What is socialism? This is an important question since it is a buzz word used by some critics of the new administration. By definition, socialism is an economic/political theory advocating collective or governmental ownership and administration of the means of production and distribution of goods. In its extreme, it includes a system of society or groups living in which there is no private property.
Karl Marx viewed socialism as a transitional system which would occur as the world moved from capitalism to communism. We all should be confident that Karl Marx and communism have been clearly discredited as a viable economic/political system.
On the other hand, capitalism is an economic system characterized by private and corporate ownership of capital goods, by investments that are determined by private decision rather than state control, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.
Every adult in this country should have read or take the time to read the Scottish scholar Adam Smith’s book, The Wealth of Nations, written in 1776. It is credited with being the founding work of modern economics and describes the capitalistic system. But most importantly, it is the system that comes closest to describing our present, much revered economic system. One thing that is clear is that it is well written and has much to say that is applicable to our economic system today. But, it is also clear that what we have today is much different than what Smith intended, which is not surprising since it was written 233 years ago in a much different economic climate. It shares the same position as the Declaration of Independence and U.S. Constitution in this regard.
The fact of the matter is that none of these systems are working the way their founders envisioned them to. All advanced countries in the world use a mixture of capitalism and socialism with a few having remnants of communism. The most accurate description of what exists out there is a “mixed economy”. What that mix is, varies with each country and is in a constant state of flux. Capitalism, being so strongly ingrained in our minds and culture, will undoubtedly maintain a favored position in our mix despite the rhetoric to the contrary. We will resist, sometimes to our detriment but often to our credit, attempts to abandon it.
We began moving away from “pure capitalism” in the late 1900’s as we moved from an agrarian/small business economy to an industrial one. The 20th century saw even further movement towards a “mixed economic system.” And, it happened because we had wise Republican and Democrats in Washington who recognized that our biggest risk is that we were on a tract to a plutocracy – government by the wealthy and/or a controlling class of the wealthy. Republican Theodore Roosevelt, the “Great Trust Buster”, was one of the first to step up to begin limiting the huge corporate conglomerates that were abusive and unfair in dealings with their customers, workers, and society in general by vertically consolidating their power which eliminated competition. Then, throughout the 20th century we gradually and reluctantly added other protections from the potentially abusive capitalistic system. A progressive income tax was established, labor unions were recognized and legalized, regulations from SEC, Federal Reserve, and Treasury Department were instituted, environmental regulations came on board, the entitlement programs like Social Security and Medicare were put in place, etc.
Rest assured that all of these government programs became law only after years and years of strife and struggle. They came about only when it became overwhelmingly obvious that a totally “free market system” failed to provide and in fact denied a fair and equitable system for the majority of the people.
That we have been able to somewhat forestall the drift to a plutocracy is amazing to me. In fact, these regulatory actions, laws, rules limiting the consolidation of wealth and power in fewer and fewer hands has preserved capitalism. If we are going to remain a free people, if we are going to have a healthy middle class, if we are going to have a “level playing field” for entrepreneurs to pursue their dream of starting up a small business and working to make it grow, if we are going to have a society where people through hard work can earn a decent living to provide for their families, then we are going to have to insist that the government become involved in helping to create that environment. A totally “free market economy”, despite what many people of wealth and advantage would like us to believe, will not do it. The last eight years of greed and unchecked self interest should have taught us that.
Our imperfect government has worked quite well in the past. It has saved us from excesses of capitalism, socialism, fascism, communism, and a plutocracy while we became the strongest and wealthiest nation in the world. Our government is a republic, and against all odds, still listens to the wishes of the people eventually. It has provided an economic and political environment where the people still have the rights and freedoms to do their own thing within reason. We are at risk again with this huge economic crisis and the other laundry list of problems. I liked President Obama’s line in his sober, let’s get to work inaugural address when he said, “The question we ask today is not whether our government is too big or too small, but whether it works ….” That our imperfect government has constantly adjusted to deal differently with each new generation’s problems is one of the reasons we have been so resilient and it is challenged to do it all over again. As a people, we need to be patient, alert, knowledgeable, involved, and insist that our elected representatives do their job courageously and wisely. Since we are breaking new ground, both of us need to be persistent while being flexible enough to pursue a multitude of changing solutions without abandoning our roots. It should be a great debate hopefully devoid as much as possible from partisanship and demagoguery.
