Economic policy – Page 2 – Politics at Suffolk University

The Occupy Wall Street/Tea Party Analogy: Is It Valid?

People with many different viewpoints have been comparing the Occupy Wall Street movement to the Tea Party. Some of the mainstream media make the comparison with a very broad brush, seeing them both as manifestations of distrust and anger with “the system” – a view refuted in this excellent analysis by David Callahan on the Demos.org website. In reality, the worldviews and purposes of OWS are very different from those of the Tea Party. As Callahan points out, the Tea Party has a generally pro-big business, anti-regulation agenda, while OWS is clearly directed at taking power away from Wall Street.

Meanwhile, a lot of progressives are wondering whether OWS will be “our” Tea Party – a movement that fires up voters, puts some backbone in the Democratic Party (and maybe even in President Obama), and gets a progressive agenda back into Washington.

I’d been wondering that myself. But now I’ve come to the conclusion that the differences between OWS and the Tea Party are more important than the similarities. The similarities are largely formal: use of social media, especially Meet-up, leading to the spontaneous rapid organizing of grassroots groups and actions.

As for differences, the obvious one is political direction, as I said above. But another difference is also very important: from the beginning, the Tea Party has been focused on electoral politics. They arose as a reaction to the Stimulus bill (American Recovery and Reinvesment Act) in early 2009, grew in opposition to Obama’s health care plan, and got their first victory from supporting Republican Scott Brown’s successful campaign for the US Senate from Massachusetts. What really made people take notice was the 2010 Republican primaries and state conventions, where Tea Party candidates defeated several favorites of the Republican establishment. Some of those candidates went on to defeat – but the Tea Party had sent a strong message that while Republicans might not win with them, they would definitely lose without them. The party noticed, and the Tea Party agenda dominates the House of Representatives.

OWS is not like that at all. Despite some calls from electoral activists to “Occupy the Ballot Box,” they are just not talking about elections and politicians. I just spent 75 minutes listening to an audio recording of the Occupy Boston General Assembly the night of October 8 – when police had demolished a camp and arrested 140 protesters the night before – and while there was condemnation of Boston’s mayor for ordering the arrests, there was no discussion at all of elections.

OWS has a broader and deeper goal: they want to change the agenda, not of Congress, but of the American people. They want the 99% to be taken seriously; and they want to create a means by which the voice of the 99% can be heard. Sure, that may have an electoral effect, but it won’t be because OWS organizes people to vote for their candidates. It will be because we all come to realize that we have a right to expect something better.

Menino Loses It, Orders Crackdown on Occupy Boston

After drawing praise for his low-key tolerance of the Occupy Boston protesters camped out in the city’s financial district, Mayor Thomas Menino suddenly changed course last night, ordering police to clear an encampment in a public park, supposedly in order to avoid possible damage to some shrubbery. Hundreds of police moved in at 3 AM, arrested 50 to 100 protesters, and cleared the park in a manner characterized by journalist Garrett Quinn as “ugly and fast.”

I wasn’t there, I’m sorry to say, but from online sources, including this series of photos on the Boston Globe‘s free website, police were forceful but not completely unrestrained. They were not wearing helmets, which indicates that they did not expect violent resistance (and they were right), but they were clearly trying to intimidate and disperse the protesters, rather than carry out peaceful, orderly arrests as have become typical of civil disobedience. A crowd of flag-holding veterans from Veterans for Peace was dispersed and several knocked down, as this video shows. Garbage trucks were brought in and all tents and other elements of the camp were removed, after which the Greenway (or that part of it) was fenced in by metal barriers. The original protest camp, nearby in Dewey Square, is still there for now.

To ask the obvious question, what were they thinking? The claim that it was all about the shrubbery is a little hard to believe; but then, this is Menino, a mayor whose overall good policies are seriously marred by an autocratic manner and a penchant for taking petty grievances too seriously. He has never had serious electoral opposition, a status he has attained in part by his willingness to retaliate against critics; the underuse and maintenance difficulties of the Greenway have been a sore spot (that leads to a paywall- here’s a free source); and he may have been annoyed with the protesters for causing one more problem – it may be as simple as that.

But that’s missing the big picture, which is what Occupy Wall Street, Occupy Boston, and the other 1288 cities (as of 8 AM Oct. 11) in this movement are about. It’s about the 99% finally taking a stand, speaking out, and saying that it is no longer acceptable for government to serve the needs of finance rather than the needs of the people. These marches and camps have changed the national conversation, and have the potential to save the United States. Of course every march and camp brings some maintenance cost – although I don’t think the protesters were really planning to tear up the shrubbery (they have been unusually diligent in maintaining their camps and cleaning up trash, from what I’ve heard). This movement isn’t going to stop – and it would be nice to see Boston’s mayor get on the right side.

