Social Security, Student Loans and the Paradox of Thrift

A Contradiction at the Heart of Our Economy

      We have a deep contradiction at the heart of our economy and our society. Our economy cannot grow or provide jobs for people unless most of us spend more than we can afford and unless most of us fail to save adequately for retirement. Put simply, we have a choice as a society between high unemployment and poverty in old age. Why is this so?

Why We Must Spend

      Consumer spending is a large portion of economic activity in the United States. Although there is disagreement among economists over the exact percentage, everyone understands that consumer spending is important and that if it is not robust, our economy will suffer. If consumer spending is strong, businesses become optimistic, and they hire workers. If consumer spending is weak, businesses become pessimistic and lay off workers.

     Thus, in order for our economy to be healthy, we must spend, and this season is the time when we spend the most. A great deal of advertising effort goes into persuading us to spend, and we have become used to the idea that we can use credit cards to spread the cost over several months. We run up debts during the holidays and the interest on our debts adds to the cost of the gifts that we give. Holiday giving is not the only time we spend, of course. We buy cars. We furnish our houses. We acquire electronic gadgets, and we take expensive vacations. All of these contribute to the economic health of our economy and persuade businesses to create jobs.

We are Unprepared for Retirement

       But what about our individual economic health? It is well known that most Americans are woefully unprepared for retirement. Most of us don’t save enough to build healthy nest eggs, and many of us are facing difficult times in old age. So, while our economy is healthy, many among us are not healthy economically because we do not save enough.  We could save more and spend less, but if all or even most of us did that, consumer spending would decline dramatically, and we might well face a big recession. That contradiction between individual thrift and societal well-being is called “the Paradox of Thrift,” and it tells us that if we all saved as we should, our economy would suffer. Many people would lose their jobs and become unable to save just because they and everyone else had tried to save.  So, we have to keep on spending.

Spending is Threatened by Our Aging Society

       Unfortunately, healthy consumer spending is threatened by demographic trends. Our society is getting older as the baby boomers retire, and many of them are not prepared for retirement. They don’t have enough saved. People who don’t have much money can’t spend much. So, as the baby boomers retire, we can expect consumer spending to decline. We will be able to maintain consumer spending to some degree by loosening credit requirements and allowing people to finance their purchases with credit cards even though we know perfectly well that they will probably never be able to pay their debts. However, we saw in 2008 that this is not really a good idea. How can we balance the health of our economy with the need to provide for a comfortable retirement? How can we have sufficient consumer spending without impoverishing our senior citizens or our workers?

How Can We Maintain the Spending That We Need? 

      There are a couple of things that we can do, and we must do them together. First, we can strengthen and expand Social Security into a real, national pension system that provides people with a reasonable standard of living in old age.  If we do that, our seniors will be able to live comfortably and spend money. They will not buy the things that young people buy, but they will take their grandchildren on vacations and buy new cars.

      However, expanding Social Security will require working people to save more than they are saving now, and that will have a negative effect on consumer spending. We can minimize that effect if we finance the expansion of Social Security by raising the maximum income on which Social Security taxes are paid. This will concentrate the effect at higher income levels where people already save a higher portion of their income than poorer people do.

     Second, we can reduce the interest rates on student loans. This will have the effect of reducing the sizes of the monthly payments that recent graduates have to make, and that will free up more of their money to be spent. They will be able to buy houses and furnish them. They will be able to replace their cars.  They will be able to increase their spending on holiday gifts.

We Should Act in Our Own Interest

      I am not advocating these changes for humanitarian reasons, although I could do so. I am not suggesting that we expand Social Security because old people deserve a comfortable retirement, nor am I not saying that we should reduce the interest rates on student loans because the current rates place an unfair hardship on recent graduates. I am saying that we should do these things for a purely selfish reason, which is that if we do not do them, our economy will suffer, and all of us will suffer with it.

