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Why Right-Wing Policy Is the Enemy of Economic Growth

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The American press is full of declarations from Republican Members of Congress, "financial commentators," and conservative columnists declaring that "America is broke," that we "can't afford" public spending, that we need to "tighten our belts." And unfortunately many conservative voices in Europe are promoting these same "austerity measures."

These policies are not just wrong-headed -- they are dangerous. They are the enemy of long-term economic growth and threaten our future.

To the extent they appear to make any sense, it is because they focus on the superficial elements of economic activity -- not its fundamentals.

At its root, economics is not mostly about financial markets, money, trade, profits, wages, taxes or debt. These are just means to an end.

Fundamentally economics is about about two separate -- but interdependent -- activities:

  • Organizing the workforce to manipulate our physical resources and information in order to produce goods and services that we need or want.
  • Distributing the fruits of that productive activity among the population as consumption -- and reinvesting some of that output to enhance our future ability to produce more goods and services.

When we focus on these two basic components of economic activity it is easy to see why right wing nostrums are so dangerous. Nine key points:

#1. If you hold constant the number of people in the workforce, the only way to increase per capita economic growth over time is to increase the productivity of the workforce. That results mostly from technological innovation -- and increasing the level of worker education and skill. That being the case, the principle goal of a policy aimed at increasing per capita economic well-being should be promoting technological innovation, levels of education and skill.

It follows that Republican cuts in funding for education, and basic research -- especially when it comes to the critical area of energy -- is just plain stupid.

#2. America is not "broke." We have the same capability to produce goods and services today that we had before the onset of the Great Recession -- the same level of education and skill -- the same level of technological sophistication -- the same abundance of natural resources. Economies and societies can collapse if they use up their natural resource base -- but that is not what happened in 2008 (though if we don't act wisely it could in the future).

Two major factors led to the Great Recession:

  • In 2008, the system we use to distribute the goods and services that we create collapsed. The financial system for allocating capital melted down due to extravagant, unregulated speculation. That resulted in the unemployment of an additional eight million Americans.
  • The top 2% of the population had siphoned off virtually all of the benefits of economic growth over the last twenty years. Since everyday consumers didn't share in the fruits of increased productivity, they had needed to borrow more and more to be able to buy the products of their increased productivity. Once the ability for everyday Americans to borrow collapsed as a result of the financial meltdown, so did their ability to buy the new goods and services that were the products of increasing American productivity.

It was not our inability to produce goods and services that collapsed. The meltdown of the system of distribution and exchange caused the collapse of the private sector's ability to organize the entire labor force to engage in that production.

It wasn't the first time. In his first Inaugural Address in 1933, Franklin Roosevelt explained it this way:

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. ... Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous moneychangers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

In 1932 a bubble of speculation burst and -- then as now -- recovery was stymied because everyday consumers didn't have the money to buy the products they themselves created. Just before the Great Depression, inequality in the distribution of both wealth and income reached record levels. America did not experience such high levels of inequality again -- until the years leading to the Great Recession.

#3. The primary goal of effective economic policy must to be to assure that everyone in the work force is actively creating goods and services. If the private sector -- for whatever reason -- is unable to organize the entire work force to engage in productive work, then it is critical for the public sector to do so.

It doesn't require a Ph.D. in economics to realize that if more than 10% of the workforce is either unemployed or partially employed, our country will produce many fewer goods and services than it otherwise would. We will all end up sharing a smaller economic pie.

That's why Republican opposition to the President's Jobs Bill is so destructive. The surest way to finally bring the Great Recession to an end is to make sure that everyone is working, because that is really the only way to create economic growth.

Employment is not a "trailing indicator" that will happen after the economy recovers. True economic recovery will be a result of putting everyone back to work.

#4 Austerity is never the right economic policy. Many European policy makers and American conservative intellectuals argue that to solve their debt problems, Europe and America need to tighten their belts -- to live with less.

Of course they don't generally mean that the barons of Wall Street or European bankers should live with less. Rather they mean that everyday working people have to lower their standards of living to enable governments to pay down ballooning levels of public debt.

