costs of maintaining common community space. 

And please don’t be confused by the manipulative name of the law or the rhetoric. It is a piece of anti-worker legislation couched in an Orwellian double-speak misnomer. It is not a “right-to-a-job” law, it is not a “right-to-a-living wage” law, and it is not a “right-to-be-treated-with-dignity-at-the-workplace” law. The supporters of the “right-to-work” law would oppose every one of those pieces of legislation because they would interfere with the right of employers to fire you, pay you a minimum wage, and treat you any way they desire. The right to work law is championed, largely by corporate interests, for the very simple reason that it makes unionization of workers much more difficult. This is confirmed by the lower rates of unionization in right-to-work states and, accordingly, the lower wages and poorer working conditions for all workers.

While right-to-work laws may be attractive to businesses looking to pay low wages and avoid negotiating with workers over the conditions of their employment, the law does not translate into a better quality of life for the state’s residents. A recent study by Politico, ranking the states on quality of life measures associated with education, crime, employment, and income, found that the bottom five states all had “right-to-work” laws, while four of the top five had no such law.

Attracting non- or anti-union businesses that pay low wages also imposes an additional cost on a state’s taxpayers. To take the most widely reported example, the stridently anti-union employer, Walmart, pays wages that are so low, fulltime workers must rely on government assistance to make ends meet. It is estimated that Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid, and subsidized housing. In Florida the total cost of assisting Walmart’s workers was $429 million. The total budgetary cost for all low wage work in Florida was over $1 billion. In essence, Florida taxpayers are subsidizing the low wage compensation and, in turn, the high profits of many corporations.

In spite of “right-to-work” laws, workers have struggled to organize workplaces and, consequently, employers have resorted to other strategies. The class war is fought on many fronts. There was a time when employers would simply hire company goons to rough up workers who were trying to organize a union; today, there is a more sophisticated method involving the use of law firms specializing in tactics and strategies to assist employers in the effort to keep the workplace union-free. This evolution in tactics has been nicely described as “from brass-knuckles to briefcases”. But the intent is the same – to prevent workers from establishing an organization to represent their interests. The most notorious national union-avoidance law firm is Jackson Lewis (with offices in four Florida cities including Jacksonville, and 49 additional other locations nation-wide) who describe their service not as union busting but rather “preventive labor relations”. They offer regular workshops for managers and owners intent on keeping their workplace union-free.

Anti-union corporations, like Walmart and Target, engage in a less than subtle indoctrination of their newly hired workers during orientation sessions on the evils of organized labor and, if employees are involved in union discussions, they are often harassed and terminated. 

In the building and construction sector, a key source of employment in the state of Florida, an organization claiming to represent the industry (though a recent study indicates their membership amounts to only 1% of US construction businesses), the Associated Builders and Contractors (ABC), was formed for and continues to be dedicated to the defeat of any union organization within their work force. They have consistently lobbied against any legislation that would enhance the ability of workers to organize and collectively bargain with employers in the building and construction industry, and beyond.   

It is hard to understand the unrelenting hostility to organized labor. It apparently is not enough that the percent of workers in a union has fallen to its lowest level in 97 years at 11%; it is not enough that income inequality has swelled to records levels; it is not enough that the concentration of wealth has reached Third World proportions; it is not enough that average worker compensation has stagnated since the 1980s; and it is not enough that all of these were contributing factors in the recent and lingering 2007 financial capitalist crisis. The corporate plutocracy wants more. 

Labor unions, the one remaining organizational vehicle that has historically advanced the cause of worker rights, higher wages and benefits, and progressive political mobilization, must be snuffed out altogether. Or, as one right-wing corporate strategist put it: “We want to take labor out at the knees.”

The late great economist, John Kenneth Galbraith, wrote that one of the good things about American capitalism was the fact that there existed “countervailing power” to prevent the corporate elite from political and economic domination of the society. This countervailing power can only exist if workers have the ability to organize and assert their interests. Right-to-work laws are designed to make that less likely.

The other factor advertised by Governor Scott and Enterprise Florida as bait to lure businesses to the state is the absence of a state income tax. While this might sound good to most citizens, and certainly to the rich, what it inevitably means is that tax revenue, which must come from other sources, is collected through regressive (versus progressive) forms of taxation (e.g. sales taxes, fees). Thus those least able to pay – low and middle income workers -- carry a larger tax burden as a percentage of their income than the wealthiest. More specifically, in 2015 according to Institute on Taxation and Economic Policy’s Tax Inequality Index, Florida has the second most regressive state and local tax system in the country. In states with regressive tax struc­tures incomes are less equal after state and local taxes than before. 

