Saving Capitalism--Part II

Popular Economics Weekly

Nobel laureate Joseph Stiglitz’s plea to save capitalism is important for a number of reasons; foremost is the survival of liberal democracy itself. Modern liberal democracies that we have known since WWII cannot survive if we cannot ‘fix’ modern capitalism to serve the majority rather than minority of its citizens.

“There are many reasons for our plight, including corporate power and greed centered on immediate profits and little regard for the impacts business decisions have on low-income Americans and the environment,” said Stiglitz. “Corporations have translated their economic power into political power, lobbying for policies that give them free rein to despoil the environment; and the swamp President Donald Trump promised to drain has been overflowing.”

It cannot survive without greater government programs to improve lives, and better control of financial markets, advantages that countries like China, the world’s second largest economy, have in competing in world markets for resources, and winning trade competitions.

One answer is what is called Modern Monetary Theory, or MMT, that both progressives and conservatives are talking about. It’s really a reincarnation of the New Deal that enabled America to pay for the Great Depression and WWII with a large amount of government debt, without raising taxes at the time that would have impeded economic growth.

Conservatives have railed against versions of MMT since Roosevelt and his Labor Secretary Francis Perkins created the New Deal—giving millions of jobs to jobless Americans, creating the social safety net and much of the early infrastructure (dams bridges, energy grids) that need updating today.
But it’s now become obvious from their 2017 tax cuts that Republicans love debt as much as anybody when it suits their purpose.

Barrons.com

Conservative publication Barron’s Magazine portrays in this graph from 1985 to 2016 the actual U.S. net savings as a percentage of GDP. It highlights the wide fluctuations in the line graph—when there were 4 years of federal budget surpluses 1996-2000 (midgraph), to the low point in net savings during the Great Recession with the massive federal deficit. Foreign net savings are in red, domestic household and business net saving in blue and gray.

MMT is being touted as a possible way to pay for AOC’s Green New Deal, universal health care and other Democratic initiatives that will create jobs for all.

But debt has to be paid back in one form or another. In post-WWII economies, 1) it does get paid back if used in advancing growth that increases revenues, and 2) debt is extremely cheap today with the world awash in excess savings that investors are begging to place where it will give a decent return. Financing U.S. budgets with ‘other people’s money’ is not so risky when there’s no safer place to put it than in U.S. dollar investments.

WWII’s 120 percent of GDP debt was paid down to less than 40 percent in the post-war years with massive growth and productivity-enhancing investments like public highways, the Internet, modern healthcare improvements and government basic research.

We are in a much better position today with a fully-employed economy. But it does subject investors to the vagaries and vacillations of the Treasury bond market, which is the safest haven for investors afraid of an economic downturn that could crater stock prices.

Democracies are also in danger with authoritarian governments springing up in Eastern Europe using Russia and China’s authoritarian examples that control the courts and public media to maintain their power.

However modern capitalism with its checks and balances has enabled the growth of prosperous middle classes at the heart of liberal democracies. No other economic system is able to produce the quantity of goods and services required for a healthy liberal democracy.

Radosław Sikorski, Polish Minister of Foreign Affairs, speaking of recent anti-democratic trends in Eastern Europe at the Wrocław Global Forum, an annual summit organized by the Atlantic Council, the city of Wrocław, Poland, and other partners, noted a startling fact--there is a common assumption that dictatorships may be better at some economic tasks because they do not have to pay attention to public opinion. Yet communist governments in Central and Eastern Europe failed to live up to that supposed economic advantage.

Sikorski explained, “My thesis is this: contrary to received wisdom, dictatorships also have public opinion and dictatorships are usually more cowardly than democrats. That is why fundamental economic reform under dictatorships – in Chile for example – is the exception, not the rule. It is usually the democrats who have to tidy up the mess, including economic mess, left by dictatorships.”

The club of rich democracies is not easy to join, per a recent piece in the Economist, but those who get in tend to stay there. Since the dawn of industrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.

This is not a coincidence, say Torben Iversen of Harvard University and David Soskice of the London School of Economics, in their recent book, “Democracy and Prosperity”. Rather, they write, in advanced economies democracy and capitalism tend to reinforce each other, as I’ve been saying. It is a reassuring message, but one that will face severe tests in years to come.