Debt is not something that exists apart from the system we use to distribute the goods and services we create and invest in future production. It is an artifact of the system we use to distribute goods and services and to distribute capital and organize productive activity. Debt is not an entity in and of itself. Debt, after all, is nothing more than an obligation to trade the control of future goods and services for current goods and services.

There are only two ways to pay off debt. Someone has to give up some portion of the goods and services which they control to someone else -- or debt can be paid off out of economic growth- - out of our enhanced ability to create new goods and services in the future.

The Right wants public debt to be paid out of the sum of goods and services controlled by everyday working people. They say we have to cut future Social Security benefits, eliminate Medicare, cut Medicaid, lower public sector wages, eliminate collective bargaining for workers of all sorts. The problem is that would make the underlying problems of our economy worse. It would reduce the ability of consumers to buy the products that they produce. To entice them to hire workers, businesses don't need "confidence." they need "customers." Cutting Social Security benefits or Medicaid to pay down the Federal Debt would take money out of the hands of consumers. That will mean that businesses would have less incentive to hire new workers -- to organize everyone in the workforce to engage in productive economic activity. And that in turn will make it harder to pay off debt out of economic growth, because when fewer people are employed there will simply be less growth, period.

Just as bad, if public debt is paid off by everyday people and not the top 2%, the inequality of income that helped lead to our current economic collapse will get worse.

That is precisely why if we want to reduce public debt we have to enact programs like President Obama's American Jobs Act to create jobs and growth -- and to require that the super-wealthy pay a much greater share of their massive incomes in taxes. Those policies will create economic growth to pay off debts - at the same time they pay off a portion of the debt out of the share of income controlled by the wealthy, not 98% of consumers.

#5. A high-wage economy is the engine of sustained economic growth.

Right wing economic voices constantly blather about the need to "make labor markets more efficient." By that they usually mean policies that allow employers to lower wages and extract higher percentages of the increased productivity in the form of their own profits.

  • In fact, history shows that high wages help drive long-term growth. They do it two ways:
  • High wages assure that workers make enough to buy the products they create. Over the last two decades productivity has continued to rise, but average wages have stagnated. It doesn't take a genius to figure out that can't go on forever, since consumers won't have the money in their pockets to buy things. Sustained growth requires that consumers' incomes keep pace with increases in productivity.
  • High wages stimulate businesses to invest in increasingly productive labor saving devices and technologies that increase overall productivity. You don't invest in increasing productivity if you can hire workers in a third world country at slave wages.

The need for a high wage economy requires a revitalization of the American -- and world-wide -- labor movement.

Labor markets left to their own devices will not assure that workers share in productivity increases. Individual businesses try to lower their own labor costs, even though collectively they are undermining the buying power of the consumers upon which they all depend. Or they ship job to areas of cheaper labor or offshore. Unions -- especially if they are allied on an international scale -- can force international corporations to share increased productivity gains with the worker/consumers upon which the economy depends.

#6. A vibrant public sector is necessary to ensure long-term economic growth. Right-wing Members of Congress are fond of saying that public sector jobs are not "real jobs". Nothing could be further from the truth.

Private business -- and markets -- are a critical engine of innovation and growth. They provide an efficient means of organizing production in many, many sectors.

But the public sector provides a more efficient means of organizing production in other sectors where the discipline of markets do not apply. Fire protection, police protection, public education and the creation of infrastructure are obvious examples.

The same is true of services like health care. Forty percent of the American health care market is financed by public sector today. But the private insurance sector -- and the provider sector it has spawned -- are the most inefficient in the world. That is simply beyond dispute. Americans pay 50% more per capita for health care than any other nation and are 37th in results. Private insurance premiums have gone up 50% faster than the costs of Medicare over the last two decades.

What's more, the public sector has the ability to organize the work force when the private sector fails because it is the instrument of our community will, rather than the individual actions of corporations that act only in their own private interests.

Finally, let's remember that it was a failure to have a strong government regulatory structure to police the speculative excesses of Wall Street that led to this economic disaster in the first place.