The Downton Abbey Solution

In recent decades, the top 0.1 percent of our people have come to own an ever increasing share of the wealth and income in our country, and in this way  our income distribution has come to resemble more and more the distribution that characterized the Gilded Age just before World War I. If we are going to permit the emergence of a society like that of the Gilded Age, perhaps, we should consider adopting some of that era’s social practices, especially those that dealt with the problem of unemployment. We can see those practices in an early episode of the television series Downton Abbey. In that episode, Matthew, a distant middle class relative who has become the heir to Downton Abbey, has trouble adjusting to aristocratic life. Specifically, he is annoyed at the attentions of his valet who insists on helping him to dress. Matthew wants to get rid of the valet because he can dress himself perfectly well, but when he expresses this to the Earl, he answers, “Would you really deprive a man of his livelihood because you can dress yourself?”

The point is that those who can afford to employ servants have an obligation to do so in order to provide jobs for people. This version of noblesse oblige is, in the Earl’s view, the only real justification for the existence of a wealthy, privileged class, and in fact, the wealthy class in Britain performed this role admirably.  In 1900, domestic service was Britain’s largest class of employment and included approximately 1.5 million people. (Today, only about 65,000 people are in domestic service in Britain on a much larger population base.)

Many features of the lives of the wealthy revolved around the fact that they employed large staffs of servants. For example, wealthy people changed their clothes often. They had morning clothes and evening clothes, and they engaged in activities like tennis or fox hunting that required special outfits.  In those days, there were no wash-and-wear fabrics. So, all that clothing had to be cared for by servants including washing maids, valets and lady’s maids. Wealthy people traveled by horse and by horse-drawn vehicles, too, and a staff was required to care for the horses and to drive the carriages. When automobiles arrived, they were driven by chauffeurs.  Meals were elaborate and they were served elaborately. So, kitchen staff was needed as well as a staff to serve at the dining table. Individuals did not choose this way of living. They followed a tradition that obliged them to maintain a certain style, and that style required a large staff of servants. In effect, their social position required them to employ those staffs, and more than a million people in Britain depended on the livelihoods that were thus created.

Our distribution of wealth may soon resemble that of early twentieth century Britain, and perhaps we should also learn something from its social rules. Perhaps we should begin to view our “top 0. 1%” as people who have an obligation to create employment. Here are some suggestions for rules for the top 0.1% updated to fit our twenty-first century world. 

1.       No person in the top 0.1% should drive his or her own car, and when such people arrive in public places driving themselves, they should be widely booed, and their social solecism should be reported in the press. Their friends should refuse to associate with them, and they should be refused admission to the trendiest clubs.

2.       No person in the top 0.1% should be able to cook. Anyone who can cook should be regarded as a low class person unworthy of participation in exclusive social events and should be barred from exclusive resorts and hotels. It should be clear that respectable people employ cooks and kitchen maids.

3.       Outdoor barbecues are a special case and require a separate cook. Clearly, barbecuing is beneath the dignity of a professional cook, and no such person would consent to work in a house that did not employ a specialized person for outdoor grilling. 

4.       No person in the top 0.1% should be seen carrying packages. Such people should carry purses, canes and gloves to indicate that they do not need to carry their own packages, and the men should remove their hats indoors to further encumber their hands. When such people shop, they should be accompanied by servants who carry their packages for them. It goes without saying that carrying packages is beneath the dignity of a chauffeur. 

5.       It should be considered unacceptable for a person in the top 0.1% to answer the door or the telephone in his or her house. Respectable people employ butlers for that purpose, and people in the top 0.1% who insist on answering their own doors or telephones should be shunned socially. 

6.       No parent in the top 0.1% should ever be seen in a public place with his or her children unless the children’s nanny is also present. Clearly, the responsibility to care for children precludes a nanny from functioning as a chauffeur, and carrying packages is beneath a nanny’s dignity. Thus, a woman who goes shopping with her children will need at least three servants to accompany her. 

7.       Only a nanny may take children to school, and since she cannot function as a chauffeur, she and the children must be driven by the family’s chauffeur. (It goes without saying that such people never take buses or subways.)  If the children have books, notebooks or other materials to take to school with them, a third servant must accompany them to carry these things for them. If a child arrived at school without being properly attended, other children of the top 0.1% would know immediately that he or she was not a member of their social class and would shun and bully the child.

I could go on, but you get the idea. If we are going to allow a very high concentration of wealth, it should carry with it a responsibility to use at least part of it to employ a large number of servants so that the wealth may be redistributed through regular, market mechanisms.

Forget the Poor! A Progressive Agenda for the Twenty-First Century

Forget the poor! They aren’t the problem.