Thursday, February 19, 2009
Wednesday, February 11, 2009
Tax Cuts as a Way of Stimulating the Economy
In the 1960’s, if tax cuts to businesses, cuts on capital gains taxes, cuts on higher income tax rates, and credits to provide incentives to businesses had been offered as a solution to correct a recession, I would have been open to it. And, if it could be offered now, strictly for small business, I would support it as part of a stimulus package. But, the last 40 years of watching how big business operates has soured me on that approach for them.
We have a big bank crisis that in large measure came about because of sub-prime lending practices in the real estate sector. This foolish, ill advised practice developed partly because of over-zealous self-interest and the willingness to take risk to satisfy greed. Both political parties should share in the blame; but, it became a serious crisis over the last 8 years when deregulation was encouraged, regulators were unwilling to enforce the rules that remained, and government failed to keep up with new ways invented by hedge fund managers and big banks to make huge profits by taking unacceptable risks with other peoples money.
In response to the banking crisis, a bail-out was devised to get money moving again - some $350B worth. What did the big banks do with this money? Most sat on it, gave bonuses with it, bought other banks with it, had extravagant conferences and still refused to get money moving once again. In addition, they have been using a foreign visa loophole to bring foreign employees in, while laying off their American employees. So much for the good will and willingness of the big banks to do their part in correcting the crisis.
American manufacturing sector didn’t do us any favors either. For years there has been a major exodus of manufacturing to foreign countries which has resulted in turning the Upper Midwest into a “Rust Belt”. This has resulted in a loss of American jobs, a declining real income level for American workers added to a serious negative trade balance. But, it was a win-win program for these corporations because they were exempt from paying taxes on the profits they gained from these ventures.
Then, we have the example of the big three auto manufacturers. They took a seemingly entrenched competitive advantage of only a few years ago and squandered it with poor management while blaming it on their workers who had no choice but to build what they were told to build even if it didn’t sell. Then, they came flying into Washington in their private jets to ask for bail-out money.
We’ve had years and years of farm programs that provide subsidies of all shapes and types to ostensibly save the family farm and improve production in agriculture. The result is that big farmers (many of which aren’t even farmers) get huge checks from the government while true family farmers struggle to stay viable by supplementing their income with jobs in town.
We’ve had producers and distributors selling knowingly sub-standard and unsafe products like the recent peanut butter crisis, tainted beef that Far Eastern countries like Japan refused to buy, toys with lead paint, and even substandard military hardware for our own troops in Iraq and Afghanistan to name a few.
We have oil companies making record profits – Exon Mobile made $45B in one year – under conditions that appear to be manipulative rather than supply and demand. Then, when the move is underfoot to seek alternative sources of energy they turn their lobbyists loose to follow a multi-faceted PR campaign of obstruction on one hand and on the other hand a plea to the government for subsidies and tax breaks for research and capital expenditures to build these alternative sources.
When money dried up and demand for products went “South”, what is the first thing these “benevolent” corporate leaders do – they lay off workers by the millions. Are these corporate leaders sharing in the pain? I don’t think so! We could still support a long running TV program on the “rich and famous” using these corporate leaders as the basis. The title might have to be “Former head" of Lehman Brothers, General Motors, etc.
When the government steps in to relieve the pain with a stimulus package to help get the economy going again, what is Republican Party's and big business response? They object to it by complaining that it is only a spending program. Well, no duh! That’s what a stimulus package is – spending money to try and pump up the economy. If we follow their alternative plan of giving tax breaks to the wealthy, cut business taxes, cut capital gains taxes, and provide tax credits to business the end result will be the same as a stimulus package – large deficits and increased national debt. It is simply a different pocket for money to go into. They’ve even suggested temporarily suspending the payroll tax. Do they really think that people saddled with massive consumer debt are going to go out and spend, spend? People are going to treat it just like they did the rebate a while back – they are going to save it for a “rainy day” if they can and more likely pay down debt, which will help them personally along with those that hold that debt, but it won’t stimulate the economy. If they do spend some of it, it will probably be spent on manufactured goods from foreign countries like China. Who else manufactures consumer products anymore?
