An analysis of the US economy by Robert Reich

I would encourage you to download this speech by Robert Reich. [Right-click on the link and choose “Save Link As” or “Save Target as”.] Reich’s key argument is that inequality is bad for business, and unless America can address this fundamental challenge, all of the secondary problems will be insoluble. The irony is that, in the end, Reich copies much of David Harvey’s Marxist analysis of the fundamental contradictions of capital accumulation. The only real difference is that Reich wants to save capitalism, while Harvey has no such allegiance.

One interesting contribution by Reich is his discussion of the “three coping mechanisms” that the average American household has been using over the past 30 years to compensate for the effective decline in wages:

1. moving women into the workforce
2. making men work more overtime (a great source of “improved” US productivity)
3. borrowing money against home equity

Reich asserts that these mechanisms have, up to now, allowed Americans to ignore the problems of inequality. However, these mechanisms are now spent, and it’s time American politicians own up to the fundamental problem: the engine of the American economy – the average consumer – is no longer capable of spending the money that makes economic growth possible.

Posted by Colin Welch at 5:11 PM
Edited on: Wednesday, November 17, 2010 5:12 PM

 

The Neo-Liberal Agenda: The Effects in BC, Part 2

In my last entry, I wrote about the pernicious attempts by the BC Liberals (and other neo-liberals) to promote tax cuts on the basis of improvements in productivity. I explained that these productivity increases simply haven’t happened. This, in turn, suggests that Campbell’s tax cut agenda is bogus and self-serving.

The question, then, is what has come of the tax cuts that Campbell’s government initiated almost immediately after coming to power in 2001? The best answer is the same answer that we see in the United States: a concentration of wealth and income that leads to inequality. The following is a chart from the federal government. The richest quintile in BC made, on average, 10.1 times the average income of the poorest quintile. The rest explains itself.



At this point, a left-wing analysis of our economy really starts to make sense.

Posted by Colin Welch at 10:01 PM
Edited on: Wednesday, July 06, 2011 11:46 AM

 

The Neo-Liberal Agenda in BC: Reduce, Just Don’t Shift

Aside from shifting taxation from the business sector to the middle class (like in the HST), the neo-liberal agenda seeks to reduce the overall size of government, particularly in relation to GDP. A classic example of this reduction in government can be found right here in BC. Below is a chart from the BC government’s 2010 budget document called the “2010 Financial and Economic Review”. [Please double-click on the chart to see the full scale view. The yellow highlighting indicates the NDP years in between the Socreds and the Liberals.]

We can see that, in the second-to-last column, spending has gone down significantly – relative to our overall capacity to pay. The poor economy and the Olympics have changed that recently, but the overall policy trend of the BC Liberals is clear. It may not seem significant, but each percentage point of GDP translates into hundreds of millions of dollars, dollars which disproportionally affect the population in the bottom half of the income scale because a much greater percentage of its income relies on government transfers and services. The CCPA, for example, has calculated that the Liberals’ decade-long policy of  tax cuts – largely benefiting corporations – has reduced revenues in the billions:

Between 2000 and 2010, BC’s tax revenues fell by 1.7% of GDP (the size of the province’s economy). That may sound like a small change, but it’s equivalent to $3.4 billion. Meaning, if we’d kept our tax system the same, we’d have $3.4 billion more to spend on needed public services today

This kind of economic perspective also explains why the government can claim it is spending more on services like education and health – in absolute terms and relative to previous years – but then show why the growth of our economy has exceeded our government’s provision of services. And it further explains why claims that health care care spending is “out of control” is a myth. Spending is going up, for sure, but it’s not out of control – except when tax cuts dramatically reduce a government’s revenue and, relative to that shrinking pie, health takes a much bigger proportion. But, if that’s the case, the discussion should not be about health care but our government’s determination to return us to the 19th century, and to take us back to a social Darwinist, I’m-all-right-Jack society.

Posted by Colin Welch at 12:23 PM
Edited on: Sunday, November 14, 2010 9:11 PM

 

The Georgia Straight on Post-Secondary Spending in the Valley

The Georgia Straight, and its online version, the straight.com, are useful sources for news, investigative journalism and media criticism. Amid its pop culture pap and racy personal ads, the Straight can deliver articles of surprising quality on topics rarely seen in BC’s corporate media.

