The Republican Five Year Plan

Although I resolved to write no blogs while on vacation, watching just part of the Republican debate running up to the New Hampshire primary made my blood boil. Even allowing for the candidates needing to appeal to the most misguided wing of their party, the economic generalship they displayed can only be compared to plans for British mass infantry attacks on German trenches in France during World War I.

The central theme of economic planning, Republican style, is eliminating the taxes the rich pay. The truly rich, the already rich, actually don't worry that much about income taxes. Income taxes are for the working poor and the small class of professionals who get wages or salaries over $100,000 per year. The truly rich get their money from inheritances, capital gains, interest, and dividends. All the Republicans want to reduce taxes on these categories of non-income. Most of the candidates wanted to reduce the rates on these categories to zero. Mitt Romney, the moderate, settled for reasonably near zero. In addition, they want to cut the corporate tax rate.

They gave two rationales, both about as plausible as medieval Catholic tests for witchcraft. One is that these cuts only incidentally help the rich, but they really are aimed at helping the middle class. That might be true if by middle class you mean families with assets between $10 million and $100 million, which would indeed generate capital gains, interest and dividends worth worrying about.

The other is job creation, Want jobs? Stop taxing the rich!

If you believe that you probably also believe that God was so infertile he only could manage one child.

What will rich people and corporations do if their tax rates are lowered?

Oh, sure, they may add a job or two here or there. But mainly they will either spend the money on themselves or play financial games with it.

Rich people spending more money could create a few more jobs, especially for luxury leather goods workers in China (whose work product is labeled as Italian). A few people will upgrade from private prop planes to private jets, which I suppose would require a few more factory workers. More cocaine will have to be ponied into the U.S., which creates jobs. Mansions may be expanded or remodeled, expanding the construction work force by a few tens of thousands.

Let's talk about reality now.

Job creation and destruction is dependent on a large number of variables.Most jobs are created when employers (corporate and individual) think they can make larger profits by adding staff. Jobs of the self-employed type are also created by increased demand for services: if consumers are willing to pay (well) for a service, someone will provide it.

To increase demand, American consumers as a whole need to be able to spend more. This can be because more of them are gainfully employed, or because those that are employed are getting higher wages.

The Republican Five Year Plan, essentially central planning by capitalists to further enrich themselves at the expense of the working class, doe not address generating increased demand.

Jobs, and demand, would be generated naturally (in our mostly-free-market system) by increased employer and consumer confidence. Those rely, in turn, on a stable credit and money supply (the job of the Federal Reserve) and a lack of turmoil in Washington.

While the federal deficit and debt need to be addressed once we have an economic recovery, what we really need now is higher taxes on the rich and a closing of corporate tax loopholes and subsidies. The rich, unlike the poor, love money above all else. Tax them more and they will climb out of their $1000 bottle of wine stupors to make up the difference. To make up the difference, they will need to exploit more workers. To exploit more workers, they will have to hire them.

Higher taxes on inheritance, capital gains, dividends and interest are the best policy for job creation in the United States. The taxes could be set too high, but that is not our problem right now. When Republican President Dwight Eisenhower left office in 1960, during our period of greatest prosperity, the maximum tax rate was 91%. We may not need to go that high again, but rates should certainly be higher than they are now, if we want the U.S. to continue to be an economic leader of the world.

Where are the Jobs?

Yesterday a friend called up, highly distressed. Her last short term job had been as a census worker in 2010, and her jobless benefits ran out this May. She is about to become homeless, although that probably means she will start couch surfing, not living in the street. I know she has not been diligent looking for work. Like some of my acquaintances, she enjoys a prolonged, taxpayer-funded vacation from the stress of work. Nevertheless, she has done some looking, and if jobs were more plentiful here is California, she would probably being going to work on Monday instead of facing an eviction notice.

Multiply that by about 14 million, and you have a nation filled with capable people who are not employed. The lucky ones are getting unemployment compensation. State benefits typically last six months; the Federal government extends that to a full two years during times of high unemployment.

There is no one cause of unemployment, but there are a few key factors at play. There are two big holes in the economy right now. One is construction, with its attendant employment of realtors and of workers that produce products that normally go into building like wood, cement, glass, and metal.

The other is government, particularly state and local governments. Ever since the economy turned up from the depths of the recession, private employers have been hiring, if not as quickly as we would like. June brought another wave of layoff notices for public employees like teachers, bureaucrats, and police. The net has been very few jobs.

In 2008 the Republicans and Democrats united briefly to save Wall Street, the banking system, and the big American automobile manufacturers. That done, they fell to quarrelling. The Republicans quarrel among themselves, Tea Party people against the old school. Almost no one listens to Barack Obama, whose lack of leadership qualities were disguised by his rhetorical abilities until he actually became President.

But high unemployment is not Barack Obama's fault. It is not anybody's fault. It evolved over time, and our politics have not yet evolved to the point where we can deal with the new reality.

Let's start by putting on our thinking caps. Why not use the money that is paid out in unemployment to pay people to do real work? In the most appalling cases, public school teachers are laid off, so they can sit on their butts for two years while the few remaining teachers take on ever more students. Can you spell S-T-U-P-I-D? But the same is true in the private sector. Some people get worked to death during a depression and almost wish they had been lucky enough to be aid off.

The problem is that our economic rules and regulations, and even business culture, are "fighting the last war." That is, they were designed to fix problems that might be the same on the surface, but that have different causes than in the past. So the fixes don't work any more, at least not as well as they should. We are feeding leaded gasoline to cars designed for unleaded, then acting surprised when the engines die.

