Saving the economy By Art Pearl

This economic mess has been a long time coming.

Reagan as good as any place to begin. Shortly before Ronald Reagan was elected president the economy slipped into a deep recession. In1982 unemployment rate rose to 9.7 percent (In 1979 the unemployment rate was 5.8 percent). The Reagan solution was “supply side economics.” George Bush called it “voodoo economics.” Supply side economics according to one of its gurus. Arthur Laffer. would, for every 1% reduction in taxes produce 1% increase in tax revenues, (although in 2008 on the Daily Show Laffer insisted he never said such a thing). Amazing the number of stupid things people say that later they claim they never said. Whatever called, it was, in truth, the same ole’ aggregate consumer economics. What made it different was that the underpinning for consumer demand did not come from wages and savings but from an ever increasing debt.

One of the most telling points Reagan made while campaigning for the presidency was the increase in national debt during Jimmy Carter’s term of presidency. As Reagan put it, as only Reagan could and as I remember it, went something very close to ‘it took 200 years for national debt to get to a half a billion dollars and only four years for President Carter to double that.’ That was hyperbole. The debt rose when Carter was president, but only by 50%. Reagan then famously pledged that his government would be like everyone’s family, live within its means. Ironically he was right, it turned out to be like everyone's family- buried in debt.. During the eight years of his presidency the national debt nearly tripled (from 930 billion to 2.684 trillion). Skyrocketing national debt brings a range of complicated problems but it doesn’t explain the economic collapse. Private debt brought down the economy.

Private debt took off during the Reagan presidency. Consumer debt (credit cars, auto loans. etc) more than tripled during the 1980s and mortgage debt grew by over 50 %. As housing prices continued to rise, more and more of the consumer demand was met by continual refinancing of mortgages. By 2006 consumer debt had increased 8 fold over what it was in 1980 and mortgage debt had grown from $1.6 trillion to $10.2 trillion. Once housing prices ceased to inflate, the economy collapsed and all the humpty dumpties of this administration (and all their king’s men) could not put it back together again.

Economist tend to agree this is the worst crisis in years. Some go back to 1981-82, some to 1930. Compounding the losses of employment in the private sector, already well over a million jobs in 2008 alone, is the impending crisis in local and state governments that will result in massive layoffs, reduced workweeks and other reductions that will result in limiting consumer capacity. Recent Nobel laureate Paul Krugman believes unemployment will not reach the 1982 level (which he lists as 10.5% unemployment). An interesting conclusion, but where is the buying power to stop the slide? What will stop the downward spiral? Auto sales? Home sales? Computer sales? Cell phones? Toys? Come on, deal with reality. Krugman does call for a large and creative stimulus package, but I don’t think what he calls for is large enough. Nothing but a massive governmental intrusion into the economy will do it. And it can’t be any kind of governmental stimulus. It has to be a well designed and carefully targeted stimulus package. It also will require targeted cutbacks in governmental spending.

The way out the economic mess is not a reincarnation of Keynesian economics. Keynes' 1934 General Theory was for a different time. His is an infinite earth economics that sees the solution to all economic problems as the management of growth. During downturns economic activity is stimulated by lowering interest and taxes and increasing government employment. During overheated inflationary times do the opposite. Now the solution is far more complicated and part of it has deal with environmental conditions that have been caused by unbridled economic activity. Part of the solution is reduction of consumer demand.

The solution requires governmental investments in livable wage jobs that are at the same time environmentally sound. The situation faced by the incoming president is more difficult than what Roosevelt faced in t933, we do not have the luxury of creating jobs at the expense of the environment, we now need to create jobs that not only are compatible with a sustainable environment they must actually serve to repair the environment.