Class War – Good or Bad?

Today Representative Paul Ryan (R-WI) – the guy who wants to end Medicare – attacked President Obama’s proposal that people with incomes over $1 million a year should pay taxes at at least as high a rate as middle income people do. Obama cited the investor Warren Buffet’s statement that it is unfair that he pays 17% tax on his income, while his secretary pays 20% on hers, and called his proposal the “Buffett rule.”

Ryan, in response, told Fox News that Obama was taking the “class warfare path,” adding Class warfare … may make for really good politics, but it makes for rotten economics.” Ryan offered the following explanation for his claim that it was ‘rotten economics:’

If you tax something more, you get less of it. If you tax job creators more, you get less job creation. If you tax their investment more, you get less investment.

Not for the first time, Ryan displays his economic idiocy here. He is ignorant of the most basic economic categories. Specifically, taxing income is not the same as taxing the thing that produces the income. For example, imagine that I take advantage of owning a bike to get a job as a bike courier. When the income I earn is taxed, that is not a tax on my bike (I am not going to decide to give up my bike, because then I would have no income at all). It is just a tax on my income. (And the tax won’t make me want to stop earning income, either – if I earn $100 and have to pay $20 in taxes, I am still $80 ahead of where I would be if I hadn’t earned it). Similarly, a tax on the income earned from investment is not a tax on investment; and it is certainly not a tax on “job creation,” since most investment does not create any jobs.

(This is an aside – but if I invest money in the stock market, I am not creating any jobs – I am just buying someone else’s right to share in the profits of a company.)

Right now, there are two basic causes of unemployment: lack of consumer demand, and a shortage of government revenues.

Consumers are not buying at normal levels. This does not make investors stop investing (they have to invest – otherwise their money loses its value), but it does make them invest in something other than producing jobs – speculating, buying other companies, and the like.
Nevertheless, private sector employment has gone up over the last year. However, public sector employment has gone down. Teachers, police officers, firefighters, librarians, and others who perform necessary public services are being laid off and not replaced. Why? Not because their services are not needed – they are – but because governments (especially state and local governments) do not have enough revenue to pay them.

Government needs more revenues, and more government revenues will create more jobs, not decrease them. And government spending will put money in consumers pockets (and in their bank accounts), increase consumption, and create more private sector jobs as well.

So Ryan is making a idiotic argument – about on a par with his claim that he wanted to destroy Medicare in order to save it. But why?

That’s where class warfare comes in. I’ll write more about this later this week. But to start with, think about what a “class” is. It’s a group of people who get their income in (broadly speaking) the same way.

The working class is paid for the work it does. That work can vary a lot, but what makes the working class a class is that its income comes from selling its labor.
The capitalist class gets its income from investing its capital – that is, by using its money to hire other people (namely, the working class) to work for it, then selling the products of the labor it hires for a profit.

You can see from the above that the less the working class gets for working, the more the capitalists get from investing. Guess what? They want to get as much as possible; so they are trying to destroy unions, lower wages, and also lower the “social wage” – the benefits that government provides so that workers don’t have to pay for them directly, such as health care, education, and social security.

What Ryan is doing, then, is engaging in pure class warfare himself: trying to defend the outrageously high incomes of the rich by undermining not only social services but the jobs of working people. So we need a little class warfare on the other side. We need to understand that anyone who makes over $1 million a year has not earned all that money, and should be made to use more of it to support society.

Are Corporations People?

Last month Mitt Romney aroused a lot of controversy by asserting that “corporations are people,” and added “Of course they are! Everything corporations earn ultimately goes to people. Where do you think it goes?” (quoted in the Washington Post, August 11, 2011).

Progressives had a good time making fun of Romney for these remarks, but much of the criticism missed the point — it was basically about how corporations are rich and powerful entitites, while most people are not. That’s true, but it’s simply part of the general problem of growing economic inequality – lots of individuals are also rich and powerful, and get privileges the rest of us don’t.

The real problem is that corporations are not people, but organizations of people, operating under a particular set of rules. Because of those rules, people organized as corporations do things and make decisions that are different from what they would do and decide if they were organized some other way.

We may think of a corporations as made up of employees. Legally, however, the people who make up a corporation are its stockholders. But the people who control the corporation are its officers and board. Those officers and board members have what is called a “fiduciary duty” – that is, a duty to be faithful servants – to the stockholders. This duty could be many things, but in essence it is financial: the corporation is legally required to act to maximize the value of the stockholders shares and/or dividends.

