Archive for the ‘Government’ Category

A Critique of Both Presidential Candidates, and a Suggested Tax Solution

June 22, 2012

There’s a point behind some of Romney’s criticism.
While Obama had Congressional power, he worked to get the Affordable Health Care Act passed. That took much of his political capital. Attempting to also get immigration reform, education reform, any number of other issues addressed, would simply have meant that nothing got passed, given the obstructionist aims of Republicans.
But Obama allowed Congress to work through most of this without risking his own political status. This is not the action of a strong president.
He also didn’t risk that status by attempting to address any other hot-button issue such as immigration reform.
That weakness or unwillingness is now coming around. He’s been a weak president. Put into context, that’s understandable. He’s the first Black president. A serious mistake can set back 70 years of progress in a nation that has had a history of enslavement of Blacks and oppression of minorities in general. For a lot of the Republican base, Mr Obama’s skin color trumps all of the other issues. Racism is not an issue that Republicans address; there’s a reason for that. Put simply, Republicans can count on the racist vote.
Not that I think Romney is an improvement over Obama. The policies he apparently favors, as much as any outsider can determine his real opinions regarding education, budget, the safety net, and the economy, are a disaster in the making.
He would ‘encourage private enterprise.’ I hope he has a better idea than his predecessor in the Republican Party. Encouragement then was to simply shovel enormous amounts of public money to financial firms, who were then suitably ‘encouraged’ to sit on some of that money as a cushion for future losses, skim off some of it as shareholder dividends and executive bonuses, and use some of it to acquire competitors. Supposedly, they were to loan the money in the hope that this would stimulate the economy; not being fools, they used it in ways that seemed most profitable to themselves.
That, BTW, is how you encourage industry: you decide what you want them to do, and via a carrot-stick approach (tax breaks, tax penalties) you encourage them to do that. They’re in it for the money, after all; so use that to encourage them to act in the national interest.
A Value-Added Tax, to replace the current corporate tax system, works. Say you dump the tax rate that only the foolish pay and the savvy avoid; replace it with a VAT, but suspend a portion of that tax for any product produced domestically using domestic labor. No loopholes. Set this at a nominal 15% (vice the current rate, the one that Apple and GE and Big Oil doesn’t pay), and put in a mechanism that automatically raises or lowers this depending on our international balance-of-trade. Work to keep trade within a narrow range, + or – 1% of balance for example. Trade will still happen, but not based on cost; instead, it would be based on quality. Better quality always wins out in international trade.  Nations that want to sell us goods and services would thereby be encouraged to purchase our goods and services or see that VAT rise.
In this way, everyone who has access to the US market pays for that, and those who bring goods in as imports will pay more than those who produce goods domestically.  Want to export a lot of goods to us, then buy our domestically produced goods.  If you don’t want to buy from us, then don’t plan to sell to us.  Balance of trade can easily be determined quarterly; indeed, such information is currently published in The Economist.  And the automatic adjustment mechanism (needed to take the matter out of the hands of a Congress that is far too easily bought by special interests) can take effect as soon as this information is obtained, certainly within the following quarter.
What about planning on the part of managers who might want reassurance of tax rates before they produce goods?  So long as those goods are produced domestically, the manufacturers can be sure their products won’t be undercut in price by imports.
Simple. And it encourages domestic companies to act in the national interest, not their own financial interest. That’s the kind of ‘encouragement’ that they understand.

The Role of Productivity in the Economy’s Problems

June 10, 2012

According to an economist on Bill Maher’s show, economists look at finance, labor, and productivity. I haven’t directly discussed that last, although it’s a part of our economic problem.
Productivity gains have been a part of our economy for centuries, but they really took off in the period of the world wars. Here, and also in other countries, productivity was seen as a weapon to win the wars, and every part of the economy got a boost.
Meantime, labor came to be in short supply because so many men went into the armed services. Even with this lack, even with less capital available for development (government capital was also being siphoned off to buy weapons and pay troops), productivity boomed. I googled a history of shipbuilding during the war years and found this: “In the decade prior to 1940, America’s shipyards launched only 23 ships. In the five years after 1940, American shipyards launched 4,600 ships. San Francisco Bay Area shipbuilders produced almost 45 percent of all the cargo shipping tonnage and 20 percent of warship tonnage built in the entire country during World War II. The war lasted 1,365 days. In that span of time Bay Area shipyards built 1,400 vessels–a ship a day, on average.” Auto manufacturers made airplanes as well as trucks, typewriter manufacturing turned part of their effort to making weapons, and all of them made more in a shorter time and used less labor in the process.
Since that time, innovation has continued. Farmers use machines instead of farmhands; miners use machines instead of miners, and this includes not only deep-shaft mining (boring machines, etc) but also the huge machines that scoop up multiple tons in one pass and load it on huge trucks that require one driver rather than a hundred to move the equivalent amount of ore.
John Henry lost eventually. So did all the other laborers.
With productivity gains, education became more important. Unskilled workers had no place in most industries. And labor became excess. We no longer need large numbers of workers, but I can only provide an estimate: perhaps 60% of our workforce is needed to provide everything we need in goods and services. I tried to google this and found nothing. So I’ll go with my estimate; if you have better data, please share it.
So by my figures, 4 of every 10 workers aren’t needed in the domestic economy. They must provide goods for export, or act as a drag on the economy.
But we aren’t really keeping up with exports when they are compared with imports. Free trade agreements are more harmful than helpful. I’ve written about this before so I won’t rehash it here.
We import; manufactured goods, but also commodities. We have a potentially strong manufacturing sector, but we don’t make full use of it. Our manufactures come from places where labor is perhaps 1/10th the cost of labor here. Only through political control, e.g. tariffs and taxes, can we address this. But the business sector favors the higher profits from importing as compared to manufacturing, and they have extraordinary clout in politics. Politicians refuse to act. For some, influence from management elites combines with simple lack of understanding of the economy.
So: productivity gains reduced the demand for domestic labor, failure of the export process made that labor valueless, and government borrowing propped the economy up so that this was hidden for too long. And now a failure of our education system, coupled with a failure of our politics, has rendered an once-addressable problem critical.
And no one in government appears to understand the problem, much less be involved in devising a solution.