Friday, October 31, 2008

What Makes the American Economy Great?

The American consumer, i.e. the American worker, is in seriously dire straits. For many a poor soul, a sense of security in life has completely evaporated along with home values, retirement savings, healthcare, jobs and future opportunities. In addition, a lot of people are responsible for providing their kids with extremely expensive education as well as extremely expensive healthcare and eldercare for aging parents. The American economy is built on the idea that you, for the most part, keep what you earn, and in turn are responsible for providing for your own and your family’s needs with your own money. It is a system heavily built on individual responsibility. But any rational observer would quickly conclude that for most Americans: it is an AWFUL lot of responsibility.

Over the last 30 years, working Americans’ incomes have stagnated. Paradoxically, Americans have kept spending more and more, so logically the money for this must have come from somewhere other than the income for which consumers work. Some have won the lottery, some have received inheritance, but the vast majority of consumers have simply financed this increase in spending by taking loans. In addition, during the same period of time, a lot more financial responsibility of the kind I mentioned in the beginning has been put on consumers as a result of the dismantling of the social safety net, initiated by Reagan. That makes the fact that consumption has increased so much even more puzzling. In other words, the borrowing has been enormous. Unless something incredibly unforeseen happens, that type of borrowing will no longer be available in the future. So what should the American worker do?

There are many theories as to how it became a national taboo for workers to claim a salary that they can live on. For a long time, collective bargaining, worker and consumer rights have somehow been despised by the very people they were once designed to help. The few unions that still exist today are run more like motorcycle gangs than real unions. In academic language, unions such as the autoworkers’ unions are known as “exclusive unions”, and are designed to keep people out and protect only the members. Most modern unions in other parts of the world, however, are so called “inclusive unions”, whose main goal is the wellbeing of all working people in general, which they achieve through national collective bargaining, making sure that salaries and rights reach an adequate level for all in the economic situation at hand.

The simplest way to understand how the American worker has not gotten a fair deal over the last 30 years is to look at wage growth related to corporate profits. In general, there has been stagnation in wage growth, but there has been a huge growth in corporate profits during the same time. In addition, worker productivity has gone up, so, to sum up: fewer workers are making more money per worker for the corporation while receiving no gains in return. Meanwhile, government spending for the benefit of the public has been cut, and money has been used to finance tax cuts for corporations and high-income individuals. Reagan SIMELTANEOUSLY cut taxes for the rich, while raising them for the poor. Talk about wealth redistribution… It is definitely time to reverse these developments.

It is often said in America that a successful economy must have low taxes for businesses to thrive. Obviously it is true that a corporation or an individual is better off with more money to put into a business, which could be accomplished partly by low taxes, but to what extent is that a deciding factor? Is entrepreneurship inextricably linked to low taxes? I would argue yes and no. Here’s how:

Yes, because the business environment and high-income individuals in the United States have enjoyed low taxes for a very long time. Such a business or individual has obviously adjusted their margins around the fiscal environment. They spend and invest according to the low taxes. Established businesses with low margins and a large amount of risk taking would likely be hurt by tax increases, but such businesses are always vulnerable to many different risks.

No, because innovation and ambition in themselves have nothing to do with taxes. Gifted and driven individuals will always make themselves useful, in whatever situation. That’s just human nature. The invention of the PC was not made possible by low taxes, nor would it have been impossible with high taxes.

Low taxes are not what make the American economy great. What makes the American economy great is its human and natural resources. Right now, the human “resources” are in a crisis, and for the American economy to continue to be successful, time and money must be invested in them. They must also stand up for themselves and

demand what is rightfully theirs.

Moreover, I advise that the current electoral system should be destroyed


Avatar said...

I agree that human “resources” are in a crisis. I cannot agree with you on the destructing of the electoral college system. If the system was no longer a issue then the fly over country would really have no say in the election.

Jacob said...

Dear avatar,

I did not refer to the electoral college system in particular. I advocate proportional representation, which would actually empower the fly over country like never before. I believe that it is fundamentally unfair that there are only two parties to choose from when voting (which is obviously a result of the first-past-the-post system). If 10% of the vote for one party meant 10% of the seats in Congress, then every single vote in the country would count. If 31% supported the Libertarian Party, 32% supported The Democratic Party and 33% supported The Republican Party, in Idaho, then all those votes would be added to the nation-wide count. In the current system, 63% of the votes would not matter at all. I support party-list elections for Congress, personal campaigns for regional elections and Presidential elections.