Fixing America

We rarely do link-throughs, but I came across an interesting conversation yesterday. It began with Don Peck’s Atlantic essay on “How a New Jobless Era Will Transform America,” and then quickly moved on to our friend Ian Welsh’s thought-provoking reply. A snippet:

Because any economic growth right now increases the prices of oil, which then strangles the economy, you must reduce dependence on oil, or you can’t fix your problems.

Because banks aren’t lending, and because they are a net drag on the economy having destroyed more wealth than they created, you must break up the major banks or take other similar actions to the same ends, or you don’t fix your problems.

Because defense spending is essentially un-productive you must end the American empire, cutting “defense” spending by at least half, and “intelligence” spending by three-quarters, or you don’t fix America.

Because education is the backbone of modern economies and good education is what allows democracies to work, as the founders understood, you must fix education, so that everyone who is qualified can get a degree without being burdened by a decade of debt and so that the the lower class is able to get through university again, or you don’t fix your problems.

For the same reasons you must fix education at the primary and secondary levels by removing it from the property tax base, or you don’t fix your problems.

Because oligopolies strangle innovation, produce inferior services and soak up oligopoly profits they haven’t earned break up your major oligopolies outside the banks, starting with the telecom companies, or you don’t fix your problems.

It’s not like he doesn’t raise some good points, you know.

Give it a read. Discuss.

6 replies »

  1. Breaking up the banks won’t work….period. For one thing, whom will buy the debt the Chinese and Insurance companies don’t buy. Who will make large loans without going through the costly syndication route? Who will keep the dollar and interest rates in line if we break up the big banks? What about all the jobs?

    Defense spending is not non-productive, although there is some waste. Much technology comes from defense spending. If we stop, the country that doesn’t stop on defense spending wins. Plus, what about the jobs?

    Get the unions out of education, allow the states to have more of a say, and use school vouchers.

    Don’t break up anymore companies…..we’re not a communist country…..yet.

  2. “Defense spending is not non-productive, although there is some waste. ”

    There’s an understatement. It may be creative but it is non-productive. It’s whole purpose is to destroy. If it doesn’t use it’s bombs soon enough it gets rid of them one way or another because they go bad like milk. As I understand it they used Afghanistan as a dumping ground for the last bad batch of bombs…now they have nice new ones in storage.

  3. It’s not about whether defense spending is productive or not, creative or not. It sucks up far too large a percentage of tax revenue. “Defense” (which is a misnomer because the force is not designed to defend the US) will cost a solid trillion this year. If one looks at government numbers that don’t included SS/Medicare, which they shouldn’t since those are funded through payroll taxes rather than income taxes, the DoD chews up the majority of revenue.

    If it’s about using government money to prime the intellectual pump for technological development, the space program would be a better place to spend a trillion every year (and many of the companies work for both). But either way, isn’t that socialism? The DoD is the biggest socialistic enterprise in the nation. And look at how little “free market” it embraces with its cost-plus contracts and bloated bureaucracy.

    Then there’s the little matter of the strategic geniuses who spend a trillion a year being unable to prepare for wars it might actually fight and so getting caught with its pants down the last two times out. All that technology doesn’t occupy contested ground on the battlefield, so it’s pretty much useless.

    There is no existential threat to the sovereign sanctity of the United States, none. Not even if the Chinese and the Russians ramped up spending would either pose a threat that justifies the current, proportional expenditure. The rest of the world combined doesn’t spend what we spend. And strangely enough, pretty much no other country has a habit of executing invasions of other nation states.

    This is empire, and that trillion a year is what it costs. If we can’t afford it, which we can’t, we borrow to pay for the empire. Funny that we borrow from the major “threat of the future” to pay for a faltering empire today. Enjoy it while it lasts because it won’t last forever; in fact, it’s pretty much over already…

  4. In 2001, the DoD budget was $316B, 2011 will see a DoD budget of $708B (plus whatever other supplementals go through Congress). But only $159B of that is slated for Overseas Contingency Operations…which is apparently DoD slang for fighting offensive wars. Not even counting the costs of two wars (which doesn’t include equipment replacement or long-term medical care for injured servicemen) the budget has still almost doubled.

    Totally out of whack. FT Times has a good breakdown:

  5. When you make a bomb, it does remarkably little for the economy. Doesn’t feed anyone, doesn’t make anything else, etc… It is non-productive. It is also immoral when so many other needs go unmet. Don’t believe me, believe General and President Eisenhower. Also look up “guns or butter”.

    Banks cost more money to the US economy than they made in the last ten years. All the profits went poof. They also are making less loans, not more. And their fake profits are driving out real investments.

    Public schools do better than charter schools. This has been shown, repeatedly, by study after study.

    Free markets do not exist absent government intervention to keep companies from forming oligopolies and monopolies. Adam Smith explained this centuries ago: the first thing winners of a market do is end the market. A free market is not created by the government not being involved, and neither is that the definition of a free market. People who think it is the definition of a free market don’t know what the hell they’re talking about.

    And anyone who thinks that banks, which are entirely creations of the government, making their profit because they are allowed to create money out of thin air and borrow it at concessionary rates are in any way free market simply doesn’t know what the hell they’re talking about.

  6. Some thoughts:

    1. Since oil is a limited resource with a very limited production upside (it would seem), economic growth fueled by oil-based energy is bound to be governed by rising oil prices. In that sense, I think it’s dead on to say that economic growth will be limited until the world becomes less oil-dependent.

    2. Breaking up banks is more problematic. There are enormous advantages to size. Banks have grown as companies have grown and the size of desired loans has grown. Of course, as they’ve grown and consolidated, the risk of failure has presented a risk to the entire economy, so there is a trade-off there. My solution to the “too big to fail” issue ia to allow very large banks to exist and regulate them relatively lightly to allow for innovation. IF they fail, the people of the US, through their government, buy the shares at prices so low that virtually all shareholders lose money. The US then uses its balance sheet to guarantee the loans so the economy doesn’t spiral downwards. Management is fired and all long-term, deferred, pension, etc. comp payments are canceled. In addition, by passing a few laws, senior managers can be held liable for losses and can face criminal charges with substantial prison times attached for driving their banks into the ground and forcing the US to bail them out. That should create enough personal risk to them to make them more less reckless with the US credit system.

    3. Defense spending is inherently inflationary, because workers are producing, and being paid, for items they cannot buy. They then spend that money on other goods and services, driving up the prices. In addition, military equipment does not produce other equipment. It is not an investment that produces more wealth. In fact, that equipment erodes and must be replaced by other non-performing assets. That is not to say that there aren’t economic advantages to having a very powerful military. Pax Americana provides stable business environments with little risk of having wealth destroyed by a WWII-type conflict. Shipping lanes are open. Nations that might interfere with free commerce, or the flow of essential commodities like oil, can be contained. But one could achieve the same effect with a coalition of nations with much smaller military operations. There’s no doubt that our expenditures on the military are a drain on the economy, as they have been on every empire before ours.

    4. I agree about education, but am uncertain how to “fix” it, since I have yet to see a consensus on what defines a good education and how one gets it. But, yes, we should take some of those military dollars and use them for an investment in human capital, which actually does provide a substantial return on investment.

    5. I find the oligopoly argument weak. There are many countries in the world that have far superior mobile phone service and broadband service to ours. Often, or maybe even most times, they achieved this state with a single, state-run, monopolistic company. Same with health care systems.