As an accountant, here in New York City, the closing economic argument for this campaign is simple:
1. Economists that the right often cite know that it takes much longer than 4 years to recover from a recession as systemic as was the one we had 4 years ago;
2. The economy is improving; and
3. The Republicans, and Romney in particular, are running on the idea that lower marginal tax rates will improve the economy. Yet the non-partisan Congressional Research Service has proven that false. There is no correlation between tax rates and economic growth.
4. Those who call for the end of rules and regulations do not realize that regulations to manage the economy are essential to maintain our democracy.
Details below the fold:
Let's start from the top:
1. On Friday, Jon Ward quoted former President Clinton at an Ohio Rally.
[Clinton] got the crowd's attention with this comment: "The whole election may come down to this, this one thing."So, this argument that Romney is making that Obama somehow failed to bring the economy back is a red herring. No one could have brought it back in this short of a time, not even FDR.
"I know that no one who ever served as president -- not me, not Franklin Roosevelt, not anyone -- could have repaired all the economic damge done during that crash in four years," Clinton said.
And then he cited a book called This Time It's Different: Eight Centuries of Financial Folly, by Kenneth Rogoff and Carmen Reinhart.
This book has become a reference point for many concerned about the nation's $16 trillion debt. Rogoff and Reinhart wrote that history has shown that once a nation's debt swells to 90 percent of the gross domestic product, it takes a percentage point off of that nation's economic growth per year.
Essentially, as they said in a column a year ago, "too much debt means the economy can't grow."
The $16 trillion in U.S. debt is about equal to the total U.S. economy, though Rogoff and Reinhart's precise metric was debt held by the public. That figure is about $11.3 trillion and does not include the $4.8 trillion in intra-governmental debt, which refers to money owed by the treasury to government accounts, such as the Social Security trust fund.
Clinton said Rogoff is a moderate Republican. And then he related a conversation he had with Rogoff after reading his book.
"I called him on the phone and I said, 'I read this very carefully. I just have a question. Do you believe that there's any way America could have fully recovered from that crash in four years?'" Clinton said. "He said, 'Lord no.'" [emphasis added]
2. the economy is improving. The unemployment rate has gone from 9% to under 8 since the beginning of the year. We were losing jobs, now we are gaining jobs. This is the easiest argument to make. Is it enough? No. Are we "there" yet? No. But, as the point above makes, that is a moot point. No one could have fixed the economy in that short of a time.
Before President Obama took office, the economy was losing 800,000 jobs a month. Now, we've seen 32 consecutive months of job growth and 5.4 million new private sector jobs. This is an easy argument to make. The economy is absolutely stronger than it was 4 years ago.
3. Now we get to the fun stuff. The GOP ideologically have been convinced, since before Reagan, that "Trickle Down", aka "Supply Side" economics, works. They were bold enough to ask the impeccable Congressional Research Service, a nonpartisan congressional service that is above reproach. They asked them to prove that lowering tax rates improved savings, investment, and economic growth. They came back and showed that there was NO correlation at all. So, what did the GOP in congress do? They tried to kill the report.
What did the report conclude?
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.And that's absolutely true, and I will make this point in a bipartisan manner. The truth is that when you think, historically, of a time when the economy was running on all cylinders, you might think of the 1950's. That's when "What was good for GM was good for America," a phrase that is somewhat ironic today. The economy was thriving under Eisenhower Republicanism. We built the interstate highway system with tax dollars back then, we were comfortably home from the war, and, while we had the constant threat of the Cold War, and the start of the Civil Rights Movement, the economy was terrific.
However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.
And how much did the federal government take, not of all income over $250K, but of only $100K? It took 90%. AND, the economy was booming.
Why? Because of priorities. With the marginal tax rate at 90% for income over $100K, CEO's didn't attempt to cannibalize the company by siphoning billions in compensation while laying off workers. Because the marginal tax rate was so high, deferred compensation was crucially important, and, with incentives to save tax dollars, both corporations and individuals invested in defined benefit pension plans, not 401(k)'s. Instead of paying the top executives millions and laying off workers to maintain their lifestyles, the CEO's recognized that the best way to avoid taxes was to pay employees a living wage and invest in their companies' own infrastructure.
With low tax rates, and low capital gains rates, the US has shifted from an economy that produces goods and services to an economy that produces financial instruments. And, as the report says, that doesn't improve "savings, investment, and productivity growth." It simply concentrates the wealth in the hands of fewer and fewer.
Yes, spending is an issue. And, spending is only an issue in relation to revenue generated. Spending is only an issue when it is greater than revenue received. Mayor Bloomberg, who knows a thing or two about accumulating wealth, said a year ago that everyone, not just the rich, should kick in more in taxes if the country is going to dig its way out of debt. . Just Thursday, in response to the hurricane Sandy, Bloomberg said, “New York City taxes itself and spends the money to protect us and to have the services that will keep us going. And I know of no other city that does that. Which always annoys me when they say, ‘Oh, you’re a high taxed place,’ Yeah, and we get something for it.”
I have a good friend who is a libertarian, who asked me, then, "How much should we tax people earning over $250K?" Maybe it should be 90%, as it worked well under Eisenhower. Or 70%, as it worked well under Kennedy - who had a balanced budget - and LBJ, when the economy was soaring as well. But Obama is only calling for 39.6%, which was where it was under Clinton, when, once again, the economy was booming.