From time to time, something goes wrong in a business operation, sometimes horribly wrong, with deaths and injuries as a result. In such cases, a common first reaction from the leaders of the corporation involved is to want to take responsibility, to apologize if appropriate, and to do what they can to help mitigage the damage.

Then the legal department steps in. It is explained to them that their duty is to avoid making any damaging admissions that might lead to a liability finding against the company, and that any other course of action would violate their duty to the stockholders. So they end up stonewalling and digging in their heels instead of doing what is right and just.

Most people (not all) would be different. Suppose you are driving down a street late at night and sideswipe a parked car. Most people would leave a note on the windshield with a phone number, offering to pay for the repair. Few corporations would do that.

Unfortunately, it is not just Mitt Romney. More and more, the law is treating corporations as having the same rights as people – including the right of free expression (a ridiculous concept, since corporations don’t have opinions or ideas to express – only the people in them do), which is used to justify anti-union campaigns, for example. For a corporation to tell its employees they should not join a labor union used to be an unfair labor practice; now it is a legal right.

Corporate personhood – giving individual human rights to corporations – has seriously distorted American democracy. For more details, see the excellent website of POCLAD, the Program on Corporations, Law, and Democracy.

The Constitution, the Tea Party, and Health Care

The more I listen to the Tea Party, the more I realize that when they refer to the Constitution and the intent of the framers, they are really thinking of the Antifederalists – that is, those who opposed the Constitution because they thought it would lead to a tyrannical federal government. When Tea Party people argue that health care, or environmental protection, or social security should be left to the states, they are basically arguing against federal authority over interstate commerce.

The point they are ignoring is that, by and large, the Antifederalists lost. Their arguments were rejected, and the Constitution was ratified.

However, their loss was not complete. One of their major objections to the Constitution was that it did not have a bill of rights; enough people agreed with that objection that the Bill of Rights was added to the Constitution. This was a victory for the Antifederalists; but it did not change the federal governments power to regulate interstate commerce.

The Tea Party points particularly to the Tenth Amendment, which says that any powers not given to the federal government are reserved to the people, or to the states. However, this really does not speak to the issues involved in the health care debate. The Obama administration is not claiming that there is a new federal power, the power to provide health care. It is claiming, instead, that the existence of a universal health care plan is vital to the maintenance of a free market in interstate commerce. Any debate about this issue was settled with the passage of Medicare and Medicaid in 1965 – and, in fact, had mostly been settled with the passage of the Social Security Act back in the 1930s.

There is much to admire in the Antifederalists’ vision of a small-scale, decentralized society. The world might be better off if the Constitution had not been ratified. However, it was – and its ratification led to the development of a centralized econcomy dominated by giant corporations.

Those corporations are the big threat to liberty today; we need a strong government to protect us from them. Fortunately, the Constitution allows such a strong government to develop.

New Attacks on Social Security

Social Security is threatened – NOT because it is going to “run out of money,” but because many of its defenders are losing sight of the principle it’s based on.

Real briefly, here’s how it works. Almost everyone who is employed pays a social security tax, which is a percentage of their paycheck up to an income cap. This money goes into the social security trust fund, where it is used to pay benefits to those currently receiving them. (Some state government employees do not pay the tax and do not qualify for the benefits.)

So far, the payments have always covered the benefits. However, as the baby boom generation begins to collect, the ratio of those paying taxes to those collecting gets lower. People are living somewhat longer, as well. As a result, the trust fund will run out of money in, perhaps, 30 years. (Maybe more – they used to predict 2030, now they’re saying 2043.)

This is a problem that has to be fixed, but the fixes are simple. We can eliminate the income cap (it’s about $100,000 a year), so that people pay the social security tax on all their earned income. Or we can cut benefits a little (most likely by adjusting the cost-of-living adjustment), or we can raise the tax rate. I favor the first, as it is fairer, but any of them will work financially.

However, we now have a new problem: progressives are calling for reducing the social security tax. In fact, it was cut by 1/3 as part of the budget deal between President Obama and the House Republicans in the lame-duck session of Congress last December (2010); last night, Obama called for extending the cut (he calls it the “payroll tax holiday,” presumably because he does not want to highlight the link between the tax and social security benefits), and making it apply to employers as well as employees.

This morning, writing on the progressive website Demos.Org, Robert Frank calls for eliminating the social security tax altogether, and funding social security benefits with other revenues.

This is a terrible idea. Right now, social security has widespread support, for two reasons:

Everybody gets it.
Everybody pays for it, so basically you are getting benefits because you paid for them.