Neither a “right-to-work” law, nor the absence of an income tax, has served workers in state. Currently Florida has the seventh highest concentration of low income workers at 22% (Oxfam America) and the ninth highest percentage of low income working families at 38% (The Working Poor Families Project). Rather than spending time poaching jobs from other states on the basis of union-bashing and regressive taxation, Governor Scott might consider proposing policies that would actually improve working conditions and compensation for those workers who currently reside in the state, and are struggling to make ends meet.

Thursday, June 4, 2015

Another Failure of American Capitalism: Profits and Stock Buyback

A fundamental rationale and justification for the appropriation of profit by the capitalist class rests on the assumption of productive reinvestment. This is also the basis for the argument that while cutting taxes on corporations and the rich will concentrate wealth in the short-run, it will inevitably “trickle down” in the long run. The experience of the US economy over the last thirty years has exposed this claim as fraudulent. The following table shows the dramatic disconnect between profits and net investment over this period, and particularly after 2000.

There are a variety of explanations for the growing gap -- profits secured through outsourcing/offshoring, financialization, intensification of work, wage suppression, government tax breaks/subsidies. An excellent piece of journalism in the in the Boston Globe provides more precise evidence of a particularly pernicious financialization-related maneuver – company profits plowed into the stock market to buy back shares of their own company. 

Reporting on the networking company Cisco, and its Boxborough Massachusetts facility:
The Boxborough workers learned that at the same time they were being laid off the company was continuing to spend billions of dollars to buy back its own stock, a move designed to reduce the number of shares on the open market and perhaps boost its relatively stagnant share price.
The Globe further notes:
This stock buyback boom, while obscure to much of the public, has become one of the most pervasive and divisive practices in corporate America. It affects jobs, investment, and the health of the economy, all in the search for higher share prices. It is also a major driver of the widening economic divide in this country, which could make it a prominent issue in the 2016 presidential election.

This buyback practice is a direct cause of the long-term “trickle up” (not down) tendency in the United States, since stock ownership is highly concentrated among the top 10%. It is also closely associated with the socially irresponsible “shareholder value” principle which led managers, parroting a slogan they learned in business school classes, to claim that “my only obligation is to my shareholders”.

We should all now be well aware there is no guarantee that the accumulation of private profit will advance the public good. Unfortunately, economic development policies in the United States continue to be based on this assumption.

Tuesday, June 2, 2015

Whats The Matter With America? Doubling Down on Failed Policy -- Domestic and Foreign

There are some obvious reasons for the steady decline of American effectiveness in dealing with domestic economic woes as well as international affairs.  Most notable is the adherence to ideologies that generate policies with a proven track record of failure. Despite this demonstrated failure, the United States continues to pursue the same policies, believing the results will be different. This is sometimes described as insanity. However, a closer examination indicates that there are powerful interests that benefit from this practice. The net result is both a diminished democracy and a nation falling far short of its potential for global leadership.

On the domestic front, neoliberal political economic ideology has prevailed since the 1980s.  This involves a belief in the goodness of the market and the badness of government; the preference for private sector solutions over public sector responsibility. It is based on the assumption that any policy that benefits private corporate interests will inevitably produce public social good.  Privatization, deregulation, low taxes on the wealthy and corporations, no unions, and no increased minimum wage are just some of the most notable policy preferences. The fact that this has been the trend for thirty years, and has produced record income and wealth inequality and a domestic economy that is grossly incapable of meeting the socio-economic needs of the population, not to mention contributing to the continuing economic crisis, seems to be an irrelevant indicator of its ineffectiveness.  

Almost all political and public officials  -- Democrat and Republican -- still subscribe to the basic tenets of neoliberalism. The Nobel-prize winning economist Joseph Stiglitz describes this phenomenon as “cognitive capture”. In addition to the direct capture of government by moneyed interests through financial contributions, there is the more subtle and insidious “cognitive” forms involving the taken for granted assumption that economic policy – particularly at the state and local levels – involves reducing the costs and providing tax and financial incentives to the private sector.  This has become the singular guiding principle of public policy, often disguised behind the intuitively appealing but highly asymmetrical “public-private partnership”. Once established, this principle precludes any need for public participation in economic policy decisions, since it has taken on the status of a self-evident truth. It is this mindset and worldview that ensures policies will serve, first and foremost, the economic interests of the few rather than the socio-economic needs of the many. In the process, democracy is short-circuited.