Right now, interest rates are microscopically small. Borrowing money today to improve the economy makes sense, because there is almost no debt service on the money borrowed. Japan is improving its economy dramatically. Why? Because of government spending that came after the earthquake. Government money stimulates the economy six ways to Sunday, as they say. Only when the economy is thriving does it make sense to cut spending. Otherwise, with austerity measures, you have what they have today in Greece. You don't want that.
The issue is not tax rates, nor taxes collected. Not by itself. Nor is spending. The issue is two-fold: One is, what should the relationship be between the tax revenue raised and the spending of that revenue? And the other is, what kind of society do we want to be? Because the truth is, if the Ryan budget went into effect last year, and FEMA had been cut by 40% as he wanted it to be, then we here in New York City might not have been physically able to have this conversation right now.
To understand why this is true - why trickle down economics does not work - let's take $20 million dollars. Let's give $10 million to one, I dunno, hedge fund manager, or CEO of a Fortune 100 company. Let's divide the other $10 million among 25 guys each earning $200k each, and another 50 people earning $100k each. So we have 1 guy earning $10 million, and 75 people splitting the other $10 million. I'm having these 75 people earn a decent salary, so that we don't confuse the issue by dividing it among people who earn $9 an hour. These 75 people are reasonably well off.
Even so, my question is this: which $10 million will better stimulate the economy? How many more cars, refrigerators, dinners out, movie tickets, etc., etc., will one $10 million purchase compared to the other? Most likely, the guy who earns the $10 million himself won't spend much of it. He or she will probably do some, maybe by a car or two, but will primarily invest it, which means that he or she will exchange the money for a different means of exchange - a stock or bond on the secondary market, for example. He or she might just sock it away in the Cayman Islands. It's the concentration of the wealth among a smaller and smaller population.
Who are the proponents? Romney, Boehner, and the entire Republican Party, for starters, as well as some Democrats, Libertarians, Ayn Randians, and Neo-Con Free Market types. But, as you can see, it just doesn't work.
Henry Ford, in his genius, knew that he had to figure out a way to pay his workers enough to buy his cars. Having more people earn that $10 million will cause more cars to be bought. Having fewer people earn that $10 million concentrates that money into fewer hands, and there are only so many cars, refrigerators, homes and dinners out that one family can purchase in a year, compared to 75 families, let alone more, if we spread it out a bit.
Regulation, the rules they tell you to hate, are the way we apply democracy to the economy. Votes versus dollars. I think you can understand that. Yes, I know, the government is deeply fucked up. That's the U.S. government, the UK government, and let's not even talk about the Chinese, Malaysian, and Tanzanian governments. People have been belly-aching about rules and regulations ever since Moses schlepped the first ten down from Mount Sinai.Of course, most of the Fourth Estate are "repeaters," not "reporters," which is why we Kosacks, and others, are so important.
But the Big Problem with government is that we don't have enough of it; the rules aren't tough enough to stop BP from blowing Cajuns to Kingdom Come. Or the rules are corrupted, made by politicians who are greased....
If you're screaming for the "guvmnt to git off" your back, I see your point. But you're still a loser, a cheap mark, a decoy duck, a dim, unwitting stooge for forces even more powerful than that ugly guvmint, a toy for powers who are shitting on you while telling you it's raining chocolate.
But then, who regulates the regulators? Well, Shaw Construction for one. Shaw is now constructing a plant that will turn plutonium from old atomic bombs into nuclear plant fuel. The Nuclear Regulatory Commission exempted Shaw's bombs-to-nukes plant from anti-terrorist security measures. A commissioner who voted for this take-a-terrorist-to-tea exemption, Jeffrey Merrifield, now works for Shaw. And the Secretary of Energy who promoted the plan, Spencer Abraham, is now Chairman of Areva USA, partner in Shaw Areva MOX Services.
Heinrich Himmler's solution to the problem of having to look into the eyes of your kill was to industrialize the process, using gas from I.G.Farben Corporation and ovens from Siemens AG. They just took the orders.
But there's a regulator of regulators we must rely on. The Fourth Estate.... That's our job as journalists, to rip away masks...."
Anyone who tells you that there is too much regulation perhaps does not care if there is e coli in the broccoli they eat, lead paint and other toxics in the toys their children, nieces and nephews play with, or mold that causes meningitis in the antibiotics that might be prescribed.
Regulations protect the rest of us from this sort of thing. I'm sure that when the reader goes the the supermarket, you appreciate the "sell by" dates on dairy and meats. That's regulation. It protects us from the profit motive. That's an economic argument. I'm also sure that when you go to a restaurant, you appreciate that the employees must wash their hands before using the bathroom. That's just common sense, but it is also a regulation. Before we start talking about regulations as "bad," and full of red tape, we have to recognize that at least some of them are necessary and worthwhile.
So that's the closing argument. The recovery had to take longer than 4 years. Anyone who says differently (Romney) is lying (how about that!), and the ecomony is improving. The entire economic argument, that we need lower tax rates to grow the economy has been systematically debunked. And unless you no longer care whether restaurant employees wash their hands after using the toilet, you have to agree that at least some regulation is important. After that, you just have to figure out which other ones are, too.