If your benefits are not linked to your payments, social security will come to be seen as a charity, rather than a pension. It will come under even more attack, and it will be more difficult to resist those attacks because it will be just one more government handout.

Social Security has nothing to do with the deficit, because the benefits are paid from the trust fund, not from general revenue. There is no reason at all to link it to any deficit reduction deal. We should not change that in pursuit of the chimera of a more equitable tax system.

Health Care and the US Constitution

I was at the American Political Science Association all last week, but now I’m back, and getting into the swing of things once again. I’ve been wanting to say something about the Constitution and health care, and want to even more after reading Jeffrey Toobin’s piece about Justice Clarence Thomas in the 8/29/2011 New Yorker. Toobin points out that, while Thomas rarely asks questions, and is ridiculed for not doing so, he has actually had a lot of influence in moving the court to the right in its decisions. Among other things, Thomas is hoping to get a majority to rule that the health care law is unconstitutional.

I’ll leave the detailed analysis to Toobin (and others), but I want to state the simple case why, in historical context, the health care law is completely in accordance with the Constitution.

First, regulating health care, including the individual mandate (which requires everyone to be insured) is clearly constitutional for states, as opposed to the federal government. States have broad “police powers” to assure public health and safety, and this is one of them. Mitt Romney’s first attempt to distinguish his plan from Obama’s was based on just this point – no one took him seriously, but he was correct.
So the issue comes down to whether health care is part of interstate commerce. In reality, it clearly is- health care is a major cost of doing business, as well as a big business itself, and people cross state lines to get health care all the time. The law does not always coincide with reality – but since the early 20th Century, the Supreme Court has held that all business above a certain size (usually defined by number of employees, or by total sales or revenue) is effectively in interstate commerce. I can open a bookstore on my corner, but I’ll be competing with Powell’s, Barnes & Noble, and Amazon. If health care is not constitutional, then neither is Medicare, or the federal minimum wage.
The point at issue is specifically the individual mandat. An individual who is not otherwise covered is required to purchase insurance. The argument for this is that the system won’t work without it – if people can choose not to get health insurance because they are healthy, then only the sick will get it and the premiums will soar out of reach.
Of course, if Obama had proposed a better plan (and got it passed, a big if!), such as “Medicare for all,” where everyone is taxed and everyone gets health care paid for by the government, there would be no constitutional question at all.

I’ll leave it to the lawyers to flesh out these legal arguments, this is just meant as a guide to the basic principles involved. It may help you understand the Constitutional debate.

On Wisconsin II

So much going on! Earthquakes, hurricanes, war in Libya, economic collapse – but I’m just back from a week of vacation in Wisconsin, and had a chance to learn a little more about the recall campaigns that finished up last week, so I think I’ll write about that.

In case you were hibernating last winter, I’ll sum up the situation very briefly. The Republican Party, driven by the Tea Party, scored big victories in Wisconsin in the 2010 election: they won the governorship, a U.S. Senate seat, and majority control of both houses of the legislature. The new Republican Governor, Scott Walker, decided to use this partisan control to make basic structural changes that would both push the party’s policy agenda and help them maintain control in the future. There were many parts to this package, but two were probably the most important:

Walker’s so-called “Budget Repair Bill,” which made cuts in benefits for state workers (especially health care and pensions) and also undermined the collective bargaining rights of public employee unions. (They were forbidden to bargain over benefits, and they lost the power to collect dues by payroll deduction.) The latter had nothing to do with the budget, but was designed to weaken the power of the largest progressive political force in the state. The Supreme Court’s Citizens United decision gave both corporations and unions the power to spend unlimited sums to influence elections; if Walker could knock out the unions, that would leave the corporations with no strong opponent on the other side.
The Wisconsin Republicans also pushed through a bill to redistrict the legislature for the 2012 election. This was meant to consolidate their hold on a majority; I’ll only mention it here, as that’s not my focus.

The Budget Repair Bill drew strong opposition. Hundreds of thousands of Wisconsinites demonstrated against it, occupying the state’s Capitol building for weeks and rallying in cities across the state. Emboldened by this public outpouring, all the Democratic members of the state senate left the state, holing up in Chicago, so that the Senate would not be able to pass the bill (budget bills can pass by a majority in Wisconin, but they require a larger quorum, more than the Republicans could achieve without the Democrats).

After weeks of standoff, the Republicans decided that the Budget Repair Bill was not about the budget after all, and passed it under the easier rules that apply to non-budget bills, as they had enough for a quorum under those rules. There were other issues (timely notice, the open-meetings law), and lawsuits are still pending, but they passed it anyway. The Democratic senators then returned to Madison.