Here’s a recent article on the imbalance of spending on post-secondary institutions on the south side of the Fraser River compared to the north. It’s amazing what a little bit of research and empirical analysis can do:

http://www.straight.com/article-354726/vancouver/region-faces-education-gap

Posted by Colin Welch at 5:16 PM
Edited on: Monday, November 01, 2010 5:30 PM

 

Notes from Michael Oakeshott’s “Political Education”

One of the most thoughtful and engaging conservative philosophers of the 20th century is Michael Oakeshott. I’m re-reading some of the essays from his famous work Rationalism in Politics. Here are my quote notes on the first essay I’ve read:

Oakeshott, Michael. “Political Education,” Rationalism in Politics and other essays, Expanded Edition (Liberty Press, Indianapolis), 1991.

…………..

[C]onsider Locke’s Second Treatise of Civil Government, read in America and in France in the eighteenth century as a statement of abstract principles to be put into practice, regarded there as a preface to political activity. But so far from being a preface, it has all the marks of a postscript. And its power to guide derived from its roots in actual political experience. (p. 53)

Freedom, like a recipe for game pie, is not a bright idea; it is not a ‘human right’ to be deduced from some speculative concept of human nature. The freedom which we enjoy is nothing more than arrangements, procedures of a certain kind: the freedom of an Englishman is not something exemplified in the procedure of habeas corpus, it is, at that point, the availability of that procedure. And the freedom which we wish to enjoy is not an ‘ideal’ which we premeditate independently of our political experience, it is what is already intimated in that experience. (p. 54)

[A]n ideology is an abbreviation of some manner of concrete activity. (p. 54)

On ideological politics: The complexities of the tradition which have been squeezed out in the process of abridgment are taken to be unimportant: the ‘rights of man’ are understood to exist insulated from a manner of attending to arrangements. And because, in practice, the abridgment is never by itself a sufficient guide, we are encouraged to fill it out, not with our suspect political experience, but with experience drawn from other (often irrelevant) concretely understood activities, such as war, the conduct of industry, or Trade Union negotiation. (p. 56)

The only cogent reason to be advanced for the technical ‘enfranchisement’ of women was that in all or most other important respects they had already been enfranchised. Arguments drawn from abstract natural right, from ‘justice,’ or from some general concept of feminine personality, must be regarded as either irrelevant, or as unfortunately disguised forms of the one valid argument; namely, that there was an incoherence in the arrangements of the society which pressed convincingly for remedy. (p 57)

[T]he abridgment itself never, in fact, provides the whole of the knowledge used in political activity. [p. 58]

Everything is temporary. Nevertheless, though a tradition of behaviour is flimsy and elusive, it is not without identity, and what makes it a possible object of knowledge is the fact that all its parts do not change at the same time and that the changes it undergoes are potential within it. Its principle is a principle of continuity: authority is diffused between past, present, and future; between the old, the new, and what is to come. It is steady because, though it moves, it is never wholly in motion; and though it is tranquil, it is never wholly at rest. (p. 61)

In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination. The enterprise is to keep afloat on an even keel; the sea is both friend and enemy; and the seamanship consists in using the resources of a traditional manner of behaviour in order to make a friend of every hostile occasion. (p. 61)

Everything is temporary, but nothing is arbitrary. (p. 62)

Though the [political] knowledge we seek is municipal, not universal, there is no shortcut to it. Moreover, political education is not merely a matter of coming to understand a tradition, it is learning how to participate in a conversation: it is at once initiation into an inheritance in which we have a life interest, and the exploration of its intimations. (p. 62)

Political philosophy cannot be expected to increase our ability to be successful in political activity. It will not help us to distinguish between good and bad political projects; it has no power to guide or to direct us in the enterprise of pursuing the intimations of our tradition… we may hope only to be less often cheated by ambiguous statement and irrelevant argument…. The more thoroughly we understand our own political tradition, the more readily its whole resources are available to us, the less likely we shall be to embrace the illusions which wait for the ignorant and the unwary: the illusion that in politics we can get on without a tradition of behaviour, the illusion that the abridgment of a tradition is itself a sufficient guide, and the illusion that in politics there is anywhere a safe harbour, a destination to be reached or even a detectable strand of progress. (pp. 65-66)