           The poor are not our most important problem. Our problem is a middle class that is becoming poor. We have an economy and a government that are dominated by economic forces that allow corporations to squeeze ever more wealth from the labor of the middle class while giving back nothing.  These forces allow a few greedy people of great wealth to use the threat of outsourcing to squeeze Americans until there is no juice left in us. Consequently, in recent decades, we have seen much wealth created in the United States but little or no increase in real wages.

We progressives have not faced this reality straightforwardly. We have clung to a vision of America from the nineteen sixties. In that America, most people were doing ok, but injustices remained at the margins of society.  In response to these injustices, we had the Civil Rights Movement, the Voting Rights Act of 1965, the War on Poverty and the Women’s Movement. All of these were intended to correct injustices that had come to seem egregious in a society in which most people were doing ok. More recently, we have also seen Gay and Lesbian people struggle to be treated equally, and we have seen the struggles of undocumented immigrants, especially Mexican and Central American immigrants.  These movements have had some successes, but much still remains to be done. We still have poor people. Black Americans still face barriers to success. Women’s equality is still a work in progress as is equality for gays and lesbians. Millions of undocumented, Mexican and Central American immigrants continue to struggle in the shadows.

           Because work remains to be done in all of these areas, we progressives have continued to focus on them, but in the meantime, the world has changed around us. We no longer live in a society in which most people are doing ok. Instead, we live in a society in which a family with two wage earners struggles to maintain a level of living that could be maintained by one wage earner in the nineteen sixties. We live in an aging society in which most Americans are woefully unprepared for retirement. We live in a society in which young people are crushed by the debt that they incurred in order to obtain the education they needed (and which our society and economy needed them to obtain).  We also live in a society in which  most people still get their health insurance through their jobs while at the same time, those jobs have become ever more insecure and uncertain. In short, we live in a society in which most people are definitely not doing ok, and economic injustice is not something that is found only at the margins of our society.

We progressives must recognize that the world has changed, and we must and craft a progressive, political agenda for the twenty-first century. The first principle of that agenda is that its core elements must be things that will benefit the majority of our people.  In a world in which the middle class is being squeezed and impoverished, we can no longer cobble together a broad political agenda from the agendas of a patchwork of special groups. We can no longer add together the agendas of black Americans, Hispanics, women, gays and the poor to create a progressive agenda for the twenty-first century. Our agenda must address the needs of most Americans directly and clearly. Here are some suggestions for things that might be included in a progressive agenda for the twenty-first century.

Issues for Our Time

Jobs

          Creating jobs that pay well and cannot easily be outsourced to other countries must be a high priority. To do that, we must support large programs to rebuild and expand our aging infrastructure. We must also focus attention and support in each region of the country on the growing sectors of the economy. Finally, we must also stop giving tax benefits to companies that move their operations to other countries. 

Pensions

           We must expand our Social Security system into a decent national pension system. Individuals and companies must contribute to it. We must also improve the way that we finance our pension system, and many suggestions for doing so have been advanced.  We cannot have a country in which most of our people live out their retirement years in poverty.

Post-Secondary Education

           We must change the way that we finance post-secondary education. The use of loans to students has proven to impose unbearable burdens on young people, and the cost of their debts is a drag on our entire economy.  I think that the key to changing this system is to recognize that we do not educate students only to provide them with opportunities. We educate them because our economy needs their skills.  Everyone benefits from an economy with a good supply of advanced skills, and the cost of providing the supply such skills should not fall entirely on the students.

Health Insurance

          Creating a modern, national system of health insurance must be a high priority.  Employment-based health insurance should be a thing of the past.  It is a drag on hiring because a company must provide each new employee with expensive health insurance.  Employment-based health insurance also drags down wages for most people because money that might be used to raise wages is used instead to pay health insurance premiums. Employment-based health insurance is a drag on our economy as well as a source of poverty and insecurity for our middle class. So, we must push for a true, national health insurance system. Obamacare is a good first step, but its limitations are well-known, and even as I write, the Supreme Court has agreed to hear a case that may nullify its benefits in many states.

