Inequality: Obama’s Speech, Detroit’s Bankruptcy, Taxes

by Linda Beale

Inequality: Obama’s Speech, Detroit’s Bankruptcy, Taxes
Was Obama’s speech on inequality really what Michael Lind claims in “The Day the Right Lost the Economic Argument” (July 25, 2013)?

The right, both here and internationally, has been pushing for austerity for most while those at the top reap unparalleled rewards from upward-moving stocks and their interests in private equity and other financial assets.  The problem with austerity is that it puts all the burden on those who can least bear it, and rewards those with capital assets (mostly, people who grew up from birth onwards with incredible advantages).  The problem with austerity as the prescribed path to prosperity is that it doesn’t work.

Obama’s speech, says Lind, gave “a capsule summary” of mainstream progressivism.

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain – a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

But over time, that engine began to stall. That bargain began to fray. Technology made some jobs obsolete. Global competition sent others overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people’s wages and salaries was severed – the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up [resulting in a devastating financial crisis and recession].

The progressive prescription for curing the economy isn’t austerity–it is investment in infrastructure, education, innovation, and restoration of a manufacturing base that makes things in the USA for sale and use in the USA.

Manufacturing:  “The first cornerstone of a strong and growing middle class has to be an economy that generates more good jobs in durable, growing industries. Over the past four years, for the first time since the 1990s, the number of American manufacturing jobs hasn’t gone down; they’ve gone up. But we can do more. So I’ll push new initiatives to help more manufacturers bring more jobs back to America.”

Innovation:  “And I’ll push to open more manufacturing innovation institutes that turn regions left behind by global competition into global centers of cutting-edge jobs.”

Infrastructure:  “We’ve got ports that aren’t ready for the new supertankers that will begin passing through the new Panama Canal in two years’ time. We’ve got more than 100,000 bridges that are old enough to qualify for Medicare. Businesses depend on our transportation systems, our power grids, our communications networks – and rebuilding them creates good-paying jobs that can’t be outsourced. And yet, as a share of our economy, we invest less in our infrastructure than we did two decades ago.”

…[and Education:] If we don’t make this investment, we’ll put our kids, our workers, and our country at a competitive disadvantage for decades. So we must begin in the earliest years. That’s why I’ll keep pushing to make high-quality preschool available to every four-year-old in America – not just because we know it works for our kids, but because it provides a vital support system for working parents.

Of course, as Lind notes, Obama flunked on one point–his concession to the radical right that we have to cut back on Social Security and Medicare when in fact we should be finding the means for making Medicare universal (cutting private insurance out of basic health care provision) and making Social Security better for many of the lower-tier retirees (assessing the tax on all compensation income, defining compensation income to include fund managers’ “profits interest” shares of purported partnership income and gains, and making the benefits continously progressive as the recipients move up the overall income scale).

Obama continued his bully-pulpit discussion of America’s growing inequality and the problem of right-wing obstructionism in an interview with the New York Times, discussed by Kate McDonough, Obama Warns Growing Inequality is Weakening America; Slams Obstructionist GOP, (July 28, 2013).  In the interview, Obama commented on the civil rights movement and the 1963 March for Freedom, noting that they weren’t “just folks who believed in racial equality. It was people who believed in working folks having a fair shot.”If Congress doesn’t act to address these issues of inequality, he said that ”racial tensions won’t get better; they may get worse because people will feel as if they’ve got to compete with some other group to get scraps from a shrinking pot. If the economy is growing, everybody feels invested. Everybody feels as if we’re rolling in the same direction.”

That fits with the economist Benjamin Friedman’s arguments that broad-based growth is the baseline requirement for a fair society in which everybody enjoys a better quality of life.  It also fits with recent studies that show that inequality in the US has resulted in an abundance of bad news along most measures of quality of life–from teen pregnancies to illiteracy rates, from shorter lifespans to higher costs of health care, from fewer college-educated citizens to higher unemployment.  We fail, compared to our other advanced-nation peers–on almost all the measures of a decent society.

Austerity economics (or, in other words, the brute-force capitalism favored by the tea-party-supported GOP right) would continue and worsen that trend by privatizing even more public education, even more of the military, and even more of health care, while insisting that the problem is getting those “failures” to realize that they need to work harder and take “personal responsibility” for making better choices about education and health care and having children.

So in this regard, much of the talk about Detroit’s bankruptcy reflects the right-wing “austerity” agenda and fails to encompass even Bush’s compassionate conservatism, much less a progressive view of how ities that have suffered decades of corporatism, cronyism and white flight should be treated.  The negative sentiment about Detroit is expressed even in letters to the Times such as Richard E. Miller of New York, whose letter to the editor published July 24 argues that it’s all the Detroit residents’ fault:

For years, the residents of Detroit elected officials who they knew were spending billions more than the city’s revenues.  For years, the union representatives of municipal employees extracted from those same officials on pain of nonsupport for re-election unfunded pension contributions.  … There must be consequences to greed and irresponsibility.