A Teacher Supplement Act is an absolute necessity. Mike Davis says the first steps must be saving core public employment, bailing out distressed local and state governments with special emphasis on schools and hospitals. That would be inadequate. Restoring what we have assumes what we had was working and that is not the case in either education or healthcare. Block grants of perhaps $20 billion would restore cuts to schools. The package must go beyond what currently exists. A Teacher Supplement Act would cost about the same as the hopelessly ridiculous No Child Left Behind perversion that apparently president elect Obama is considering reauthorizing in some supposedly improved form. There is no improved form of an education bill that attempts to control what occurs in local classrooms from a perch in Washington DC. What is desperately needed is help at the classroom level. A Teacher Supplement Act would reduce every classroom to no more than 15 students per person in a teaching position. The persons in a teaching position would come from a program modeled after one initiated in the 1960s based on a book that Frank Riessman and I wrote (New Careers for the Poor). In such a program persons would advance to a credential teacher position through a 4 step ladder, the initial rung of which would be open to all and would require no prior education, training, knowledge or experience. Advancement up the ladder would be based on job experience and successful completion of classes offered by an authorized teacher education program. Such a program would accomplish many things including:
1) Improved schooling
2) Level the playing field – crowded classroom tend to be in poverty areas
3).Relieve the extreme underrepresentation of teachers of color. – currently less than 20% of teachers are African American, Hispanic or Native American whereas 40% of students come from those populations.
4) Reduce poverty and bring more economic vitality to impoverished communities. In the 1960s programs person from poverty communities that advanced up the ladder to teaching positions tended to remain in poverty communites. Something not the case with the traditionally credentialed.

To reduce classroom sizes to no more than 15 students would require an appropriation of $30 billion. About 500,000 full benefit livable wage jobs with potential for upward mobility would be created with such a sum. That appropriation would pay for four regional teacher education programs that would develop curriculum for each rung of the ladder as well as finance independent evaluation of the impact such a program would have on student achievement. A smaller program enacted in the196os, the Career Opportunity Program, brought 15,000, all poor almost all minority, into teaching and the limited evaluation indicated that they were at least as effective as the traditionally credentialed.

The same holds for hospitals. Restoring what we have is obviously insufficient. Again something in the order of $20 billion dollars would keep existing hospitals staffed and functional. An additional $30 billion could create 1000 community clinics staffed with fully credentialed medical doctors and nurse aided by 300,000 paraprofessionals in career ladders that make possible the upward mobility of those currently locked into poverty. Those community clinics would be a step toward universal health coverage.

Ten billion dollars should be appropriated for 200,000 community organizers to make cities more livable and safer.

Saving the economy means exiting the global economy. The global economy was never a good idea. It was a scam designed to make the rich richer and the poor poorer. And it certainly succeeded doing that. Now we pay for that success with a collapsed economy. The ever dependency on debt was partially caused by the continued reduction in the buying power of wages as more and more good jobs, particularly traditional good jobs that did not require extensive higher education, disappeared. Does that mean US auto manufacturers should be rewarded for stupidity? No. But auto workers should not be punished because their bosses refused to sell what US consumers needed. General Motors built a very serviceable electric car and refused to sell it. In 1942, while working for the Curry Company in Yosemite my job each day began with unplugging an electric Ford Model A converted into a very small truck that I drove all around Yosemite Valley delivering camp goods and I ended the day by plugging in the truck for a recharge. In the three months I worked at the job, the truck never ran out of its charge. It was not that US auto makers were unable to make environmentally sound vehicles, they didn’t want to. And thus they opened the door for the Japanese, Europeans and Koreans. The US auto makers in collusion with Big Oil chose to concentrate on gas guzzlers and now they are broke. Losing money never stopped “the Big Three” from providing obscene packages to a range of executives. In fact it appears that the dumber they were the more they got paid.

The US government should loan money to US auto manufactures but with certain conditions- severe cutbacks in executive salaries and perks and a retooling for environmentally sound vehicles. The labor contracts may need minor adjustments, the differences between what workers at GM, Ford and Chrysler make is not materially different than what Toyota provides its workers. The provision of health care and retirement benefits merely reflect the failure of the US to provide universal healthcare and old age security. But that is not the only jobs that should remain or return to the United States. All those things that once were made in the USA should again be made in the USA. The global economy was never sustainable economically or environmentally. The idea that something should be made in China and shipped to be bought, used and consumed in the United States made little sense. The energy costs in time would far outweigh the profitability of cheap labor. The quicker we are out of such an arrangement the better. If it means return to protectionism, so be it. According to Ha-Joon Chang “the US is the true home of protectionism. Between the 1830s and the 1940s, against superior European competition, the US developed its industries behind literally the highest tariff wall in the world” (Economist Forum, November 14, 2008). He recommends “Providing protectionism to facilitate structural changes, and not just to protect existing jobs, would require a much closer coordination between trade policy and those policies to upgrade American industries, such as R&D support and worker training” (ibid). I think we need to do more than that. We need also to undo the damage caused by the global economy and return to the US all the manufacturing that left solely because of the opportunity to take advantage of starvation wages. How this would be done would require both tax benefits and penalties. But such a return is vital for the long term well being of the US economy.