Most of the programs we now have to deal with recessions and unemployment were initiated during the Great Depression (with bipartisan support, I might add. Go look at the Congressional Record if you don't believe me). Some pre-date that, like the Federal Reserve System. The Great Depression itself had no one cause; it was the perfect storm of changes in the global economy and American culture and politics. Hoover did not have the tools in place to deal with it, and even the New Deal did not work well. If Hitler had not started World War II (causing everyone to start ordering arms and grain from the U.S.), the Depression might have lasted even longer than it did.

Some people thought that war spending was the ticket, after that experience. The problem is that while the U.S. benefited economically from the war, the economies of Great Britain, Germany, France, Italy, Russia, China and Japan were essentially destroyed. The U.S. make out best when other nations fight. Other nations make out best when they remain neutral and the U.S. fights the evil villain of the decade. The only defense spending that really helps the U.S. economy is when it is just a fig leaf for civilian spending, like the Federal Defense Highway System. Built to move tanks around the nation quickly and make road contractors rich, that defense effort is now what we call Interstate Highways.

Some people think China is to blame (two decades ago they said the same about Japan). As late as 1750 China had the world's largest economy, then it was ripped to shreds by the Great Powers (including the U.S.) and had a third world economy by 1950 when the Communists took over. I don't see how we can honestly blame China for unemployment in the U.S. In fact, if not for China buying U.S. products, we would have even more unemployment. China would buy more products if we produced them. We don't produce more products because over 10% of our workforce are loafing when they'd be willing to work if they were offered a job and their unemployment checks were cut off.

Unemployment insurance was designed to provide temporary relief to workers, allowing them to find new jobs and stay productive. During recessions it also answers as a counter-cyclical measure, keeping demand up until the business cycle gets going again. It is not a jobs program. We had no real jobs programs during the Great Recession. Some extra money was spent on infrastructure, but infrastructure work is highly mechanized and the money goes for cement and diesel fuel for bulldozers and cranes. Only a fraction is used to hire workers.

Aside from government stupidity, which is ageless and unlikely to change, the root cause of joblessness is inefficient allocation of capital, which is a function of capitalist stupidity. Let me be clear: American capitalists are rapidly becoming world class idiots, and I don't just mean Donald Trump. Not all of them are dysfunctional, there is a spectrum, but a significant proportion of our capitalist class are seriously screwing things up for all of us.

There have always been some stupid capitalists, in particular heirs to capital have a way of regressing towards not being much smarter than the average joe. Over time that sort of ordinary ineptitude sorts itself out, as their heirs of the Carnegies and Fords lose their dough to the up and coming Bill Gates and Mark Zuckerbergs.

Nevertheless, the American capitalist class as a whole has seriously ossified during the last 30 years. They want sure things; they are risk averse. Hiring people for existing businesses is a risk. Starting a new business is very risky. Sure there are people who still do that, like venture capital firms, but they are the exception.

Government could do something about joblessness, but won't. It isn't that the Republicans are standing in the way of the Democrats. Ever since George McGovern failed to get elected President the Democrats have been quite capable of standing in their own way.

The good news is that we are still at the beginning of an economic up cycle. As the economy improves, our capitalists will feel safer, and want to use their money to make more money, rather than just hoarding it. To do that, they will have to hire more store clerks, maybe even begin making housing loans again, and paying workers to repair homes so people can move back into them.

If the capitalists were really smart, they would fire their $10 million + a year corporate CEOs and hire equally competent, probably more competent men at a fraction of the cost. The fact that they can't be bothered to do that shows just how bad they have become at allocating capital.

Stop the General Motors Bailout

Some members of Congress appear to be getting ready to bailout General Motors, aka GM. This would be bad for America. Allowing GM to go out of business would be a very good thing. And it GM is to stay in business, the money should come from its shareholders, not the taxpayers.

The pimps in Congress who want money for GM, and the corporate press, will be careful not to remind you of all the dividends that were drained out of GM over the last century. If even the dividends paid out in the last ten years had been kept and used to create a cash reserve, or invested in producing small, energy-efficient cars, GM would be fine right now.

How about sucking the dividends back in? Have GM send to its stockholders notices saying that if they don't send back the dividends, GM will go under. See what happens.

Think of the enormous benefits America will see if GM goes under. Ford and Chrysler have plenty of capacity to supply U.S. consumers with cars. In addition, when GM goes under, everything it owns will go for sale under the bankruptcy court. Maybe a foreign car manufacturer, Tata or Toyota or Fiat, that has more competent management will buy the whole thing. Maybe some parts of it will go here, some parts there. Maybe GM will be broken up into four or five smaller American-owned companies that are better managed, nimbler, and capable of operating in the 21st century.

So why is the Democratic Party leadership so keen on giving your taxes to a bunch of old corporate capitalist types. They will say it is jobs. That is their sales pitch. But the same money could create a lot more jobs if put into any industry other than auto manufacturing.

To be efficient, robots have to be used to run modern automobile factories. So there are two choices for your taxpayer dollars: recreating an inefficient GM with human jobs, or creating an efficient, competitive GM with robots replacing workers.

Let us just face up to the fact that when push comes to shove, the Democratic Party uses taxpayer dollars to do its campaign donors bidding. Between the United Auto Workers, the GM bosses, and hedge fund managers, Barack Obama and other Democratic Party officials were flooded with money this campaign cycle. Those donors want to be repaid. Job creation is just one Democratic Party standard marketing tool. I am not against job creation, but I know when it is a sales pitch instead of the real deal.

GM purposefully made and promoted miles-per-gallon, expensive SUVs that they knew were killing the planet (see Global Warming) and impoverishing consumers. They were happy to make us dependent on foreign oil and lobbied for drilling for oil in ecologically sensitive areas of the United States.

If GM's management deserve anything from the government, it is the gallows.

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General Motors