That letter reflects the right-wing austerity mantra and the “let them eat cake” attitude of the right throughout the country.  In the 70s, New York State came to the rescue of New York City.  Michigan, with its right-wing legislature and governor, has no such intent.  Snyder even had a new accountant recalculate the city’s pension obligations in a new way that increases the present value, to give him and his “emergency manager” even better leverage to take away $19,000 annual pensions from firefighters and other city employees who kept their job here for the “good” benefits.  These right-wing tactics are, as another writer (Anita Caref from Chicago) put it in her letter published the same day, “reprehensible.”

Detroit workers did not cause this crisis, and in fact have made many concessions over the past decade, including large pay cuts.  Their pensions are not a bonus or gift; they are a deferred part of their wages.  The banks and bondholders that invested in Detroit where hoping for a profit but kiinew they might take a loss.  They should bear the whole burden. …That’s the way the market is supposed to work, right?

Robert Samuelson’s op-ed in the Washington Post, riffing off Harvard economist Ed Glaeser’s views, seems to be suggesting that the problem with Detroit is two fold–the decline of manufacturing, and the ability of workers during manufacturing’s golden age to get decent wages and decent pension promises.  He notesthat various “potential villains have emerged: the ineffectiveness of Coleman Young, mayor from 1974 to 1994; white flight (from 1970 to 2008, the white portion of the city’s population fell from 56 percent to 11 percent); costly government workers’ pensions. ”  Already, his list appears to put much of the onus on Detroit residents–for re-electing someone labelled “ineffective” as mayor, for instituting what Samuelson calls “costly” public employee pensions, and impliedly, for causing white flight (in which most of  the Jewish and business community moved from within the city limits to just a few miles out to the sprawling, affluent, 90% white suburbs like Bloomfield Hills).

The crux of it all, in Samuelson’s accounting, was the auto industry promising too much, with a result of strengthened labor unions that he blames for ruining not only Detroit but the State of Michigan.

High costs, shoddy quality and mediocre management made the companies vulnerable to foreign competition from imports and nonunionized plants, generally in the South. Employment eroded. Worse, the auto industry’s model shaped the state’s labor market and policies. By 1978, average hourly earnings in Michigan were 32 percent higher than the national average. Michigan had an anti-business reputation. This frustrated the state in its efforts to diversify its economic base.

Now, the auto managers were for sure guilty.  They set on their [a….s] and didn’t innovate, didn’t listen to worker ideas, didn’t pay attention to environmental concerns.  I’ve had a taste of how they managed in our importing of Allan Gilmour to be president for three years of my university–a corporatist shil for big business who has mostly paid millions of the university’s scarce resources to hire fancy accountants to tell him how to run the university like a business and has both scorned and ignored the role of faculty in policy development while hiring more and more administrators at higher and higher salaries.  No wonder the auto industries had problems, when they had leaders like him.

But the labor unions were doing good work.  They were demanding that workers be paid a fair share of the boom profits.  The problem wasn’t their demand or their success.  The problem with the auto industries was that they didn’t put back the funding during the boom times when they had it.  They preferred to continue skimming high profits off the business and calculating pensions in a way that allowed them to shortchange the pension funding.  Samuelson’s support for Michigan’s current pro-busines, anti-worker perspective–bankrolled by big corporations and rightwingers like the Koch Brothers, is another example of ideological bias against workers and for Big Business.

Funny how the right and its economists always blame the decent wages/pensions for economic ills.  But that is a distortion of the story.  It is the corporatist decision to seek ever higher profits (and ever higher compensation for corporate managers) that is to blame.  A year-after-year profit ratio of somewhere between 5% and 6% became too little:  private equity funds were promising double digit returns, and the ideologues on the right –from Milt Friedman to Ayn Rand– were suggesting that greed was good and that if you succeeded, after all, in making huge returns, it was because you merited it (and those who didn’t get it, were just not taking “personal responsibility”–in the Mitt Romney version).  So now we have Wall Street expectations for year-after-year returns on investment matching their speculation gains during casino capitalism’s raging pre-crisis years.  And blaming any problems on pensions promised to ordinary workers in return for lower wages during the boom years, even while those workers’ shares of the productivity gains they mostly generate and  real-dollar wages have declined while the CEOs and fund bosses got filthy rich.

So what has all this got to do with taxes?  The inequality in this country is getting worse.  it will continue to get worse as concentration of resources at the top allows more resources to concentrate at the top.  Tax policy is one of the ways to address that problem, at least in a small way.  Michigan needs to overturn its “flat” income tax rate and institute  progressive taxation.  Michigan also needs a decent business tax.  The federal income tax needs to be more progressive.  States and the federal government need to up the ante with estate taxes that are more biting.  And executive compensation needs to be scaled back while minimum wages are increased.  The first can be done in part through tax systems that prohibit deductions for executive compensation in excess of some amount (say, one or two million).  Many other tax provisions can help attack the inequality problem.  Congress needs to start paying more than lip service to fairness, and start legislating real tax reform.

cross posted with ataxingmatter

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