Posted by Colin Welch at 8:07 PM
Edited on: Monday, November 08, 2010 7:26 PM

 

A Choice of Words

Here’s an interesting exercise. Replace one word in the Vancouver Sun headline below, and ask how the meaning of the headline has changed. Let’s replace “admits” with “argues”. Such a change makes the revealed “truth” more a matter of debate and interpretation. Yet I’d argue that this is a reasonable change in wording, given that the article itself never says “admit”, and that Angela Merkel has made a fairly dramatic, and probably strategic, change in her own position on German “multiculturalism”.

Headline

Posted by Colin Welch at 7:56 PM
Edited on: Wednesday, October 27, 2010 8:22 PM

 

Recognition of a Keynesian Moment

I rarely take a lead editorial from the Vancouver Sun seriously. This Canwest/Postmedia corporate entity is at the center of right-wing propaganda in BC, and is representative of the very conservative outlook from Canada’s media generally.

Nevertheless, today’s editorial provides a sobering analysis of the American economy and its implications for Canada. It’s also a clear (though unstated) reminder that Keynesian economic theory still matters. The editorial admits that the gathering storm clouds of a double-dip American recession are a matter of demand – or lack thereof. There is no supply-side monetarism in the newspaper’s argument, primarily because near-zero interest rates have not overcome the massive debts that spring from a consumer society which is also stunningly unequal.

The Vancouver Sun decries the growing evidence of deflation, which is caused by “a drop in aggregate demand. That is clearly the case in the U.S., where consumers have simply stopped spending”. And the culprits are not interest rates or its neo-liberal brethren, tax rates. At the center of the problem is a demand-side drop in the expectation of profit: “the drop in demand for goods and services means business has little reason to invest, expand and create jobs”. In other words, in a society where the majority of the GDP is controlled by consumers, businesses will not invest in goods, services or productivity enhancements if there is no expectation that consumers will buy these goods and services. Paying less tax is irrelevant if there is no taxable profit.

Keynes, anyone?

Posted by Colin Welch at 12:05 PM
Edited on: Sunday, October 17, 2010 11:24 AM

 

More on the Liberal budget update

Below is an interesting page (p. 144) from the BC Liberal government’s 2009 budget update. If the “devil is in the details”, then this is a great place to start. As I discussed in my September 29th entry, the Liberals are anticipating receiving less revenue from corporate income tax than post-secondary tuition. The former has been subject to years of tax cuts, while the latter has seen increases well beyond the rate of inflation.

If you examine these projections closely, you will find other interesting results. For one thing, personal income tax revenue will be six times corporate tax revenue by next year. There will also be more revenue from MSP premiums and liquor taxes, and almost as much from lotteries.

Posted by Colin Welch at 5:25 PM
Edited on: Wednesday, November 10, 2010 10:16 PM

 

Bloodied But Onbowed

Growing up in suburbia during the late 70’s and early 80’s, I became a big fan of Vancouver’s punk scene. I was never able to attend their concerts at the time – how could a good suburban boy ever get to (or into) the Smilin’ Buddha? – but I bought as many records and cassettes as I could find. I’m not sure what attracted me to DOA, Art Bergmann, the Subhumans and the Pointed Sticks, et al., but it was probably a combination of the energy, bad language and social awareness that oozed out of these bands. And they wrote some damn good songs.

The Knowledge Network recently showed a great documentary on Vancouver’s early punk scene called Bloodied But Unbowed. If you’re interested in this scene – which Duff McKagan figures was one of the best in the world – the film is absolutely worth the 55 minutes.

Posted by Colin Welch at 11:50 AM
Edited on: Sunday, October 03, 2010 5:27 PM

 

More on the neo-liberal agenda

One of the truisms of neo-classical economics is that tax cuts for those already wealthy and powerful will “trickle down” to the middle and lower class. In other words, making rich people richer will eventually make everyone richer.