The Wisconsin recalls grew out of this struggle. Outraged progressives gathered signatures to call recall elections against all six Republican senators who were eligible for recall (those who had served at least one year in office); Republicans retaliated by filing for recalls against the Democratic senators, though they only got enough signatures to force three elections. That meant there were a total of 9 recall elections, against 6 Republicans and 3 Democrats, during the summer. The last of these, against 2 Democrats, was August 16.

The results:

All three of the Democrats who had been challenged won reelection.
Of the six Republicans challenged, 2 were defeated and 4 were reelected.
The Republicans retained control of the state senate, but by only one vote.

This was a victory for the Democrats – they had more senators after than before – but less than they had hoped for, so it was also disappointing. An earlier electoral challenge to the Chief Justice of the Wisconsin Supreme Court (an ally of Governor Walker) had also narrowly failed to defeat him, so it can be said that the progressive forces have grown stronger, but not yet strong enough to win. There will be another round next year – Governor Walker becomes eligible for recall in January, and there will be a regular legislative election in November 2012.

But there is another result, much more important than electoral victories or defeats: the coming together of progressive-minded people across the state as a new political force. This happened first in the “We Are Wisconsin” movement that came together to fight the judicial and recall elections, but it is growin to more than that. This weekend in Madison there will be a Democracy Convention, not only to discuss what real democracy is, but to make plans to make democracy happen. Here’s a link to the convention website. People are energized and inspired – and more and more understand that what is at stake is the American way of life. It’s too early to be sure that this movement will last and grow, but it is beginning to look like there is finally a force to counter the Tea Party.

Corporate Cash and Jobs

I keep hearing that corporations are hoarding cash – somewhere abov e $1.2 trillion. That’s a lot of money – and a lot of people are saying that they should be using it to put people to work, creating the jobs our economy needs.

The trouble is, there’s no reason for them to do so. They could hire people to make more products, but people aren’t buying the products they are making now; so if they did that, they would be throwing their money away.

Of course, the reason we consumers aren’t buying stuff is that we don’t have the money ourselves. Either we’re laid off, or our pay is frozen, or we’re afraid of being laid off in the future; and if we’re lucky enough to have a pension fund, it’s lost value. So if the corporations did spend the money to hire people, maybe the people they hired would spend more, and the economy would start to go up.

That’s an iffy process, and a long one. We need a federal jobs program: put people to work fixing bridges, building wind and solar power plants with federal subsidies to help reduce greenhouse gas emissions – and rehire the teachers, health-care workers, police officers, and firefighters that local governments are laying off. That will create demand more quickly and definitely.

What we do not need is tax cuts on business. That will give the corporations even more cash to hoard.

I’m leaving tomorrow for 10 days of vacation, so I may not post for awhile. I’ll be back at it August 23.

London Riots Now, American Riots Then

Official reaction to the UK riots – from the Cameron government, from the police, but also from the leaders of the other political parties, Labour and the Liberal Democrats – has been to condemn them as mindless criminality. Similar arguments were made about the urban uprisings in the United States in the 1960s. I remember particularly the view offered by the ultra-conservative political science professor Edward Banfield, that they were ‘a combination of animal spirits and stealing.’

There’s more to it than that, I think.

Let me add right away that I am not in the UK, and I haven’t spoken to anyone who participated. My views are based only on what I have read – most recently this insightful piece from Reuters – and on thinking about what happened here in the US 50 years ago.

Of course the riots were not well planned, and are not likely to achieve any political goals. Nevertheless, it seems clear by now that they were based on real grievances and had real targets. These were basically two:

The police. Well, duh! The whole thing began when the police shot Mark Duggan dead, left it to his family to learn of his death through the news media, and then stonewalled that family and other community members when they came to the police station to seek an explanation – see this piece from the Guardian for details. Many people have said that this contemptuous treatment is typical of the relations between the UK police and urban low-income communities, and particularly with black people.
Chain stores. Yes, people are stealing, and yes, they are stealing things that they want to have and maybe cannot afford. At the same time, the stores they are looting are symbols of oppression – outposts of big corporations which sell shoddy goods for too much money, drain the money out of the community, and don’t put anything back in. Here in America, such looting was driven in part by hatred; I suspect it’s the same there, a view confirmed by some of the interviews in the Reuters articl linked above.

The riots have been suppressed for now, but the problems and the attitudes are still there. If David Cameron insists on treating them purely as a law and order issue, he will fail. Meanwhile, I hope the British left gets out there and steps up its organizing around ways to find real solutions to the problems these riots have highlighted.