Taking Back Control of Our Financial System

          We have to take back control of our financial system. We cannot allow a few greedy bankers and traders to be in a position to destroy the lives and savings of millions of Americans. This is a matter of basic fairness. There are various ways to go about regaining control of the system starting with breaking up the companies that are too big. The rule should be that a company that is too big to fail is too big to exist.

The Core of Our Appeal to Voters

           These issues and other like them should form the center of every progressive political campaign. They will allow us to offer something concrete to every American. All people facing retirement should know that we stand for them. All people who need jobs should know that we stand for them. All people who are trying to obtain post-secondary education or who have children who want to do so should know that we stand for them. And all people who worry about their health insurance should know that we stand for them.  The days of cobbling together a progressive agenda from the agendas of a scatter of marginalized groups must end, and the day of addressing the needs of the majority of our people must begin. We should start now to select among the many, viable proposals that are out there, and we should begin a campaign right away to educate the voters on these issues.

We Should Be Careful What We Do About ISIS

We Already Have Too Many Useless Deaths

We should be very careful in deciding what to do about ISIS.  The murder of two Americans in Syria is appalling, but in responding to it, we should be careful not to cause the useless deaths of thousands more Americans. I use the word “useless” deliberately because in my lifetime, too many Americans have died uselessly.

In Vietnam, tens of thousands of Americans died, and their sacrifice produced no benefit for the United States or for Vietnam. The outcome of the war was that the Vietnamese communists took over the country, and we could have obtained that outcome without a single American death in 1945, in 1954 or in 1965.

In Iraq, more than 4000 Americans died, and the main outcomes of that war were:

·         An increase in the power of the Shi’ites in Iraq.

·         An increase in the power of Iran as the patron of the Iraqi Shi’ites.

·         An increase in the power of Sunni Islamic terrorists in reaction to the actions of the Shi’ite government of Iraq.

All of these outcomes are contrary to the interests of the United States. So, the American deaths in Iraq actually made the Middle East more hostile and dangerous for our country. We do not want the same thing to happen in Syria.

We Will Have American "Boots on the Ground"

President Obama has said that we will hunt down ISIS, degrade it and ultimately destroy it. He has said that we will use air strikes, but that the “boots on the ground” will not be American. Allies like Saudi Arabia, Turkey, Egypt and Jordan will do the fighting there, but they have shown little enthusiasm for that role. In the meantime, a senior US Air Force commander is quoted in today’s USA Today as saying that the our pilots will need American spotters on the ground in Iraq and Syria to verify that the targets of air strikes are real and legitimate. What will happen when those spotters come under attack, as inevitably they will? Will we abandon them, or will we send in “boots on the ground” to defend and support them?

What Will Happen if we Train and Equip the Moderate Opposition?

President Obama has said that we will work to train and support the moderate opponents of the Assad regime, but the moderate opposition to Assad is fragmented and not very effective. Moreover, the moderate opposition groups are allied with radical Islamist groups like the Nusra Front who oppose ISIS for their own reasons. Will our weapons fall into the hands of those Islamist groups? What will they do with those weapons? Remember that we armed Islamists in Afghanistan to fight against the Soviet Union, and when that war ended, the Taliban used those weapons to take over the country.  When we invaded Afghanistan to drive out the Taliban, our troops found themselves fighting against an enemy that we had armed.  We do not yet know what the outcome of our war in Afghanistan will be, but the situation there does not appear encouraging. We know that the Karzai government and its supporters are spectacularly corrupt. We read reports of renewed attacks by the Taliban in key provinces, and we read that the government’s troops are sometimes being overwhelmed there.  In the end, will the more than 2000 American deaths have produced any benefit for our country?

The Price Will Be High

If we decide to remake the political map of Syria and Iraq by eliminating ISIS, we will pay a high price in the lives of the Americans who do the fighting, and it is not clear that eliminating ISIS will produce any real benefit for the United States. The regimes in Iraq and Syria will still be unstable, brutal and corrupt. Other radical Islamist groups will still be there. We cannot change that.

President Bush told us that we would bring democracy to Iraq, and we know what the outcome of that has been. Some people say that if President Obama had not withdrawn our troops from Iraq, the situation would be better there, and perhaps they are right. But how long are they be prepared to stay there? We were there for a decade. Are they prepared to stay for another decade or two?  If we enter the war in Syria, all of its problems will become our problems, and we will not be able to put down that burden once we take it up. So, let us be careful what we do now because we will have to live with the consequences for decades. Let us at least try not to cause more useless deaths.