At some point these wealthy “fat cats” and their elected representatives will have to realize that they suffer from a credibility gap. They don’t pass the “giggle test” when they say, "trust us, we will use these tax cuts to invest in our businesses which will “trickle down” to job creation." I realize that the above diatribe paints American business with too broad a brush. There are many responsible large corporations who do it right and have the best interest of their customers, their employees, and the country as a whole in mind. But, for many of the public, it is hard “seeing the fire through the smoke.” There is a general lack of confidence in the business community. The last election proves that. Much of the American public does not deal with and may not understand high finance and government economic policy – they are too busy working and raising their families. But, they aren’t stupid, and you can only “kick them in the teeth” so many times and they are going to say enough is enough. We might be there.
We have a big bank crisis that in large measure came about because of sub-prime lending practices in the real estate sector. This foolish, ill advised practice developed partly because of over-zealous self-interest and the willingness to take risk to satisfy greed. Both political parties should share in the blame; but, it became a serious crisis over the last 8 years when deregulation was encouraged, regulators were unwilling to enforce the rules that remained, and government failed to keep up with new ways invented by hedge fund managers and big banks to make huge profits by taking unacceptable risks with other peoples money.
In response to the banking crisis, a bail-out was devised to get money moving again - some $350B worth. What did the big banks do with this money? Most sat on it, gave bonuses with it, bought other banks with it, had extravagant conferences and still refused to get money moving once again. In addition, they have been using a foreign visa loophole to bring foreign employees in, while laying off their American employees. So much for the good will and willingness of the big banks to do their part in correcting the crisis.
American manufacturing sector didn’t do us any favors either. For years there has been a major exodus of manufacturing to foreign countries which has resulted in turning the Upper Midwest into a “Rust Belt”. This has resulted in a loss of American jobs, a declining real income level for American workers added to a serious negative trade balance. But, it was a win-win program for these corporations because they were exempt from paying taxes on the profits they gained from these ventures.
Then, we have the example of the big three auto manufacturers. They took a seemingly entrenched competitive advantage of only a few years ago and squandered it with poor management while blaming it on their workers who had no choice but to build what they were told to build even if it didn’t sell. Then, they came flying into Washington in their private jets to ask for bail-out money.
We’ve had years and years of farm programs that provide subsidies of all shapes and types to ostensibly save the family farm and improve production in agriculture. The result is that big farmers (many of which aren’t even farmers) get huge checks from the government while true family farmers struggle to stay viable by supplementing their income with jobs in town.
We’ve had producers and distributors selling knowingly sub-standard and unsafe products like the recent peanut butter crisis, tainted beef that Far Eastern countries like Japan refused to buy, toys with lead paint, and even substandard military hardware for our own troops in Iraq and Afghanistan to name a few.
We have oil companies making record profits – Exon Mobile made $45B in one year – under conditions that appear to be manipulative rather than supply and demand. Then, when the move is underfoot to seek alternative sources of energy they turn their lobbyists loose to follow a multi-faceted PR campaign of obstruction on one hand and on the other hand a plea to the government for subsidies and tax breaks for research and capital expenditures to build these alternative sources.
When money dried up and demand for products went “South”, what is the first thing these “benevolent” corporate leaders do – they lay off workers by the millions. Are these corporate leaders sharing in the pain? I don’t think so! We could still support a long running TV program on the “rich and famous” using these corporate leaders as the basis. The title might have to be “Former head" of Lehman Brothers, General Motors, etc.
When the government steps in to relieve the pain with a stimulus package to help get the economy going again, what is Republican Party's and big business response? They object to it by complaining that it is only a spending program. Well, no duh! That’s what a stimulus package is – spending money to try and pump up the economy. If we follow their alternative plan of giving tax breaks to the wealthy, cut business taxes, cut capital gains taxes, and provide tax credits to business the end result will be the same as a stimulus package – large deficits and increased national debt. It is simply a different pocket for money to go into. They’ve even suggested temporarily suspending the payroll tax. Do they really think that people saddled with massive consumer debt are going to go out and spend, spend? People are going to treat it just like they did the rebate a while back – they are going to save it for a “rainy day” if they can and more likely pay down debt, which will help them personally along with those that hold that debt, but it won’t stimulate the economy. If they do spend some of it, it will probably be spent on manufactured goods from foreign countries like China. Who else manufactures consumer products anymore?
