Once Again We Speak Truth To Power And Are Ignored (Because Our Name Is Not Julian Assange)

Sorry there's not too much linky goodness in this - it was a letter originally. Definitely head over to Bill Mitchell's place though if you're interested in the economic theory.

Dear Senator Hagan,

I am writing to you in regard to the controversy surrounding the impending end of the Bush tax cuts. As I write this, it appears that President Obama has capitulated to the Republicans in agreeing to extend the tax cuts for the wealthy in exchange for an extension of unemployment benefits. The extension of unemployment benefits is certainly necessary, but it is at best a small bandage that will not be effective at healing the economic equivalent of stage-four cancer that is our unemployment-manufacturing-and-trade crisis. This kind of wound requires major surgery to repair not only the surface damage, but also the damage to internal systems.

The financial fraud that caused the banking collapse and real estate crash of 2008-09 may have precipitated this modern depression, but it did not cause it: the economy had already been hollowed out by the loss of jobs and manufacturing capacity to foreign countries. The slow and systematic destruction of our economy leading up to the collapse did not happen by accident; it was the natural outcome of certain policies that have been put into place over the past several decades. This is by no means an exhaustive list, but the gradual decrease in the top marginal income-tax rate, the sequestration of capital gains from normal income, the lack of even moderate import tariffs, the merging of deposit and investment banking, and the enshrinement of corporate personhood in law all have contributed to the fear and malaise spreading across the America outside the Beltway and outside the boardroom. These changes have enabled the growth of an aristocratic class that has been able to amass enough wealth to parasitize the state and cause it to act to their benefit and not to the benefit of the majority of citizens. Consider: a billionaire is able to structure her estate such that most of his taxes are at the long-term capital gains rate or are deferred, and his payroll tax is either insignificant or nonexistent, while the typical middle- or working-class person pays the regular (higher) income-tax rate as well as payroll tax on her entire paycheck. The billionaire then invests the money he saves, often in corporations, and demands high returns. The corporations take advantage of the low import barriers to move production overseas, save money by treating their foreign workers like serfs, and increase the value of the billionaire's stock. The process then repeats with American jobs and capacity being lost at each step as the poor get poorer and the rich get richer.

This is why attempting to stimulate the economy with money on the upper end of the spectrum is absolutely certain to fail; money given to the wealthy through tax cuts, or to corporations and banks through quantitative easing and similar programs is invested, not spent locally, and that investment largely goes to expand overseas production. If you really want to help the economy grow in a manner that benefits the ninety-nine-point-something percent of us that are not multimillionaires, then you can start by letting the Bush tax cuts expire (and blame the Republicans for not wanting the wealthy to pay their fair share). Then continue by putting up sensible import duties, and establishing a job guarantee. Certainly there is work to be done: we have crumbling roads and bridges, a decrepit electrical grid, a laughable broadband communications network, and a terrifying dependence on a dangerous and disappearing natural resource - oil. These are long-term projects and a private sector addicted to short-term gains will not take them on until it's far too late, so the government must - otherwise what use are you? Then bring back a strongly progressive income-tax system in which nearly all unearned income is treated the same as earned income (I'd recommend keeping the exemption for the sale of one's primary residence, but that's about it); the top rate should be at least 50%. Also put into place a robust estate tax. The goal of these measures would be to allow a person that does something truly exceptional to become modestly wealthy, but to prevent the establishment of hereditary privilege and to maintain a relatively low level of inequality in society. Break up the megabanks into smaller entities that separate the functions of investment banking from that of deposit-taking and lending: too big to fail is too big to be allowed to exist.

Fixing the economy will cost money, and the deficit scolds will tell you that you can't spend that money without causing inflation or borrowing from China. There's a word to describe that point of view; the same word is also used to describe that which falls from the backside of a male bovine. Inflation happens when too much money (demand) is chasing insufficient supply. Given our present degree of unemployment and underemployment, this economy has a huge capacity to increase supply to keep pace with demand; as such we should not see significant domestic inflation until we are near full employment. As for borrowing from external sources, we don't have to - we're not on the gold standard anymore; we have a fiat currency and we can make as many dollars as we want. This will most likely result in the weakening of the dollar, and imports will become more expensive. In the short term, a weaker dollar will cause some pain, but as it will act as a de facto tariff, it will spur the redevelopment of the domestic economy.

I'm sorry that this became a rather long letter, but as you can see, our current problems have their roots in the deepest structures of our economy. Changing these structures is the only way to improve our situation in the long term. This job will not be easy and it will not be fast, but when people see progress, they will support it.