We Blundered into Korea and Vietnam

We Weren't Trying to Take Over The World

I am writing this in response to a letter headlined “What have wars brought our nation?” that appeared in Appleton’s Post-Crescent on March 24, 2014. The letter is by Ed Hodges, and he is right to ask the question. He is right when he says that we have engaged in some amazingly stupid wars that have caused immense damage and brought us little in return, but he is wrong about the reasons why we did so. It is important for us to understand the reasons correctly if we are to learn from our experience.

The Korean War Was the Result of a Bad Deal at Yalta

Mr. Hodges’ first error concerns the Korean War. He says, “The gold stars of World War II were still in our windows when America invaded Korea.” This is false. We didn’t invade Korea. Korea had been a part of the Japanese Empire, and we occupied it as a part of defeating Japan. We allowed the USSR to occupy the northern half of the peninsula as a part of a deal that we made at Yalta to persuade the Russians to enter the war against Japan. Remember that when that deal was made, the atomic bombs had not yet been dropped on Hiroshima and Nagasaki, and we were facing the invasion of the Japanese home islands. It was estimated that as many as half a million Americans would die in that invasion. So, we made the deal, and the USSR occupied the northern half of  the Korean peninsula. Thus, the countries of North Korea and South Korea came to be.

In 1950, North Korea invaded South Korea, and the United Nations went to its defense. The UN was able to do that because the USSR was boycotting the UN then and did not attend meetings of the Security Council. So, the Korean War (officially called the “Korean Conflict) came about not because of a “quest for world dominance” (Mr. Hodges words) but because of a bad deal that we made with the USSR. If we had occupied the whole Korean peninsula, there would have been no war. We won that war in the sense that we successfully turned back the North Korean attempt to take over the whole Korean peninsula. Unfortunately, we were not so successful in Vietnam.

The Debacle of Vietnam

Mr. Hodges says, “A handful of years [after the Korean War], we invaded Vietnam.”  This is also false. We did not invade Vietnam.  At the end of World War II, France tried to reestablish its control of what was then known as French Indo-China. We helped the French, but in 1954, they were driven out.  The terms of France’s withdrawal were settled at the Geneva Conference of that year.  A unified Vietnam was to hold elections to determine who was to rule.

The United States refused to accept the terms of the Geneva Agreement because it was obvious that Ho Chi Minh, the leader of the Vietnamese Communist Party would win. Instead, we supported a puppet government in South Vietnam. We did this extraordinarily stupid thing because these events occurred during the anti-communist hysteria of the early  nineteen fifties.

Today, it is hard to imagine the political climate of that time. In the wake of the communist victory in China in 1949, we undertook a witch hunt to determine who was responsible for “the loss of China” as if China had ever been ours to lose. A number of the State Department’s most experienced “Asia hands” were drummed out of the Foreign Service. Senator McCarthy conducted hearings to find “communist sympathizers” in the Pentagon. Any politician who opposed our policy in Vietnam was accused of being “soft on communism.”

So, we became the new colonial power in Vietnam.  Once we had done that, it became hard for us to back out, and the more resources we invested in supporting South Vietnam as an independent state, the harder it became for any president to say, in effect, that he and his predecessors had blundered. The colossal stupidity of our policy in Vietnam may be measured by the fact that when we finally withdrew in 1975, we got the same deal that we could have gotten for free in 1945, in 1954 or in 1965.

I get angry every time I think about the lives we wasted in Vietnam, but it is important to understand that we blundered into that war. We weren’t trying to take over the world, but we had no real policy in Southeast Asia except to contain communism. So, we entered a war in which we had no clearly defined objective that could be attained by military means, and a war that has no objective can never be won.

The Situation Today in Afghanistan

Today, we find ourselves in a similar situation in Afghanistan, and fortunately, our president understands the situation we are in. There are no military means by which we can make Afghanistan into a democratic opponent of Islamic extremism. Perhaps this time, we will withdraw from Afghanistan and allow that country to sink back into the obscurity, which it so richly merits.