At some point these wealthy “fat cats” and their elected representatives will have to realize that they suffer from a credibility gap. They don’t pass the “giggle test” when they say, "trust us, we will use these tax cuts to invest in our businesses which will “trickle down” to job creation." I realize that the above diatribe paints American business with too broad a brush. There are many responsible large corporations who do it right and have the best interest of their customers, their employees, and the country as a whole in mind. But, for many of the public, it is hard “seeing the fire through the smoke.” There is a general lack of confidence in the business community. The last election proves that. Much of the American public does not deal with and may not understand high finance and government economic policy – they are too busy working and raising their families. But, they aren’t stupid, and you can only “kick them in the teeth” so many times and they are going to say enough is enough. We might be there.
Thursday, February 5, 2009
What a Difference a Week Makes
Last week I was pretty discouraged with the way things were proceeding in Washington. This week things are much more encouraging. I’m beginning to suspect that we might often be riding a roller coaster with this administration and this Congress when one considers the mountain of issues they have to deal with.
With Congress we went from passing the stimulus bill in the House with a proud 100% opposition from the Republicans – not good. This week, the Senate has taken it up and it appears, at least initially, they are going to handle it the way it should be handled. Although, there is still way too much partisan posturing out there and the wheels might yet fall off with things going from posturing to partisan bickering and dead-lock. For instance, we are still hearing the “Reagan Myth”, that tax cuts and less government spending is what we need – a proven failure over the last 25 years. Won’t this ever go away?
Historically, it has often been said that the Senate is a more deliberative body than the House and hopefully they will once again live up to that reputation. There actually seems to be some meaningful dialogue on the stimulus package and alternative options are being presented in some cases in a bipartisan way, as with moderate Senators Ben Nelson (D) of Nebraska and Susan Collins (R) of Maine suggesting cuts to package of around $50 B.
The bill as presented may be too much of a pent-up Democratic wish list. Some of the items many be too far reaching and not fine tuned for a stimulus package. There needs to be some criteria to meet such as: actually creating/saving jobs; encouraging corporations to step up by investing and even taking some risk to actually continue to make product in America; making sure that some help is offered for people whose lives have been devastated with unemployment through no fault of their own; re-training programs to help people whose jobs may never come back; re-building of infrastructure that has been neglected for years; greening of America with programs to build and refurbish structures to make them more energy efficient; making schools better so our work force can compete technologically; developing alternative energy sources; etc.- mostly long term improvements.
I’ve been encouraged by a few Republicans, our Kansas Senators being noticeably silent, who admit that some sort of stimulus package is needed. I find it refreshing that Senators from both sides of the aisle are admitting that they don’t know for absolute, “drop dead” certain that this particular bill will bring us immediately out of a Recession; but, something needs to be done to relieve some of the pain. Hopefully, Republicans won’t be so calloused that they will vote no and sit back, hoping the plan fails, to gain a political advantage in 2010. Both sides begrudgingly agree with the idea that legislation passed after only two or three weeks into an administration may not be perfect and there are parts of bill that may have to be modified or even dropped if it fails to accomplish what they hope.
The administration has taken some tough hits this week. I hate it that Daschle has withdrawn, because I thought he was uniquely qualified to be Secretary of Health and Human Services. But, Obama has lived up to his word on insisting on higher standards than we’ve had in the past, even if it costs him some needed expertise. I didn’t think I would ever live long enough to hear a sitting President come out and say, “I screwed up,” especially when he didn’t. It was Daschle’s fault and those who vetted him. But, Obama stepped up to make it clear that “The Buck Stops Here.”
Also, it’s encouraging to see our new President talking with both parties and being willing to listen. They may only agree to disagree; but, he is open to and invites reasonable criticism and alternative plans which does represent a change.
I like it that he takes a strong stand on the majority of the bill. He has let it be known that there are certain areas he will not compromise on – why should he, he won. He will not allow the bill to be gutted; but, he will compromise on some significant issues. This is especially interesting in view of the fact that he probably has the votes if they force him to “play the party card.” Also, he took a lot of criticism on earmarks in his campaign. But, he is the only President I can remember who has had the courage to say that he wants an earmark free bill. Hopefully, the Democratic leadership will deliver on that.
