The Charles Koch Foundation recently released a commercial that ranked a near-poverty-level $34,000 family among the Top 1% of poor people in the world. Bud Konheim, CEO and co-founder of fashion company Nicole Miller, concurred: “The guy that’s making, oh my God, he’s making $35,000 a year, why don’t we try that out in India or some countries we can’t even name. China, anyplace, the guy is wealthy.”
Comments like these are condescending and self-righteous. They display an ignorance of the needs of lower-income and middle-income families in America. The costs of food and housing and education and health care and transportation and child care and taxes have been well-defined by organizations such as the Economic Policy Institute, which calculated that a U.S. family of three would require an average of about $48,000 a year to meet basic needs; and by the Working Poor Families Project, which estimates the income required for basic needs for a family of four at about $45,000. The median household income is $51,000.
The following discussion pertains to the half of America that is in or near poverty, the people rarely seen by Congress.
This sum – targeted to roads, rail, bridges, power, water, schools and similar projects – is roughly equal to the entire US Federal budget for a year. Paid for on-budget, these upgrades would add $600 Billion per year, costing more to the American taxpayer than Medicare. Paid for by borrowing, the interest on the national debt, already expected to reach $1 trillion per year by 2020, would spiral further out of control.
It may seem hard to believe, but back in the 1930s the Federal government put Americans to work who couldn’t find a job in the private sector. Imagine that, the government assisting the unemployed by providing them a job. Instead of giving them a handout, able bodied men and women out of work joined Federal programs such as the WPA (Works Progress Administration). The WPA was and still is considered to be one of the most successful New Deal programs, yet it’s largely forgotten today.
The WPA employed over 8 million Americans from 1935 to 1943 and pumped $11 billion into the economy($170 billion total/$19 billion each year by today’s standards). In the first year alone, the WPA employed over 3 million Americans on public works projects across the nation. In total, the WPA constructed 116,000 buildings, 78,000 bridges, 651,000 miles of road and improved 800 airports.
Looking back on the great depression that began in 2008, economists have their ready explanations. The American trade imbalance had been disastrous for years; the Bush administration was piling up massive budget deficits; Americans were not saving—indeed many were re-mortgaging their homes to maintain spending—while investors from abroad, particularly the government of China, were being relied upon to cover the shortfalls. It couldn’t last, the economists agreed in retrospect, and in 2008 the tipping point was reached.
One thing, however, continues to puzzle these economists. The American economy looked so good back then: corporate profits were robust, and American business seemed amazingly efficient. “Productivity rises in the U.S.,” ran a headline in the International Herald Tribune in December of 2005, with the subhead, “Labor costs decrease as output increases.” It sounded so encouraging. How could this have happened?
Productivity Gains as Losses
The answer lies beneath the statistics of those macroeconomists, indeed beneath the theories of the microeconomists, who have always seen the corporation as an individual, whether the founding entrepreneur or some subsequent chief executive who maximized “Shareholder Value.” Underneath its chiefs, beyond its productivity, much of American business was rotting from within. Productivity was destroying not only America’s great enterprises, but also its legendary enterprise.
In my last article, I explored the idea of Youth Social Security. Many said it was a good idea in theory but would be difficult to pay for. Sure, it would be difficult for us, the average American, to pay for. It’s well known that nearly 70% of income taxes are paid by the wealthiest Americans (keep in mind their rates have also steadily dropped over several decades); while almost half of those currently working don’t pay any income tax. However, has one ever considered that half of the country is too poor to pay? All the while, the shrinking middle class is wondering whether it will end up richer or poorer.
“It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.” FDR, January 11, 1944, State of the Union Address
Now more than ever, there is a fear of what the future will bring. Americans of all walks of life are struggling to make ends meet. It has become abundantly clear that “trickle-down” economics bore little fruit. The millennial generation, my generation, is looking for leadership and solutions to guide them through these difficult economic times.
Purchases of American products generally come with a sales tax, and often an excise tax, and possibly state and local add-on taxes. A consumer can avoid all this by limiting purchases to food and prescription drugs, or by shopping online. There’s one more way—by visiting a nearby financial exchange and buying a million dollars worth of derivatives.
There is currently no U.S. tax on the purchase of stocks, derivatives, and other financial instruments. The rest of us pay up to a 10 percent sales tax on the necessities of daily life. A tiny financial transaction tax of perhaps a tenth of a percent on the trading of financial securities would begin to correct this inequity, while generating billions of dollars of revenue.
As of March 2014, Hong Kong and Singapore and Australia and Switzerland were the top four countries on the Heritage Foundation’s Index of Economic Freedom, and they ALL have FTTs (Table 2-9). Critics might argue that other non-FTT taxes are lower in Singapore and Hong Kong. But the World Bank dataset shows the U.S. with lower tax revenues as a percentage of GDP, and the CIA World Factbook shows little difference in the same measure. Economic freedom is not restricted by reasonable taxes on financial transactions. Economies may, in fact, be made freer by encouraging small-business investment over high-frequency trading.
Congressman Paul Ryan has been focusing on poverty since before the 2012 election. Ryan recently said “We’ve got the 50th anniversary of the war on poverty coming up next year. We don’t have much to show for it.” Not much to show for it, huh? Medicare, probably the most enduring legacy of the Great Society, has lifted millions of seniors from poverty. In 1967, the poverty rate among those 65 or older was 30 percent; in 2011 that number was 8.7 percent. The Head Start program has given millions of children the chance to escape poverty through early investments in education. These are just a couple of the many accomplishments of the Great Society’s war on poverty. Furthermore, it’s unfair and misleading to call the war on poverty a loss because many of the programs have been either altered or completely abolished. For example, the Personal Responsibility and Work Act of 1996 gutted many of the key components of the war on poverty. So when Congressman Ryan says we have little to show for it’s because key provisions of the Great Society have gradually been dismantled over the last few decades.
The October jobs report by the Labor Department shows unemployment rising to 7.3 percent. However, that doesn’t account for those who stopped looking for work or are underemployed. Not factored in unemployment numbers is the over 300,000 people who stopped looking for work in the last month alone. Add to that the Labor Department’s “alternative measures of labor underutilization,” which stands at 13.6 percent and you find a crippled workforce.
According to numbers from the Department of Labor, 8.7 million jobs were lost during the Great Recession, which lasted from February 2008 to February 2010. Since 2010, about 7.2 million jobs have been added. Unfortunately, many of the jobs created were seasonal or part time.
The Peterson Foundation reacted to the President’s budget document with a reportrepeating its usual whining about the debt problem, and the need to cut entitlements. Here are quotations from the report and my explanations of why they are ridiculous deficit/debt terrorist nonsense.
While today’s deficits are much lower than those during the financial crisis and recession, over the next ten years debt will remain at historically high levels under the policies outlined in the President’s budget. Over the long term, our debt is on a rising and unsustainable path that harms our economy and threatens our future standard of living.
First, Government deficits that don’t exceed the sum of private sector savings and trade deficits are not bad for the private economy. They are good because they contribute directly to private sector savings and the aggregate demand and subsequent economic growth it can create. It would be nicer for all of if Mr. Peterson learned that lesson before his propaganda turns the US into a third world banana republic; unless, of course, that’s what he’s about.Continue reading Peterson Thinks We Need Austerity While He Lives It Up!→