Kamis, 05 Agustus 2010

A Progressive's Guide to Populist Economics

Can Democrats present a progressive economic program that is also politically popular? The outcome of the presidential election may turn on this crucial question. AlterNet's economic primer outlines the core economic principles that distinguish progressive Democrats from profligate Republicans, and offers seven concrete actions that will promote economic equity and make a difference in the lives of ordinary Americans.

February 9, 2004  | 

The American economy is doing badly. The boom of the "roaring '90s" has vanished, replaced by a fragile "jobless recovery" with insecure foundations. The end of prosperity -- of growing wealth, rising pay and plentiful jobs -- coincided with the arrival of George Bush in the White House, raising inevitable questions about whether the new President is to blame for the country's changing fortunes.

The short answer is yes. The boom of the '90s was bound to end sometime, but the Bush administration took a bad situation and made it much worse by cutting taxes, loosening regulation over corporations, imposing destructive protectionist measures and spending freely on foreign wars.

Democrats ought to make hay over Bush's economic failures, but they are failing to do so for two reasons: Bush has engineered a phony economic recovery; and the progressive remedies for American economic weakness are hard to sell politically.

The Phony Recovery

Bush engineered rapid growth in the second half of 2003 through enormous borrowing by the federal government coupled with tax cuts. Combined with low interest rates, the easy money got consumers spending, but because there remains a glut of capacity in both industry and services, corporations have responded by continuing to pare jobs and restrain their own investments. The result is jobless economic growth.

For the moment, Bush gets to claim that he has righted the economy. But only for the moment. The Federal Reserve, in late January, signaled that it may soon raise interest rates, because of growing concerns over inflation. The mere specter of a rate-increase appears to have ended the latest stock boom. Meanwhile, the outlook for new employment is poor, raising the odds that when voters go to the polls in November the Democratic presidential candidate will be able to say that Bush's first term cost 2.5 million American jobs.

The Hard Sell

Despite America's dismal economic performance under Bush, restoring policies that promote equitable and sustainable growth remains difficult. The remedies -- higher taxes, more government regulation of business, and the restructuring of government programs to benefit the swelling ranks of the poor and lower-middle class -- are not generally viewed as politically attractive. How can Democrats present a progressive economic program that is at the same time politically popular? The outcome of the presidential election will likely turn on this question.

Bashing greedy corporations and unethical executives will only get Bush's opponents so far. A positive plan is needed. Democratic candidates for President are, significantly, calling for a reversal of some of Bush's tax cuts. Such a reversal would help undo the economic damage of Bush's presidency. More taxes will raise government revenues, thus reducing the huge deficits that are otherwise likely to burden the government for many years. But in order to succeed with a tax-increase message, Democrats must re-frame the issue of taxes as one about investment in the country's future. Paying taxes must also be framed as a variety of patriotism -- and an especially important symbolic act in a time of threats to U.S. security.

Merely calling for an increase in taxes isn't enough. Democrats need an array of fresh economic ideas that excite voters who are listening to a barrage of dissembling from the Bush administration. Without new ideas suited to a new economic moment, Democrats won't defeat Bush in November. Before we address ways in which Democrats can frame economic alternatives in ways that make them popular politically, let's review the core economic principles that distinguish progressive Democrats from profligate Republicans.

Understanding the Principles

Democratic economic principles are defined by the following:

Equity: For Democrats, equity ought to be the byword of their economic thinking. Wealth inequality is rising again in America. The work force is increasingly dominated by high-wage and low-wage jobs. Unions remain marginalized, growing weaker by the day. Worker rights are solely protected by the courts, whose remedies often deliver too little and come too late. Job destruction is occurring again in the U.S. and at an alarming rate, recalling the 1970s and early 1980s, when both highly educated people and non-unionized blue-collar faced gloom and hardship.

Any economic recovery worthy of its name must benefit all strata of American society. The economic democracy has been an engine of American history and democracy as far back as Thomas Jefferson. Freedom meant nothing if a people lacked the wealth to exercise it. Democrats need a set of policies that will promote the democratization of wealth in America. They need policies that will narrow the economic disparities in the nation, not widen them. They need policies that will promote greater economic opportunities for people without family wealth. They need to help preserve jobs as well as create them.