How long has it been since we’ve had a President look the watching public in the eye and talk about his legacy before the fact? Everyone knows Presidents are concerned about that, but few have had the courage to come out and say that he expects his presidency will be judged in large part by whether he can help get this economy going. He is setting a dangerous and maybe even unattainable standard. But, I for one went away with the feeling that this guy is serious, he’s tough, and he’s not going to make excuses. There doesn’t appear to be any quit in him. Maybe that’s what voters saw in him and I hope they are rewarded.
With Congress we went from passing the stimulus bill in the House with a proud 100% opposition from the Republicans – not good. This week, the Senate has taken it up and it appears, at least initially, they are going to handle it the way it should be handled. Although, there is still way too much partisan posturing out there and the wheels might yet fall off with things going from posturing to partisan bickering and dead-lock. For instance, we are still hearing the “Reagan Myth”, that tax cuts and less government spending is what we need – a proven failure over the last 25 years. Won’t this ever go away?
Historically, it has often been said that the Senate is a more deliberative body than the House and hopefully they will once again live up to that reputation. There actually seems to be some meaningful dialogue on the stimulus package and alternative options are being presented in some cases in a bipartisan way, as with moderate Senators Ben Nelson (D) of Nebraska and Susan Collins (R) of Maine suggesting cuts to package of around $50 B.
The bill as presented may be too much of a pent-up Democratic wish list. Some of the items many be too far reaching and not fine tuned for a stimulus package. There needs to be some criteria to meet such as: actually creating/saving jobs; encouraging corporations to step up by investing and even taking some risk to actually continue to make product in America; making sure that some help is offered for people whose lives have been devastated with unemployment through no fault of their own; re-training programs to help people whose jobs may never come back; re-building of infrastructure that has been neglected for years; greening of America with programs to build and refurbish structures to make them more energy efficient; making schools better so our work force can compete technologically; developing alternative energy sources; etc.- mostly long term improvements.
I’ve been encouraged by a few Republicans, our Kansas Senators being noticeably silent, who admit that some sort of stimulus package is needed. I find it refreshing that Senators from both sides of the aisle are admitting that they don’t know for absolute, “drop dead” certain that this particular bill will bring us immediately out of a Recession; but, something needs to be done to relieve some of the pain. Hopefully, Republicans won’t be so calloused that they will vote no and sit back, hoping the plan fails, to gain a political advantage in 2010. Both sides begrudgingly agree with the idea that legislation passed after only two or three weeks into an administration may not be perfect and there are parts of bill that may have to be modified or even dropped if it fails to accomplish what they hope.
The administration has taken some tough hits this week. I hate it that Daschle has withdrawn, because I thought he was uniquely qualified to be Secretary of Health and Human Services. But, Obama has lived up to his word on insisting on higher standards than we’ve had in the past, even if it costs him some needed expertise. I didn’t think I would ever live long enough to hear a sitting President come out and say, “I screwed up,” especially when he didn’t. It was Daschle’s fault and those who vetted him. But, Obama stepped up to make it clear that “The Buck Stops Here.”
Also, it’s encouraging to see our new President talking with both parties and being willing to listen. They may only agree to disagree; but, he is open to and invites reasonable criticism and alternative plans which does represent a change.
I like it that he takes a strong stand on the majority of the bill. He has let it be known that there are certain areas he will not compromise on – why should he, he won. He will not allow the bill to be gutted; but, he will compromise on some significant issues. This is especially interesting in view of the fact that he probably has the votes if they force him to “play the party card.” Also, he took a lot of criticism on earmarks in his campaign. But, he is the only President I can remember who has had the courage to say that he wants an earmark free bill. Hopefully, the Democratic leadership will deliver on that.
How long has it been since we’ve had a President look the watching public in the eye and talk about his legacy before the fact? Everyone knows Presidents are concerned about that, but few have had the courage to come out and say that he expects his presidency will be judged in large part by whether he can help get this economy going. He is setting a dangerous and maybe even unattainable standard. But, I for one went away with the feeling that this guy is serious, he’s tough, and he’s not going to make excuses. There doesn’t appear to be any quit in him. Maybe that’s what voters saw in him and I hope they are rewarded.
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