One of the most popular versions of this theory is the corporate income tax cut, which supposedly induces corporations to invest in machinery and its labour force, and thereby boost its productivity for the benefit of all. Admonitions abound that “[b]usiness taxes have a substantial impact on economic growth and productivity in terms of foregone revenue”. Thus, in 2000, the C.D. Howe Institute grudgingly approved the federal Liberal plans to decrease the “general federal corporate income tax from 28 percent to 21 percent over five years”, but noted that it wasn’t enough: “[T]he reforms are neither significant enough nor are they to be implemented quickly enough to make Canada’s business tax system truly competitive with the systems in many other industrialized countries or to create significantly better conditions for investment in Canada.”

The general rate is now 19%, with calls aplenty for further reductions of both federal and provincial corporate taxes. The problem, however, is that 10 years later and with the federal corporate tax rate cut by a third, Canadian productivity hasn’t improved. According to a June 3, 2010, report from that paragon of Bay Street, TD Bank,

the alarming reality is that labour productivity growth in Canada’s business sector has been in structural decline since the 1970s. Even more concerning is that since 2000, labour productivity growth has slowed to a crawl. The scope of this trend has not been mirrored by other developed countries, and it is taking a toll on Canada’s international economic clout. Between 1990 and 2008, Canada’s GDP per capita slipped from 5th to 11th among OECD countries.

The report clearly lays the blame on Canadian companies, which are “failing to innovate and find better ways to employ their existing resources”. The situation puzzles the report’s authors, since “taxation policy has become dramatically more favourable towards capital investment”. In the end, the TD report admits it doesn’t have all the answers. Indeed, the “answers to many of the questions surrounding Canada’s productivity woes are awaiting discovery, but an aggressive and substantial research effort will be necessary to uncover them”.

So the self-serving truism isn’t true at all. Corporate income tax cuts may serve to amplify corporate profits and shareholder dividends, boost mergers and acquisitions, and increase CEO bonuses. But they don’t improve productivity and competition, and they don’t improve employment in the “goods-producing sectors” that should benefit most from productive investments.

Of course, what corporate tax cuts do is reduce the contributions of the business sector to government coffers, and increase the revenue burden on working-class and middle-class citizens. And this is the core of the neo-liberal agenda: attack progressive taxation, and redistribute the burden of taxation from the wealthy to the middle and lower classes. If you’re good at it, you’ll convince the hoi polloi that it’s good for them – wealth will trickle down, after all – or you get them to willingly accept a much smaller government – I’m happier accepting less because that’s what makes the wealthy happy.

One of the most blatant examples of that is right here in BC. In the September update for the 2009 budget, the provincial Liberals bragged about the following:

In 2008, the small business corporate income tax rate was reduced from 4.5 per cent to 2.5 per cent — a reduction of 44 per cent. The government intends to reduce the rate to zero by April 1, 2012. B.C.’s general corporate income tax rate has been reduced from 16.5 per cent to 11 per cent, with further reductions to 10.5 per cent planned for 2010 and to 10 per cent in 2011.

So how do we pay for this reduction in revenue? One way is to institute an HST tax that eliminates “retail sales taxes on business inputs and capital goods such as machinery and equipment, and reduce[s] the rate of taxation on new investment”. Doing this redistributes the sales tax burden from the business sector to the consumer sector. (For more, see my September 2nd discussion of BC’s HST.) Another way is to increase user-pay fees… even more. Instead of spreading the costs of certain social services across the tax-base and across time, the user is expected to pay more and more and up-front for specific services. For example, in another document from the same budget update, we see an inevitable but rather shocking result – in 2011/2012, the BC government is expecting to receive more revenue from post-secondary tuition than from corporate income tax. According to government revenue projections, BC corporate income tax revenue will be $1,038,000,000 while post-secondary education fees will earn the BC government $1,114,000,000 (see p. 144).

Thus, on behalf of benefits that don’t exist, more people will be forced into larger and larger debt loads, or will forego user-pay services – like university – altogether. Politics is about choice, and it’s clear what choice our current provincial government has made.

Posted by Colin Welch at 5:08 PM
Edited on: Wednesday, September 29, 2010 7:18 PM