Corporate governance: Under the cover of the 1990s economic boom, corporate managers violated the basic rules of business fairness. The corporate sector may once have earned the right to increasing self-policing; corporations have lost that right. Business executives must once again submit to rigorous government regulation of their practices. Democrats must make a case for the re-regulation of a corporate sector that has mortgaged values in its quest for quick bucks. The scandals of Enron and the mutual fund industry are not isolated, but rather reflect the widespread collapse of business values.

Government can help restore these values (with assistance from consumer, investors, employees and a new generation of corporate leaders). Democrats must concentrate on promoting an alternative business ethos rather than lay the blame for corporate misbehavior on Republicans, where it doesn't belong. The boom -- as booms always do -- undermined business values. Easy money is the enemy of honesty and fairness. With the end of easy money, the stage is set for a revolution in business values and practices, if only the Democrats are brave enough to promote it.

Fair trade: The economic boom of the 1990s owed much to a dramatic reduction in trade barriers -- and an equally dramatic rise in trading partners. With the collapse of the Soviet Union and the bloc of communist countries in Eastern Europe, capitalist trade greatly widened. The emergence of a pro-capitalist Chinese government also spurred trade. The virtual end of socialist movements in Latin America and the rise of at least officially democratic governments in Mexico, Brazil, Chile and Argentina further expanded the pool of world trade.
 
The U.S. economy was a major beneficiary of trade expansion. U.S. hegemony over global finance and technology -- the two big winners of the 1990s expansion -- meant that both jobs, money and talented people flowed onto American soil. But widening trade, while accelerating growth, brought destabilization. By the 1990s, a series of financial and economic crises -- in all parts of the world -- exposed the harsh truth: The shift to open borders had occurred too quickly. Poorer nations needed more government protection, while rich nations maintained an array of trade barriers (most egregiously in the areas of agriculture) that worsened the plight of the poorest countries, especially those in Africa.

In its approach to trade, the Bush administration has largely continued the "neo-liberal" policies of the Clinton years. These neo-liberal policies no longer suit the times. Democrats must do more to respond to the dark side of widening trade and the economic crises washed up in the wake of world capitalism. Bush's deviation from neo-liberal orthodoxy has been limited to selective protectionism based on the narrowest political gain.

Fiscal discipline: In a few short years, the U.S. government has gone from the epitome of fiscal rectitude to the ultimate financial binger, spending without concern for the debts incurred. What's changed? The American president. Former President Bill Clinton sacrificed social programs -- and the chance for bold initiatives -- in order to restore a balance federal budget, and to even run surpluses.

His administration was helped, of course, by a booming economy, in which rising incomes and staggering capital gains led directly to higher tax revenues. The end of the boom reduced these tax revenues, wringing out the surpluses. But Bush's tax cuts are the chief reason for record budget deficits, which are conservatively estimated to exceed $500 billion this year (meaning government will spend one-third more than it take in). Since the fiscal year 2000, the tax receipts of the U.S. government fell from 20.9 percent of the gross national product to a projected 15.7 percent this year.

According to economist Paul Krugman, about 45% of the fall in tax revenues results from tax cuts. Bush has proposed an additional $1.1 trillion in tax cuts over the next decade, further handicapping the federal government.

Tax cuts surely do stimulate the economy, by putting more money in the hands of consumers. But tax cuts do so at a great cost to equity: Rich people have unduly benefited from the tax cuts. Besides, the stimulation from tax cuts was essentially redundant. Low-interest rates, courtesy of the Federal Reserve and low-inflation, mean that cheap money is available for the purchase of homes, cars and other big-ticket items. Spending by Americans, in short, would remain relatively high even in the absence of tax cuts, diminishing the reasons for them.

The tax cuts, of course, came at a cost: big U.S. deficits for the foreseeable future (and a record in the year 2003 alone). These deficits are bad news for future generations of Americans since high deficits always lead to reduced productivity, job growth and wage gains. In short, high deficits suffocate an economy, leading to stagnation. Even worse, high deficits impose a crushing burden on the economies of other nations. The savings of foreigners is covering the debt of the U.S. government. Foreign savers do this by buying U.S. bonds, paying dollars for these bonds (which results in propping up the dollar, making U.S. exports more expensive). Instead of foreigners putting money in their own economy -- and spurring growth at home -- they are helping to grow the U.S. economy. What's bad about this? The International Monetary Fund worries that big U.S. deficits will weaken so many economies around the world that a global economic crisis will result.

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