On the foreign-military policy front (hyphenated because the two have become indistinguishable) there is an equally impressive record of failure; most recently in Iraq, Afghanistan, and perhaps, shortly, with ISIS.  The failure stems from what Andrew Bacevich, a former Army colonel, labels the long-standing “Washington rules”.  The first rule, what he calls the American Credo, assumes that the United States is responsible for leading, saving, liberating, and ultimately transforming the world.  Others have described this as “imperial hubris”. The second rule is that this mission will be accomplished primarily through military rather than diplomatic means, and at a scale and scope that far exceeds national security requirements. It rests, according to Bacevich,  on “the sacred trinity: an abiding conviction that the minimum essentials of international peace and order require the United States to maintain a global military presence, to configure its forces for global power projection, and to counter existing or anticipated threats by relying on a policy of global interventionism.”  This approach has not only exacted a huge human and financial toll, it has also failed to foster a global sense of security nor has it improved our global reputation.  A Gallop/Win poll conducted in 2014 of 66,000 people in 68 countries found that the United States was regarded as the “greatest threat to world peace” by a plurality of respondents (with 24%, well ahead of second place Pakistan with 8%). 

But as with the neoliberal orthodoxy, there is no discussion about an alternative foreign-policy paradigm in the face of accumulated failures. While the publicly proclaimed desired goals of shared prosperity and global peace are never realized, there is little critical scrutiny of the seemingly bankrupt means employed to achieve these worthy objectives. This is because, in both arenas, there are powerful interests that benefit from the existing arrangements independent of their efficacy. The neoliberal model domestically has produced a systematic transfer of income and wealth from the many to the few. The Washington rules globally, and the associated permanent “war on terrorism”, has enriched the military/national-security industrial complex.

If one hopes to achieve some redress through our electoral system, they are likely to be disappointed. Despite all the talk about political polarization, on the two cornerstones of American identity – economic growth and global superiority – the party duopoly is largely united in support of policy prescriptions that have a consistent record of failure.  The familiar mantra of defenders of the status quo – “there is no alternative” (aka TINA) – has never rang so true.

There was a time when the United States was regarded as a pragmatic, rather than ideological, society. This would mean that economic and foreign policies would be based on practical results and demonstrated success. This has been replaced by blind faith in, and ideological attachment to, neoliberal market-based and neoconservative military solutions, reinforced by the material interests that benefit disproportionately from their continuation.   Call it calculated insanity.

Saturday, February 28, 2015

Class War and the "Right-to-Work" Law Comes to Wisconsin

Every time I see the word “right-to-work” it brings me back to 1981 and my first academic publication “Capitalists Versus Unions: An Analysis of Anti-Union Political Mobilization” with my mentor Richard Ratcliff at Washington University. 

But enough about me.

Fast forward -- and the class war continues unabated.

It is remarkable that after the 2008 economic crisis that was fueled by inequality and a war on labor, is a demand-side crisis still painfully lingering as a result of continuing inequality and wage stagnation, the forces of darkness would continue to believe that we are in a supply-side crisis that instead requires more anti-labor legislation and a better "business climate" for capital. 

In 2012, Michigan, home of the United Auto Workers, passed a “right-to-work” law. Now Wisconsin, home to the progressive legacy of Robert LaFollette, is on the verge of passing the law.

The always reliable Economic Policy Institute has a good analysis of the issue. Here is an overview:

RTW laws have nothing to do with anyone being forced to be a member of a union, or forced to pay even a penny to political causes they do not support; that’s already illegal under federal law. What RTW laws do is to make it illegal for a group of unionized workers to negotiate a contract that requires each employee who enjoys the benefit of the contract to pay his or her share of the costs of negotiating and policing it. By making it harder for workers’ organizations to sustain themselves financially, RTW laws aim to restrict the share of employees who are able to represent themselves through collective bargaining, and to limit the effectiveness of unions in negotiating higher wages and benefits for their members.

Wednesday, February 18, 2015

Progressives Should Oppose Loretta Lynch Nomination

Just a couple pieces that further confirm the inability of the Democratic party to engage in some principled non-partisanship.

The first from the always on-target Yves Smith at Naked Capitalism.

The second highlighting the ever-present identity politics that clouds the central political-economic priorities by Glen Ford.

Monday, February 2, 2015

Links to Good Stuff

Too much going on to devote attention to any one issue. Here are a few links to some interesting and important stories and developments:

For further confirmation of the way US foreign policy in the Mideast is fueling the very forces we claim to oppose, a report on a talk by Human Rights Watch Kenneth Roth.

The criminalization of poverty.

Professor fired for criticizing Israel files law suit.

U.S. Senate refuses to accept human role in climate change....will revisit flat earth debate next week.

New book on the U.S. Presidency provides a badly needed perspective on the political-economic structural constraints determining policy independent of party or personality.