#7. Speculators never create anything.

A private banking and investment sector that channels capital into producing goods and services and uses the market to measure efficiency is critical to our economy. So is a public system of investments in activities and infrastructure that are important to the future of our communities -- but not necessarily to private corporations.

But speculation is different from investment. Investors make money by producing goods and services -- or based on a company's "fundamentals."

Speculators buy cheap and sell dear. They make money when asset values are volatile - when there is a "spread." They aren't investors, they're gamblers.

The Right is doing everything it can to weaken the new Dodd-Frank bill that reins in the power of the big Wall Street Banks to make fortunes on speculative plays and leave the economy -- and everyday consumers -- vulnerable to another economic catastrophe.

Right now Republicans are trying to stand in the way of the appointment of Richard Cordray to head the new Consumer Financial Protection Agency because until he is approved, the Agency will not get its full power to regulate the big banks.

#8. Economic inequality is the great enemy of long-term economic prosperity. That is true domestically because it means that consumers won't have the money in their pockets to buy new products and services that are the result of increases in productivity.

It is also true internationally. Economic growth is not a zero sum game. Someone else doesn't have to be poorer for Americans to be richer -- just the contrary. The more productive everyone is in the world, the better off all of us will be. You don't have to stretch far to know that the more bright minds that are searching for a cure for cancer, the more likely we are to find it.

And what is good for Americans is good for everyone else. High wages and good working conditions help turbo charge worldwide economic growth. That's why American policy should actively and vigorously promote the rights of everyday people across the world to organize and join labor unions.

#9. There is only one limitation to the proposition that world-wide economic growth benefits us all. That is the fact that if people around the globe consume as much non-renewable energy and natural resources as those of us in the developed world, the world will all run out very soon.

The answer is obviously not to prevent economic growth in other nations -- that would be wrong and impossible.

The answer is to organize a world-wide effort to create the technologies that will provide renewable energy and allow us to use our resources sustainably.

Republican attempts to block Federal support for renewable fuels and efficient sources of propulsion fundamentally undermine our children's economic future. And they are the kinds of positions you would take if you intentionally set out to undermine America's competitive position in the world. Given the speed with which countries like China are developing these technologies, you might think that they were working for the Chinese government. But you would be wrong. They're working for the giant oil conglomerates.

To overcome this massive barrier to long-term, worldwide economic growth three major initiatives are especially critical:

  • A crash program to produce a renewable source of energy to replace rapidly diminishing fossil fuels. Conservation can save lots of energy, but in many respects increasing productivity is about the substitution of other forms of energy for human energy. Renewable energy is a must.
  • A similar world-wide effort must be made to develop an energy efficient system for desalinating water. Fresh water is increasingly in short supply. Conflicts over water will be one of the major causes of instability and war in the decades ahead. There is water, water everywhere in this world, but not much of it we can drink. Technology can solve that problem if we focus in now.
  • Investment in family planning and the education of women are critical. Both have an enormous impact on reducing the exploding population growth that limits per capita economic growth directly -- and makes long-term disaster more likely by creating unsustainable pressure on the earth's natural resources.

In his brilliant book Collapse: How Societies Choose to Fail or Succeed, Pulitzer-prize winning physiologist and ethno-geographer Jared Diamond investigates the collapse of historic societies. One of the chief factors he identifies is a conflict between the long-term interests of the society at large, and the short-term interests of elites that control decision-making.

The goal of right-wing economic positions is not to deal with these and other long-term economic problems. It is to protect the narrow, short-term interests of a small elite.

Progressive economic policies are the key to long-term, shared prosperity. Right-wing policies won't work to create economic growth -- and they gravely endanger our future.

In next year's election America will make a critical, historic choice. You can't affect that choice by watching the debate on TV or reading about it on the Internet. It will be decided by people who get into the arena and join the battle for the future.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com. He is a partner in Democracy Partners and a Senior Strategist for Americans United for Change. Follow him on Twitter @rbcreamer.