Why Mr. Putin Will Get Away With Annexing the Crimea

Some Want to Blame Obama

Recent events in Ukraine and the Crimea have shown some of the limits of diplomacy, and we have heard from John McCain and others that at least a part of the fault for what has happened there lies with President Obama, who – they say – has emboldened Vladimir Putin by making America appear weak. I think that, before we jump into that debate, we should look back on some historical precedents.

What Has Happened in Similar Situations in the Past?

In 1956, the Hungarians rebelled against their Russian overlords. The Hungarians hoped that the U.S. would go to their aid because President Eisenhower had at least implied that we would do so. As everyone knows, we did not go to their aid, and the rebellion was crushed. Thousands of Hungarians fled their country into Austria, and many eventually settled here.

In 1962, the Russians tried to put ballistic missiles into Cuba. President Kennedy responded with a naval blockade, and for a short while, we were close to nuclear war. Finally, the Russians backed down and removed their missiles from the Island. We have continued to try to isolate Cuba, and the Russians have done nothing to help.

Why did we not aid the Hungarians in 1956, and why did the Russians back down in 1962? The answer is that we and the Russians have never wanted to go to war with each other, and each of us knows where the other’s limits are. For better or for worse, we live in a world where major powers have “spheres of influence.” The Russians have a sphere of influence in Eastern Europe, and we have one in Latin America under the Monroe Doctrine. Eisenhower knew in 1956 that if we had attempted to help the Hungarians militarily, we would have had to fight the Russians, and he knew that would have been a disaster. He knew that we had no vital interest in Hungary, and so we left the Hungarians to their fate.  Similarly, Khrushchev knew in 1962 that if he had not backed down, the U.S. would have gone to war in defense of what we regarded as our vital, national interest. He knew that such a war would have been a disaster. So, he backed down.

Why Mr. Putin Will Get Away With Annexing the Crimea

Now, the Russians have annexed the Crimea. Mr. Putin knows that Ukraine is powerless to resist, and he knows that neither the U. S. nor the countries of Western Europe has any vital interest in the Crimea. He knows that there will be lots of bellicose speeches.  There may even be some economic sanctions, but in the end, there will be no second Crimean War. Even Senator McCain has not suggested that we land troops to defend Ukrainian ownership of the Crimea.  The Russians will get away with annexing the Crimea.

None of this has anything to do with President Obama or his foreign policies. It has to do with geopolitical realities. Mr. Putin has not been emboldened because President Obama has made our country seem weak.  He has been emboldened by the fact that, for more than a hundred years, everyone has known that the Crimea is within the Russian sphere of influence. No one will challenge the Russians there.  Obama is not weaker than Eisenhower or Kennedy, but like them, he has to live in a world where major powers have spheres of influence. He knows, as Eisenhower knew, that we cannot really challenge the Russians in their sphere of influence unless we are truly prepared to go to war with them.

How Will Mary Burke Create Jobs in Wisconsin?

On January 18, I published an article on this blog that explained why I had decided to support Mary Burke for governor of Wisconsin. In that article, I gave several reasons for supporting her, and one of them was that she gave a very high priority to creating jobs but at the same time, she understood that she didn’t need to give the state away to her campaign donors to accomplish that. I wrote,

[Mary Burke] 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.

In effect, I said that we could trust Mary because of her experience and her attitudes.  Now, I would like to hear more. If Mary really knows how to create jobs – and I believe that she does – she should be able to tell us more about her plans to do so. This should not be a problem for her. After all, she has made job creation a central plank in her platform, and she has indeed had a lot of experience creating jobs.

I can think of some things she might do:

·    She could decide to invest some of the state’s money into repairing our roads and bridges.

·    She could provide support for commercial research and development to create new products made in Wisconsin or that are made from material that are produced in Wisconsin.  (That wouldn’t create many jobs in the short run, but it would help in the long run.)

·    She could invest in trade missions to spread the word about Wisconsin’s products in other countries.

·    She could negotiate actively with Wisconsin’s companies to do more of their work in Wisconsin.

·    She could develop programs to build on existing strengths. For example, the Gulfstream production facility at Outagamie County Airport might be used as a basis for attracting related businesses.

I’m sure that there are other things that I don’t know about but that Mary, with her broad experience, can think of. So, Mary, what do you have in mind?

 

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.