Monday, November 9, 2020

When Will The Economic Civil War End?

 Answering the Kennedys’ Call


When Joe Biden becomes our new President in January 2021 and signals an ambitious ‘new’ new deal to rebuild America, the economic civil war that reached a high point with this presidential election has to end.

Americans must reach agreement on what needs to be done to vanquish the worst disease since the 1918-19 Spanish flu pandemic that killed an estimated 675,000 Americans, for starters. The COVID-19 pandemic has infected 10 million Americans and 50 million worldwide at this writing.

And how do we then rebuild from this recession, the worst since the Great Depression (yes, the Great Depression) with 11 million jobs lost and many more unemployed? What tends to be forgotten is the 1932 depression only became the Great Depression when the US economy plunged back into negative growth in 1937. And we are in a second pandemic-induced recession begun in February this year after barely recovering from the 2017-19 Great Recession.

If this economic war isn’t resolved because of what could be an intransigent Republican-majority Senate in 2021, it will be more difficult to implement any new deal that will revitalize the American economy as did the original New Deal that brought us out of the Great Depression and a horrific WWII.

This election is more than a battle over states vs. federal government rights, in other words, as was the civil war with poorer southern states fighting the industrial north to preserve private property rights that included holding slaves—also private property in their eyes.

This modern economic war is also about nostalgia for an illusory past with modern Republicans’ attempts to privatize as much as they can and limit public welfare and social policies by repealing Obamacare and cutting taxes that would support more spending on public projects—our outmoded infrastructure, public K-12 education system (that is ranked last in the developed countries), more R&D support to keep US a leader in scientific research and environmental protection—all battles over who owns and benefits from the role of governments in our capitalist system.

The modern version of this economic civil war is also being fought over a false economic theory first popularized with Adam Smith’s The Wealth of Nations, written in 1776. He said low taxes and regulations on businesses and their profits created higher productivity and greater wealth for all.

At its core this has meant to most modern conservatives maximizing profits should be the sole goal of corporations; that making sure the owners of industries and the owners of capital receive most of the profits from their businesses. Enough of their wealth will then ‘trickle down’ to workers to satisfy their wants and needs as well.

The problem highlighted with this laissez-faire economic policy by economists like Lord John Maynard Keynes in the 1930s and Thomas Piketty more recently is the historical fact that owners’ rate of profit growth from their capital ownership (5 percent historically) has been more than twice that of workers’ incomes (approximately 2 percent). Hence there is an inherent inequality built into capitalism if not regulated via progressive taxes and regulations to level the playing field.

So it was a shockingly new idea when Henry Ford first realized that his workers could only buy more of his cars when he raised their salaries to $5 per day. Their demand for more cars would only increase with an increase in their salaries and benefits. Hence the recognition that only by increasing workers’ incomes and benefits would there be sustainable economic growth with less booms and busts, such as occurred during the Great Depression and more recent recessions—both caused in large part by the record income inequality.

What if we could learn from history? Would there still be an ongoing economic civil war?

The federal government has the means to pay it forward for future generations by funding projects that are too risky for private enterprise. Would we have gone to the moon, built our modern infrastructure of dams, energy grids, established the Internet, or built our freeway system otherwise?

Of course not. The economic civil war of states vs. federal rights, lower vs. higher taxes, less vs. more regulations, does not have to continue, if President-elect Biden is the negotiator and compromiser he is touted to be. But that can only happen if there is agreement on the mechanisms that create a more level playing field.

The world of Adam Smith’s free market, low tax and regulation world that prevailed in England’s early industrial towns and cities, and that Republicans attempted to resurrect with trickle-down economic theories in the 1980s, hasn’t worked today because of the essential role governments play to fight pandemics, or advance scientific research to protect us from many future unknowns.

A majority of Americans in this election—five million and counting—have said that the income and wealth inequality resulting from owners garnering the lion’s share of income and wealth will no longer be tolerated. It has taken natural or human-made catastrophes—like wars and disease pandemics—to bring Americans together in past times. Let US not lose this opportunity the COVID-19 pandemic has presented to end the economic civil war once and for all, and begin a lasting economic peace.

Harlan Green © 2020

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