There is every indication that the new administration proposes some kind of government investment in green jobs. That needs to be done and probably faster than is currently contemplated. Building windmills and solar systems and batteries for electric vehicles should be made here not merely imported, stured or assembled. The government should invest heavily in research and development of alternative energy. One area of investment ought to be urban agricultuire. Food needs to be grown close to where it is eaten and encouragement in that direction will require government incentives.

Rebuilding and repairing the infrastructure is already planned and is vital. As is upgrading of rail transportation. The United States cannot afford to lag behind other nations in the development of high speed, energy efficient trains. Local public transit also requires modernization.

The job creation of all of these efforts would have to in the order of 5 to 7 million jobs, (about twice what Obama appears to have projected). That calculates to a reduction in the unemployment rate ofin the order of 3,3% to 4.7% percent. That in itself would not return the nation to prosperity. However the multiplying effect (the jobs created by the buying power of the created jobs) should be sufficient to right the economy.

If I am correct and that nothing short of massive governmental stimulus will right the economy, the cost of such stimulis would be in excess of a trillion dollars. Where would such a massive sum come from. The outgoing administration with its depraved indifference to human suffering limited its activities to protecting “its base.” It helped only established wealth and the economy was allowed to continue to descend0. As a consequence the national debt incurred for only this year will be in excess of a trillion dollars. That massive debt did not stop unemployment from growing.

Borrowing an additional trillion dollars will have both long and short term negative effects. Currently the interest on the debt is one of the four big ticket items in the federal budget. As we invest in righting the economy increasing the debt will be unavoidable but debt increase has to be coupled with some severe cutbacks in federal spending.

The Reagan mentality of spend lots, tax little only causes grief. The tax breaks the Bush administration gave “his base,” the super rich, must be rescinded. We have ample evidence of how well that worked. Marginal tax rates for those with incomes over a million should go back to where they when Eisenhower was president.

Getting out of the empire business has to be a high priority. Empires have always been nasty way of doing things. There was a time it worked for the Romans and for the British. That was then. Now empires are even nastier and no longer bring booty e.g., slaves for the Romans and spices and other goodies for the British. That means ending our intrusion in Iraq and Afghanistan. It also means, for starters, closing 350 of the more than 700 bases in 130 countries. Leaving Iraq is not a choice, it is an urgent necessity. We had no business being there in the first place. We no longer can afford to be there. The money wasted there is urgently needed here. Vacating Iraq saves us more than money. It restores badly needed credibility. It makes possible stabilization of the region. All we managed to do while in Iraq was to kill hundreds of thousands of innocent people who meant us no harm, generate ill will all over the world, and further the ambitions of Iran whose influence in Iraq grew the longer we were there. Our presence in Afghanistan is no more tenable. Again we got there on a fake issue, harboring al Qaeda. If we wanted to get those who harbored terrorists we should have bombed Saudi Arabia and Florida. Using the cover of NATO didn’t help, the United States supplied half the troops. NATO designed as an alliance against the Soviet Union during the Cold War is far removed from Afghanistan. None of Afghan’s neighbors are participating in the effort to cleanse the area of terrorists. No Pakistan. No Iran (obviously but maybe only because we have bought into the “axis of evil” that Bush used to justify either stupidity or worse). No India, No China and No Russia, Terrorism is a global concern. Russia and India have been victimized by terrorists. If there was anything that could bring about a world consensus it would be opposition to terrorism. Logically the umbrella for opposition is the United Nations, and if there is to be success, the United Nations will have to play a prominent role. Ironically, it was United States leadership that brought the United Nations into existence and it has been the United States almost ever since that has been undermining it. The United States has to again reverse course and help the United Nations regain effectiveness. Simply put, all of the world must be involved in overcoming terrorism or we will be victimized intermittently by it. Increasing our military involvement in Afghanistan is something that president elect Obama had better rethink. Both Iraq and Afghanistan are places where we sap energy, lives and resources while matters of critical importance founder at home.

