Category Archives: Economics

Posts relating to national economic policy and/or effects.

What’s All This Sequester Fuss About?

I thought I was fairly savvy about most items of a political or economic bent; I read a great deal about the topics from a wide array of sources, and I try to keep up with the math. But I just can’t fathom what’s going on right now that has so many people in such a snit. For the better part of five years, I have read op/eds, watched the Sunday sit-arounds, and listened to the nearly nightly ablutions of the Very Serious People, all centered on the the absolute screaming necessity of:

Getting this spending under control, and practicing a little fiscal discipline!!

Now I know that Republicans, for three consecutive sessions of Congress (they controlled the House, Senate, and White House during that time), spent money like the proverbial profligate sailors…that much is clear. Republicans diverged from Democrats under Obama (who saw tax revenues fall due to job losses, and automatic spending raise as the newly jobless put their kids on Medicaid, and registered for unemployment and food stamps.) For the years between 2000 and 2007,  conservatives intentionally poured money into their favorite pet defense programs, and intentionally lowered revenues in two giveaways called, collectively, the “Bush Tax Cuts”, giveaways that largely benefited Americans in the upper third of income earners.

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Fiscal Cliff Diving And Debt Ceilings, Oh My

Well, the Mayans were wrong about the world ending, Jack Van Impe was wrong again on the rapture, and the fiscal cliff was avoided. Yahoo! But just as Americans never really seemed to understand what the Mayans were saying (it was the calendar ending, not the world), few Americans really grasped what the fiscal cliff meant.

And it isn’t hard to understand why.

The fiscal cliff, like its parent the debt ceiling, is an arbitrary creation; a crisis of convenient contrivance. Both parent and child were born of power politics, with no connection to economic or financial need. The 2011 confrontation over the debt ceiling produced a series of debt reduction spending cuts known as the sequester scheduled to take effect in January of 2013. These cuts were seen as “fiscally responsible,” despite the macroeconomic nonsense of massive spending cuts during a slow recovery. A year later, those that saw the sequester as fiscal responsibility, acknowledged the fiscal irresponsibility of the sequester. The presence of the spending cuts, paired with the expiration of both the Bush and Obama tax cuts, created a precipitous cliff over which our nation might fall.

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Headache-Inducing Questions

What is it about our society, and in particular our politics, that stifles the basic question/answer process? Questions and answers, causes and effects, problems and solutions; these constructs should not be difficult. But we Americans have divorced ourselves from these fundamentals. As a society, we have adopted the communication tactics formerly employed by teenagers.

A problem, in the teenage mind, is not a problem unless they might perceive a direct and immediate personal effect. A problem, for teenagers, that is not perceived as having direct or immediate effect, is valuable only in its ability to present opportunities for positive personal effect. A question, asked of a teenager, is meant to be answered directly only when the direct answer benefits the teenager directly and immediately. In the third century of American politics, it is the teenager’s self-absorbed, time-constrained perspective that dictates the conversation.

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Social Security Headfake

Call me crazy, but my experience in business, football, and marriage has taught me that the first step towards fixing a problem is actually addressing the problem. If your business is dealing with customer service issues, you might begin by looking for inefficiencies in operations, or addressing the training and staffing standards in your firm. If your team can’t run the ball, you might address your run scheme or work on blocking technique. If you are fighting with your wife, you would probably start by agreeing with her.

The point is, isolate the actual problem. At the moment, the Washington media, in concert with big finance (and big financial media) is working hard to convince Americans that their Congress needs to fix a very different problem from the actual problem facing our nation. And they are doing it for a very simple, very easy to understand reason; if they succeed, they will make billions.

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Winners and Losers

In 21st Century America, the powers that be have decreed politics be a battle of winners and losers, where winners are defined as those individuals (and corporations) that have achieved a high degree of financial wealth. Modern conservative theory is built on the notion that everything in the democracy should be focused on ensuring the success of the already successful. The position is justified through the continual communication that those who achieve great financial success work harder than those that don’t.

Once the American public accepts that work ethic is the determinant of success, it then becomes accepted that a deficit of financial success is necessarily the result of laziness or lack of ambition. It should be evident that these notions are unambiguously false; the new class of American wealth is based on financial services in lieu of productive enterprise. These individuals aren’t required the education of doctors or lawyers, the stamina and craft of contractors, the courage of the military, police or fire, or the tolerance and hustle of retail management. Yet they earn more than any of the above.

