Tag Archive for national economy

Class warfare unabated

By Ron Forthofer
Longmont Times-Call, November 23, 2010

During the recent financial crisis, the privately controlled Federal Reserve led an effort that provided $13 trillion of taxpayer money to bail out the financial sector, which, through crimes and speculation, had almost caused the collapse the world’s financial system. Yet many of these wealthy gamblers were bailed out while the needs of the public were mostly ignored.

Warren Buffett stated it well in a Nov. 26, 2006, New York Times article : “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

During the Wall Street bailout, there was nary a word about the consequences for the deficit or long-term debt. Since then, there has been a steady drumbeat about the debt, with particular concern raised about Social Security and Medicare, two programs that greatly benefit the public.

On Feb. 18, President Obama created a commission to make recommendations on reducing the deficit and long-term debt. The co-chairmen recently presented their proposals, a few weeks before the full commission’s results are due. As expected, they laid out a proposal that mostly, but not completely, targeted programs benefiting the public. I am all for being fiscally responsible, but It needs to be done in a way that protects the public’s interest. The co-chairmen could have presented these Ideas:

• Reinstate the progressive tax levels from the Eisenhower era thus requiring that those who ‘greatly profited from the financial crimes and speculations of this decade share in the sacrifices demanded of “we the people.”
• Place fees on speculative financial activities that would raise large sums and decrease the risk of another financial disaster.
• End corporate welfare.
• Eliminate fraud and waste in military contracting.
• Reverse the wasteful privatization of the military effort and other public work.
• Greatly reduce the military budget. We need a military for defense, not for running an empire.
• End our occupations of Iraq and Afghanistan and pay reparations for the devastation we caused.
• Enact single-payer health care reform.

The co-chairmen could have taken on the greed, fraud and waste inherent in our corporate dominated system that benefits the few at the top, but they didn’t. Unfortunately, their proposals were not surprising. In “Wealth of Nations,” Adam Smith warned that “The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

How much longer will we tolerate the transfer of wealth to the top while we are made poorer and poorer? Almost a century ago, Supreme Court Justice Louis Brandeis warned: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” Which do you want: democracy or oligarchy? ‘To get involved, call Carolyn at the Rocky Mountain Peace and Justice Center, 303-444-6981.

Ron Forthofer, a retired professor of biostatistics has been a Longmont resident for 19 years.

Rescued against all odds

Some people toss terms like snowballs – terms such as “socialism” and names of political parties, etc. I’m not a member of the latter or an advocate of the former, per se. But it’s a shame that misinformation and angry rhetoric make reasoned debate impossible.

Start with taxation. Income taxes are marginal – that is, only the income between amount x and amount y is taxable at a certain rate z. That income above $374,000 a year is today subject to the top rate. The top 1 percent of income earners in the U.S. paid an average federal tax rate of 19 percent in 2007 (2008 data are not yet available). The top 5 percent paid an average of less than 18 percent.

There cannot have been much “socialism” around lately if U.S. corporations were able to amass more than $1.8 trillion – a mountain – in cash. That’s a lot of Ford trucks.

A few years ago, Sweden suffered what would today seem to us a minor economic setback. Its socialistic system quickly righted the ship, and now that country faces far fewer challenges than we do. Norway displays extensive government economic planning based on welfare capitalism. The Norwegians boast the highest GDP per capita on the planet.

What of the dark side? Lacking stimulus, Ireland’s economy contracted last year by 7.1 percent. The Irish, by the way, significantly reduced their corporate tax rate in the late 1990s. Here in the U.S., private-sector wage income shrank last year by about 5 percent. Since early 2008, the dollar loss exceeds $300 billion. That’s also a lot of Ford trucks.

Since New Year’s Eve, American business has added a net of only about 200,000 jobs. The federal stimulus is the reason firms are back on their feet. Europe was more tentative with stimulus, a big reason why that region is in worse shape today. In short, the folly of opposition to relief efforts such as extension of unemployment benefits is like throwing a cigar butt instead of a life preserver to a drowning man. Unemployment is quite corrosive. There is peril in allowing creation of a stratified society.

Venture capitalists today structure their business plans with a specification regarding maximum and most speedy transfer of jobs from a young enterprise to China. There’s loyalty for you.

It is clear to most economists today that lingering corporate refusal to hire poses a significant risk to the onset of a sustainable recovery. Talk about a self-fulfilling prophecy. Business has a responsibility to maintain the industrial base and the society whose stability we may have taken for granted. Who said that? Former Intel CEO Andy Grove.

No less prominent Republicans than Richard Cheney and Ronald Reagan asserted (one in word, the other in deed) that “deficits don’t matter. ” Without significant changes to the tax code, revenues cannot deliver a balanced budget. Weak revenues are the largest cause of the deficit – federal tax receipts in the first quarter amounted to 15.76 percent of (a reduced) GDP, while the average since 1947 is 18.04 percent. We grew a lot since 1947. To rapidly reduce deficits at this point would mean flirting with a severe economic decline that looks “downright frightening.” I didn’t make this up; the writer is Jeremy Grantham, one of the most respected money managers on the planet. It is essential for everyone to comprehend that the only significant contributions to positive economic indicators (and there still are some) have since early last year been reflective of government efforts to shore up the economy.

What would some rather have? Depending on the discretion of that 1 percent to dole out a little largesse now and then? I don’t know about you, but slavery has never appealed much to me.

The U .N.’s Human Development Report of June 8 tells us the United States is “better” than Turkmenistan in terms of income inequality, but 76 countries place ahead of us. Perhaps now we can all see what’s behind all the talk about deficits and socialism. The well-off among us should recruit workers, not word warriors.

Gregory Iwan retired to Longmont in 2007. Mercifully, only about one-fourth of his career was spent as an economist.