What are those tests? The largest may be how to grow an economy that benefits more of the middle and lower-income classes with greater government-funded programs, such as happened with the New Deal. That obviously hasn’t been the case since 2009 and the recovery from the Great Recession. It is already being tried successfully in many Northern European countries that reward its citizens with a larger social safety net, shorter working hours, and more leisure time.

Professor Stiglitz, Torben Iversen, David Soskice and a growing number of economists show just how liberal democracies have survived multiple wars and global recessions; by modernizing capitalism to fit modern needs. Perhaps “capitalism is the worst economic system, except for all the others,” to paraphrase Winston Churchill’s famous aphorism.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Professor Stiglitz’s Plea to Save Capitalism

Popular Economics Weekly

MarketWatch

Nobel laureate economist Joseph Stiglitz has been saying he wants to make capitalism work for everyone again in various writings, just as it did post-WWII, including this CNN commentary on the recent Earth Day. Is there even a viable alternative?

“America's economy has not been working for a large portion of the country. Workers at the bottom of the income scale earn wages, adjusted for inflation, that are not much higher than what they were 60 years ago, while the income of a typical full‐time male worker hasn't budged much from 40 years ago. In addition, life expectancy is in decline. But the economy is not only failing American citizens. It's failing the planet, and that means it's failing future generations.”

So how do we make it work for more Americans in the face of almost united opposition by the Republican Party? Firstly, we have to recognize the actual problem—Republican attempts to disempower large segments of Americans—women and blue-collar workers, for starters that have suffered the most from rollbacks in healthcare and workers’ collective bargaining rights.

We know the cost of the 2017 Republican tax cut bill; more than $1.5 trillion of spending cuts in Medicare and Medicaid coverage over 10 years in an attempt to lessen the projected $1 trillion annual budget deficit it is already costing; not to mention the endless attempts to cripple or outright abolish Obamacare without an alternative, and ban abortions, if not contraception outright.

And “In a new study for the Brookings Institution’s Hamilton Project, we report survey results in which we find that one in five workers with a high school education or less are subject to a noncompete. A quarter of all workers are covered by a noncompete agreement with their current employer or a past one,” reports the NYTimes.

This means they are banned from working for a competing company in a similar line of work for a certain period, limiting their mobility and hunt for a better job.

This is why Americans’ life expectancy is on the decline, while rising in all other developed countries; which have universal health care, pay for the costs of state-run, higher education institutions, and in general protect their citizens with an extensive social safety net.

Why does America have more than ten times the per capital prison population than other developed countries, and stratospheric gun violence—now 40,000 per year killed with white males the largest segment of gun suicides—whereas other developed countries annual gun deaths number in the 100s?

We don’t need to be diverted by the many “crimes and misdemeanors” of POTUS and the White House. Republicans have been rolling back social benefits and increasing inequality since at least 1980 by commandeering the levers of power—Wall Street with the repeal of Glass Stegall and deregulation of whole industries, corporate America with now unlimited fund-raising due to their Supreme Court win in citizens vs. united, and gutting of the Voters Rights Act that weakened federal enforcement of voter discrimination against minorities in states with a history of discrimination.

The list goes on and on. So what can be done about it? Make government(s) again the solution, rather than the problem that Reagan liked to intone to his supporters, and that ran up the first record public debt. It wasn’t until President Clinton’s successful attempt to actually create a budget surplus in his last four years (1996-2000) that America first began to pay down that debt.

But the Bush/Cheney government frittered it away with multiple budget cuts and foreign wars, increasing it again rather than diverting the savings to domestic programs that would strengthen America, and led to the Great Recession.

The lesson is obvious. Government wasn’t ever the problem, since Republicans have been willing to spend taxpayers’ money to support their own programs and run up record debt without any intention to pay it back to the American taxpayer.

Instead, government has worked very well when it funded their wars, higher corporate profits, or gone into the pockets of their high-net worth supporters. We should never buy Republicans’ attempt to brand-name government as the problem, particularly when it has benefited them far more than the average American.

Will it save capitalism, as we know it?  Only if we don’t buy the Republicans’ mischaracterizations.  Modern capitalism is really the creation of modern liberal democracies, with its ability to nurture growth and innovation that accompany the democratic checks and balances to prevent its excesses.

So  in saving democracy, we can save a modern capitalism that works for the many.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen