Structural Impoverishment Weakens Our Communities

      Structural impoverishment is the process by which people become poorer because of forces that they cannot control. This happens, for example, when people lose their jobs because manufacturing is shipped overseas. Structural impoverishment weakens communities because it creates conflicts of interest among a community’s members and sharpens the conflicts of interest that have always existed.

      The institutions of a community – schools, parks, police departments and so forth – are maintained through the taxes that the community’s residents pay, but as they become poorer, the burden of the taxes becomes heavier, and they look for ways to reduce it.  So, a clamor grows to reduce taxes. At the same time, the community’s businesses see an opportunity to reduce their taxes. They claim that if taxes were lower, they would be able to create more jobs, and in a time when jobs are scarce, that is a persuasive argument.

       Businesses also find that they are able to play communities off against each other by encouraging them to compete for the business expansions that create jobs. In the competition, communities issue bonds in order to be able to give incentives to the businesses, and thus, the communities increase their indebtedness. My community competes with your community, and we both lose revenue and add debts. Over time, the resources available to support our community institutions like schools or police departments are reduced, and the reduction creates conflicts of interest among the various institutions because no institution wants to lay off its employees or see its budget cut.

       Thus, structural impoverishment creates conflicts within communities, and the bonds of community become frayed. People say things like, “I have no children in school. Why should I pay taxes to support the schools?”  They forget that the long-term benefit of the schools accrues to everyone in the community because the schools create a better work force and a better educated citizenry. Moreover, as the burden of taxes is increased because the taxpayers have become poorer, that burden comes to seem unfair, and different groups of taxpayers find themselves in conflict with each other over the way that it should be apportioned. Businesses feel that they pay too much, and individuals feel the same. This conflict, too, frays the bonds of community.

       If we allow the bonds of community to be frayed, we will gradually lose the sense of community that has allowed places like the Fox Cities become the wonderful places to live that they are. We have always supported our community institutions generously because we could afford to, but impoverishment makes it harder and harder for us to maintain those institutions, and if we allow the process of structural impoverishment to continue unabated, we will lose the communities that we love. Fortunately, we do not have to allow the process to continue. We can adopt policies that are designed to combat structural impoverishment.

Fairness and Structural Impoverishment

            Structural impoverishment is unfair, and unfairness is un-American. In my last post I said that we have a problem with structural impoverishment, which is a process in which people become poor as a result of structural changes over which they have no control. In our time, such structural changes have included economic collapses like the one that occurred in 2008 and long, slow processes like the gradual outsourcing of manufacturing to other parts of the world. Such changes have destroyed not just the livelihoods of individuals but the very structure of opportunities on which those livelihoods depend.

                The collapse of the structure of opportunities strikes at the heart of our concept of fairness. We Americans believe that a person’s success should depend on his individual effort. We pride ourselves on having equality of opportunity rather than equality of outcomes. We ask for a chance to succeed, not a guarantee of comfort, but when the structure of opportunities collapses, a person’s success or failure can no longer be attributed solely to his or her effort and talent. Instead, he or she has become the victim of large forces over which he/she has no control.

                For example, millions of people all over our country receive wages that decline in value every year. No one suggests that their work is worth less every year. No one suggests that they become lazier every year. We all understand that their wages are declining because of competition from workers in parts of the world where wages are much lower than they are here. Employers here are able to take advantage of our large number of unemployed people to exploit their workers by paying them less every year in real terms.

                The fact that wages are declining means that profits are increasing. Companies are able to retain a growing portion of their revenue because they are able to pay less to their workers. So, owners of companies and shareholders in corporations can do very well. No one suggests that today’s owners are smarter or more entrepreneurial than the owners of the past. No one suggests that they work harder than their forebears. Not at all. They are simply the beneficiaries of structural forces that they did not create and cannot control.

                A process in which people become rich or poor for reasons that have nothing to do with their efforts or their talents is clearly unfair. It is contrary to everything we believe as Americans, and as Americans, we need to see that and do something about it. We cannot restore the conditions of the past, but we can adopt policies that restrain exploitation and create new opportunities. It will not be easy, but we can do it, and finding the ways to do it is our most important policy issue.

Income Inequality and Structural Impoverishment

             There has been a lot of talk about income inequality lately in the news media and among politicians of both liberal and radical rightist persuasions. The liberals have pointed to the fact that most of the income gains of recent decades have gone to the rich and the very rich while most people’s wages have stagnated. The result of this process has been increasing inequality of incomes in this country, and the liberals have defined that inequality as a problem.

The radical rightists have responded that the market rewards each of us according to the value of his/her contribution, and therefore, if some people are rewarded more than others, it must be because the former have made much greater contributions.  In addition, the radical rightists have said that the government should not interfere in this process because the market is an efficient allocator of resources. Any interference with the market will result in a less efficient allocation and therefore, will lead to less rather than more economic prosperity.

I suggest that both sides are shooting at the wrong target. The problem is not inequality but impoverishment for the vast mass of the people. Impoverishment is a problem both for humanitarian reasons and for coldly practical ones.  The humanitarian reasons are easy to see, but the coldly practical ones are not so obvious. So, let us review some of them.

Our economy is heavily dependent on consumer spending, but as people become poorer, they have less money to spend.  There is a debate over the size of our economy’s dependence on consumer spending . Some people say that 70% of our economy depends on consumer spending, while others say that the number should be 40%. I am happy to go with the lower number. It is plenty large enough to support my point, which is that the impoverishment of the population is a drag on our economy.  But isn’t this drag counteracted by the fact that the rich have more money to spend? Yes, but not very much. Poor people spend nearly all of their incomes, while rich people are able to save a large part of theirs. So, the impoverishment of a large number of people will lead to lower consumer spending. For a while, spending may be sustained by the indiscriminate use of consumer credit, but obviously, that cannot be sustained indefinitely.

As people become poorer, they not only spend less, they also pay less in taxes, but at the same time, they need more government services like Medicaid or food stamps. It has been widely reported, for example, that many of Walmart’s employees receive food stamps and Medicaid to supplement their wages, but their minimum wage jobs do not allow them to pay much in taxes. Thus, the impoverishment of the people decreases tax collections and increases government expenditures. In short, the impoverishment of the people increases both federal and state deficits, and the only way around that would be to increase the tax burden on the rest of us.

Poverty is highly correlated with crime. This is not surprising. People who can make comfortable livings without breaking the law are likely to do so. (There are plenty of rich people who commit crimes, but a higher percentage of poor people do so.) So, as our people become more impoverished, crime rates are likely to be higher than they would be otherwise. This relationship is not simple, and it may be obscured by other factors like the aging of the population (Most crimes are committed by young people), but crime is expensive for our country, and impoverishment is likely to increase crime.

 We can see, therefore, that impoverishment is a problem in a way that income inequality is not, and if impoverishment is the problem, we should ask what its causes are.  Sometimes, a person may be poor for purely personal reasons. He/she lacks education or has a bad attitude. He/she has trouble getting along with people or is lazy. People who are poor for such reasons need to solve their problem on a personal level. We can help them by providing training opportunities or counseling, but ultimately, only they can pull themselves out of poverty.

On the other hand, some people are poor because of structural changes in our economy.  For example, during the crisis of 2008, millions of people were suddenly impoverished.  Their characters didn’t change, but the structure of our economy did. Opportunities for work that had existed disappeared. Similarly, the trend toward outsourcing many jobs to other countries caused factories and offices to close in this country.  The people who were laid off were the victims of a structural change over which they had no control.

When people are impoverished because of structural changes, the problem can only be solved at a structural level. Of course, an individual here or there may resolve his/her individual problem by getting new training or moving to a new place, but such actions cannot create new opportunities for millions of unemployed people or for people working for a minimum wage with a declining value.  Let us call impoverishment that is caused by structural changes “structural impoverishment,” and let us recognize that it is a policy problem, not an individual problem.

I suggest that structural impoverishment rather than income inequality is our real problem.  If people can make huge profits and become very rich, that is great, but if they do it in ways that increase structural impoverishment, it becomes a problem because it creates costs that the rest of us have to bear.  If some people become very rich but our economy stagnates because people’s buying power has gone down, that is a problem because it hurts all of us. If some people become very rich by creating tax burdens for the rest of us, that is a problem. If some people become very rich by increasing the crime rate, that is a problem.  If we want to solve these problems, we have to focus on structural impoverishment and support policies that counteract the structural forces that have caused it. So, let’s stop talking about income inequality and start talking about structural impoverishment.

Taxes, Community and Freedom

On January 23, the Post-Crescent told us that Governor Walker is has proposed yet more income and property tax cuts. The new tax cuts are estimated to cost about $504 million on top of the $750 million tax cuts passed last year.

Of course, we all like tax cuts. No one enjoys paying taxes, and everyone likes having a little more money to spend. However, we have to balance our individual desires with the welfare of our communities.  Most of us in Wisconsin believe strongly in the importance of community, and we are proud of the communities we live in.  We boast that the Fox Cities are good places to raise children. We enjoy living in safe and attractive places. We know and like our neighbors. We are proud of our strong, community institutions. 

We all know that in order to have strong communities, we to have pitch in and work together, but pitching in cannot be abstract or theoretical. We have to put some real skin in the game.  We have to commit ourselves to maintaining the institutions of the communities that we love.  If we want good public schools or public parks, we have to agree to pay for them. If we want a safe community, we have to pay for police and fire departments. If we want parks for recreation, we have to pay for them.

In addition, our schools provide the underpinnings for our freedom to get ahead in our free enterprise economy.  Economic freedom is one of the things that our country is famous for, and many of our ancestors came here to take advantage of it. Today, our high schools, colleges and technical training institutions give our children the tools they need to take advantage of the freedom that our economy offers. Without those tools, “economic freedom” would be an empty slogan for them.  So, if we want freedom to be more than a slogan, we have to support our schools.

The same thing is true for political freedom. A citizen’s freedom depends on his or her ability to understand the issues that affect his/her life and to use that understanding to guide his/her vote. Our schools provide the students with the information they need to begin to understand the issues that affect them.  Thus, strong schools provide the basis for political and economic freedom, and strong schools are part of a strong community.

So, we have to balance the pleasure of having a little more money to spend individually with the equally strong pleasure of having a community that we are proud of and that provides a basis for maintaining our freedom.  I do not know what the long-term effect of Gov. Walker’s proposed tax-cut will be, but I do know that if we continue to drain money from our public institutions, we will not be able to maintain them, and we will lose the communities we love and the freedom that they support.

Why I Support Mary Burke For Governor

Last Wednesday night, I attended one of the 29 house parties across the state that were organized to give Mary Burke a chance to tell us why she is running for governor and what she wants to do for Wisconsin. I was a skeptic when I arrived (See my post on Fox Cities Progressive on December 25), but she made me into a supporter. Mary Burke is a candidate with good, progressive ideas who can win the governorship in Wisconsin.

What did she say that convinced me?

·         She said that her highest priority would be to promote the creation of jobs. The current administration has a sorry record in this area, and she said that the people of Wisconsin deserve better. Her credentials lead me to believe that she may really know what to do to create jobs in our state.  She has both private and public experience. She helped to grow Trek Bicycle into a worldwide brand with thousands of employees, and as Commerce Secretary, she helped to create and to preserve many jobs in Wisconsin. So, she knows that we can have good jobs without giving the state away to a few companies that make large campaign contributions.

·         She said that our public school system is the basic building block for creating opportunity for children in Wisconsin. She told us that using public money to support private schools drains funds from our public schools and that, except perhaps in a few places in southeastern Wisconsin, we should not be starving our public schools of funds in order to support private ones. She also said that private schools that accept public money must be held accountable just as public schools are.

·         She understands that environmental protection and economic growth do not always have to be in conflict with one another. We don’t have to destroy our world in order to have jobs, and we don’t have to starve today in order to preserve our world for tomorrow.  We can have economic development and environmental protection, but only if we promote development in a way that cares for the environment.  Mary made this clear in her response to a question about the iron mine in the Penokees. She told us that she did not like the way that the mine issue was handled. She explained that when the mine was being considered, a bipartisan bill was introduced in the state legislature that would have provided a framework for developing the mine in an environmentally sensitive way, but the bill was ignored in favor of one written by the mining company. She said that she would have chosen an environmentally sensitive, bipartisan approach.

·         As governor, she would accept federal funds to expand Medicaid. Why, she asked, should we allow the taxes we pay to be sent to other states to benefit their economies?

·         As governor, she would build a state health insurance exchange for Wisconsin and negotiate with the insurance companies to lower the rates in Wisconsin. She pointed to Minnesota, where the state’s active involvement has brought lower health insurance rates to its people. Why, she wanted to know, should we pay higher rates than those in Minnesota when we could bring them down through active state involvement?

·         She supports the right of public employees to bargain collectively.

·         She supports a person’s right to choose whom to marry, and she added that if she were governor, she would defend our state’s Domestic Partnership Registry against the lawsuits that have been filed against it, which the current administration has declined to do.

·         She believes that we should accept federal money to improve our infrastructure, especially because it would create a lot of jobs in our state.

Mary made it clear to me that her administration would be very different from the current administration in ways that I can support.  In addition, she is a strong candidate. Many progressive candidates are vulnerable to the charge that they don’t really understand the needs of business, but no one can say that about Mary. Her large role in the growth of her family’s company makes it clear that she does understand business. She is a strong candidate, and she will be a good governor. I support Mary Burke, and, if you believe that Wisconsin needs a change, I advise you to do so, too.

What Will Mary Burke Do?

I'm a Democrat, and I'd like to learn more about what Mary Burke will do to create jobs in Wisconsin. Her campaign web site headlines “Solving Problems, Not Picking Fights,” and it says several interesting things including:

·         As Governor, Burke will put her private sector experience into action to hold the line on taxes and spending, and ensure taxpayer dollars are spent effectively.

·         As governor, Mary will grow our economy and create jobs by strengthening our core industries like agriculture, manufacturing, tourism, forest products and technology.

·         During her tenure as Secretary of Commerce she focused on attracting new businesses to Wisconsin and helping entrepreneurs and small businesses to start up and grow.

These are admirable goals, but they don't tell me what Ms. Burke would actually do. If you think about it, you will see that our current governor also supports these goals, but his policies have not been very effective in promoting them. So, I'd like to know what Ms. Burke would do that is different from what Mr. Walker has done.

She seems to be saying what Mitt Romney said in his presidential campaign: "I have been successful in business. So, you can trust me to create jobs." In the end, people didn’t believe Mitt Romney, and I want to know more before I decide to believe in Mary Burke.

Running a business is very different from running a state. A business has a clear goal, which is to make money for its shareholders, but a state governor has to mediate among the competing goals of different interest groups. A business can distinguish easily between costs and benefits. For a business, profit is a benefit, and everything else is a cost, but a state governor has no such automatic clarity. Are improved highways a cost or a benefit? Is increased aid to schools a cost or a benefit? Is improved environmental protection a cost or a benefit?  The answer to each of these question depends on the perspective and interests of the person answering.

Governor Walker resolves this complexity by adopting the goals of business as the goals of our state. For him, anything that increases the profits of businesses is a benefit, and everything else is a cost.  As an approach to creating jobs, this approach has some appeal, but it has not proven to be very effective in practice, and it has had high costs in other areas like education and environmental protection.

Mary Burke seems to be saying that her goals match those of Scott Walker, but she will be better at attaining them than he has been.  I hope that she has more to say than that, and I look forward to hearing her proposals. How will she promote job creation?  How will she support education? How will she protect our environment? How will she “hold the line on taxes” while also finding ways to pay for important state programs? My support for her candidacy hinges on her answers to these questions. Our state deserves more than a kinder, gentler Scott Walker.

Why It Is Stupid to Cut Unemployment Benefits Now

     It looks as though extended unemployment benefits are going to expire at the end of December, and 1.3 million people will suddenly lose their lifeline. This loss of income will do great harm to those people and will also damage the communities where they live. The income they receive is spent at local merchants and supports both profits and jobs.  So, why is their income being cut off? Why is such a harmful policy supported so widely?

      One reason is probably the hyper partisanship in Washington. Some Republicans will not agree to anything that is supported by the Democrats, and that may account for part of the problem.  Another reason is fear over the national debt. People are worried that the government is spending too much money, and they want to cut wherever they can. However, cutting unemployment benefits will make the problem worse, not better. Our government can pay its debts only if our economy grows, and our economy can grow only if people have money to spend. Cutting unemployment benefits prematurely will depress the growth of our economy. It seems obvious that we should not try to solve our deficit problem by doing things that will make it worse.

     A third reason for this misguided policy is the view stated recently by Sen. Rand Paul that extending unemployment benefits does workers a disservice by encouraging them to remain unemployed.  Those who hold this view are afraid that some people will think to themselves, “Why should I get a job when the government will pay me for doing nothing?”  These lazy people will raise the unemployment rate artificially because they are not really looking for work. People are counted as unemployed workers who are eligible for benefits only if they are looking for work. So, those who prefer to live on their benefits must pretend to be looking for work and therefore, they raise the unemployment rate artificially. However, an article in Business Insider  suggests that the evidence for a large effect of this kind is not convincing. 

     Moreover, anyone who has ever been poor or who has worked with poor people knows that most work very hard to sustain their precarious economic lives. They hold down two or even three jobs to make ends meet.  In addition, many of the currently unemployed are people who held jobs for many years. Their personal identities and social statuses were closely linked to their work. They were proud of their ability to provide for their families. When the crash of 2008 yanked the rug out from under them, they were devastated, and the suggestion that they have suddenly become layabouts who prefer to live on a government dole that averages only $330/week is not very convincing.

     However, unemployment benefits undoubtedly do affect the wage level at which people are willing to accept jobs. $330 for a forty-hour week comes to $8.25/hour, which is about 14% higher than the federal minimum wage of $7.25/hour, and it is not unreasonable to suppose that for many people, the pride that comes from holding a job will not outweigh the fact that a person who takes a job at the minimum wage will be poorer than he was when he was receiving unemployment benefits.

     It is widely recognized that that the current minimum wage is too low. In fact, it is lower in real terms than it has been in many years. Interestingly, the people who oppose raising the minimum wage are often the same people who oppose extending unemployment benefits, and this conjunction can help us to understand what underlies their political positions.

     What do these two positions have in common? The answer is that they tend to drive down wages. If people are desperate enough, they will take jobs at any wage. The politicians of the radical right know that if they can end unemployment benefits and hold the line on the minimum wage, a moderate level of inflation will cause their big donors’ labor costs to fall and fall and fall. It is not too much to say that the goal of these policies is to drive down wages and thereby hasten the process by which the wealthy few enrich themselves still further by exploiting the poverty of their neighbors.

     If this policy is successful, it will hurt not only the unemployed but also many small businesses and their employees unless the economy grows much more rapidly that most economists are predicting. Businesses can be successful only if they have customers. If we allow the American people to become impoverished, their consumption will no longer sustain the prosperous, local businesses that they sustain today. Many small businesses will fail, and their workers will lose their jobs, thus swelling the ranks of the unemployed and driving wages down still further.  Whole communities will become poorer, and they will be unable to sustain the educational systems that provide opportunities to individuals and educated workers for businesses.  Large companies will look overseas for workers and for markets. So, they and their shareholders will be just fine, but the United States of America will become a poorer country. Is that the country we want to live in?  Is that the country we want to pass on to our grandchildren?