And we have to end the “drug war.” The United States now imprisons more people than any nation in the world, a very large percentage because of drug offenses. The drug war ruins lives and wastes money. Controlled legalization is a much wiser way to go. Every penny wasted in the drug war will come at the expense of economic revival.

Obama’s‘Yes We Can’ will include most of the above or he will be a one term president. His economic team, having proclaimed this to be the the greates economic crisis in 70 years needs to propose a remedy proportionate to the problem. It will take more than they propose.

Even before he assumed office Rush Limbaugh labeled the downturn “Obama’s recession.” If as president he is unsuccessful in turning things around, it will become, not what the deranged claim, but, in an acceptable political sense, his recession/depression. Like it or not the economic condition is his to fix or he takes the blame. He got elected because the incumbent was, in this instance correctly, blamed for the economic collapse. If the economy is not substantially repaired in the next four years President Obama may not have broken it, he, nonetheless, will own it.

Comments

mateo said…
Great prescription Doctor Art.

Speaking of doctors, do you know Paul Farmer. He is an infectious disease specialist and medical anthropologist, who has written a number of books about medical ethics and global medicine. I recently read the Pathologies of Power, a great book. Have you read it?

It fits right into your argument for a new social paradigm and a redefinition of globalization.

Love, matt
Unknown said…
Well, Art, it looks like another fine mess you could get us out of.
I was thinking that the Wal-Mart worker who died for our greed on Black Friday exemplifies our economy perfectly. Some lose their lives, and others their souls in the endless pursuit of more useless expendable stuff that ends up in the landfills that poison our water and soil. This is the spiritual poverty of capitalism: it seeks to endlessly fill up our void of meaninglessness, and succeeds in making our lives even more meaningless while poisoning the planet.
There are two things I think would benefit your legislative suggestions: first, that the Big Three bailout would include production targets for environmentally friendly buses and not merely eco-friendly cars (an oxymoron). We can say cars can be more eco-friendly, but as you know, the automobile is the most ecologically devastating invention in history. By insuring that part of the bailout would be used to produce more passenger service for public transportation, the public would directly benefit from the bailout.
The other point that can be added to your impressive plan is not merely the closing of jails and prisons, but their conversion into schools and colleges. California, where I live, continues to pump billions of dollars into prisons while its schools fail and its deficits explode. This is bad economics par excellence. Just as we witnessed the conversion of military bases into college campuses in the early 1990's, there is no reason we cannot convert many of our correctional institutions into public institutions that give back to the economy--rather than continue to drain the life out of it.
Since you are most emphatically suggesting a New Deal within ecological constraints, may I ask--amid all of this persistent 'team of rivals' chatter--if you think President Obama will have a 'kitchen cabinet' like Franklin Roosevelt did? Or do you favor the appointment of task forces to solve our economic and ecological crises--as Johnson did in building his Great Society programs?
Thanks for your proposal. Now is the time to send it to our folks in Congress and the Obama transition team. Let the real campaign begin now.
Unknown said…
Dr. Pearl, your LOUD yet funny student, Scott, wants to remind you to make some access point for your WSU students if you still plan to use this blog for class later.
John Bakalian said…
Great plan, Art, the Ladder approach. Wonderful use of money.
Wonderful opportunities for those less fortunate.

As for getting out of Iraq, Afghanistan (and Pakistan, through our Pak Military stand-ins) must happen NOW. We also need to stop exporting arms throughout the world. We sell the world over 50% of all the Arms, and all the rest of the countries make up the remaining percentage. We are the Kill Merchants, and its now killing us. Keep throwing out ideas Art, maybe some of the Obama team might steal something from you.

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