Wall Street types are the highest achievers in our brave new world, earning a wealth completely separated from the notion of value that most Americans embrace. They are defined as winners, and so are supported by the establishment as winners should be, with the support guaranteeing the continuance of the line. Wall Street types have become the new landed nobility in our proto-feudal America, with a core wealth earned by bold action, and a virtual hereditary wealth sustained by loaded politics.

This is not to suggest an inherent evil in Wall Street, nor a driving need to abolish or constrain the institution and its operators. But many institutions, indeed most, that have valid purpose and noble mission exceed their natural boundaries; it is the curse of human imperfection. Wall Street success is wholly and properly defined by financial achievement, financial achievement is wholly related to calculated risk-taking. Calculated risk-taking is necessarily focused on the asset at risk, and the interest offered in return. The rest of society is excluded from consideration. It is only prudent for society to set boundaries for such risk-taking, boundaries of course, that are anathema for the organizations themselves.

But Wall Street, in our collective national mind-set, is the home of wealth-creators, or job-creators, or hard-working success stories. Pick your favorite label. We have capitulated to the idea wholly; every daily news program, in every town and city, reports on the level of trading on the nation’s major exchanges. Such numbers have become proxy for economic success, in the spite of their almost complete disconnection from real economic success. Think about it; the capital markets were largely recovered within 2 years of the crash of 2008, while the job markets will take another 4 years to reach trend at the current pace.

These are the consequences of a society where money is preeminent, the definition of earning money is tied to the amount earned, rather than the method of earning. But it doesn’t have to be this way. Job-creators, to use the parlance of those who favor unregulated marketplaces, are motivated by profit. Entrepreneurs don’t enter or refrain from markets based on tax rates. But individuals who work, and work hard, for a basic living count on the infrastructure that a functioning democracy provides. They are reliant on the security, both in physical and consumer terms, that a functioning democracy provides. They are allowed to dream about the future their children might have thanks to the education that a functioning democracy provides.

Vote not for the job-creators who by their own description are self-reliant winners with little need beyond their own bootstraps. Vote instead for those who protect the working class whose efforts make the winner’s lives possible.

 

The Rational Middle is listening…

Union Labor; Capitalist Keystone

Labor Day got me thinking, which I know is a dangerous notion. Much is made in our nation about the conflict between unions and big business, and the derived conflict between ideologies that posit themselves as friends to either the individual worker or business. In our label-driven society of extremes, in this political economy of no middle ground, one cannot be both pro-labor and a capitalist; and wo betide the capitalist who is accepting of organized labor. All of which is odd when one considers the nature of capitalism.

Capitalism is, of course, nothing more or less than the private ownership of capital. Labor is, as a factor of production, an element on equal footing with capital. In a market economy where private ownership of land and capital creates the driving incentive, it follows that private ownership of labor serves the same purpose. If an entrepreneur has the motivation to produce because they own their own capital, labor that owns itself has the same motivation.

Labor unions are no different than independent business. They are corporations offering human resources to entrepreneurs who need labor. They are a legitimate market force with most of the same pros and cons that the other natural market forces display. Business naturally seeks to grow in order to leverage economies of scale; labor coalesces, it organizes in order to leverage similar scale economies.

The strident and consistent complaints of the supposedly pro-business in our democracy revolve around their reservations about price. Those who, in our economy, seem bent on complaining about freeloaders are themselves bent on freeloading; the pseudo-capitalists want the land, natural resources, and labor at near-zero price levels. Any entity in the political economy that seeks to charge appropriate and fair rents for land, natural resources, and labor are therefore labeled as “job-killers”. We live in a modern day equivalent of the Oklahoma Land Rush; capitalists without conscience rush to plant a flag on resources or cheap labor.

Nowhere in the works of Adam Smith can one find a notion of capitalism that is dependent on free capital; private ownership assumes, explicitly, that the holders of capital may charge economic rents. The owners of labor, be they individuals or individuals organized, have legitimate market rights to sell their capital at a rate they feel appropriate or a rate mutually negotiated. And nations who collectively own both the natural resources with which they are endowed and their own posterity, may reasonably charge rents for the extraction of natural resources and for replacement of polluted resources.

Capitalism demands responsibility and accountability equal to the personal investment one hopes to leverage; where such responsibility and accountability is not offered, the democracy may reasonably demand both.

 

The Rational Middle is listening…