Charting America's Future: 10. Left About-Face!
TYLER, GUS
This is the latest article in a year-long exchange on CHARTING AMERICA'S FUTURE 10. LEFT ABOUT-FACE! In many respects we wasted the decade of the 1970s in doubt, debate, drift, and dissension. We...
...The scenario I have briefly outlined mixes macro and micro approaches, urges an expanded economy that is both efficient and ethical, and includes those who will be affected in the decision making process...
...The result has been high unemployment, high prices, high bankruptcy rates, and high government deficits...
...In theory, that is what supply-side economics was supposed to do...
...At various times one inst rument or anot her was used to one degree or another...
...To redistribute income more equitably and, hence, more efficiently, there must be changes in collective bargaining, tax policy, transfer payments, and the role of government in influencing both prices and remuneration . No one change will do it...
...Within nations, decisions should arise from a continuing colloquium of the involved parties????business, labor, consumers, farmers, local communities...
...More fundamental is the desire of corporate America to do what it wants to do without government interference...
...they hit middle and lower income classes hardest by taxing sales, homes, the use of facilities, etc...
...In popular parlance, "transfer payment" is limited to funds made available to the so-called non productive, like the aged, dependent children, the handicapped...
...The preceding pieces in this series were: "The Great Debate " (NL, November30, 1981), "Those New Deal Years (1933?1938)"(NL, December28,1981), "Undoing the New Deal (1939-1981) " (NL, January 25), "Responses-1" (NL, February 8), "The Roots of Stagflation" (NL, February 22), "Responses-2" (NL, March 8), "The Politics of Productivity" (NL, March 22), "Re-sponses-3"(NL, April5), "Supply-Side Trickle-Up" (NL, April 19...
...Exactly how to deal with it has been a perennial problem for every capitalist society...
...Unfortunately, it ignores the difference in the economies of a capital-intensive and a labor-intensive enterprise, of an oligopolized and a competitive industry, of companies that can and do pay higher wages and those that cannot and do not...
...It could be to automation what automation was to manufacture and what manufacture (the Industrial Revolution) was to handicraft and agriculture...
...For millions of working people in the Other Economy, especially those not represented by unions, the sole defense against unbridled exploitation has been the Fair Labor Standards Act????the minimum wage law...
...Nixon's fiscal policy was to hold down Federal expenditures: If Congress went beyond his budget, he exercised the veto...
...The "Federal funds rate," what banks charge one another for overnight loans, was up-ped...
...Once more, we have to do a left about-face...
...The years ahead require a true supply-side economics, a mustering of forces to increase the quantity of goods and services...
...the decimation of small businesses, intolerable health care costs, wasted manpower unprepared educationally for today's work world, farm foreclosures, and housing shortages...
...On the contrary, threatened by company bankruptcy, they began to make concessions that, inevitable as they might be, have heightened the inequity...
...Repeatedly, the people have successfully demanded that government curb corporations...
...Theoretically, progressive taxes in America are also supposed to help lessen economic polarization by applying the heaviest tax rate on those who earn the most...
...The way a government spends its tax money is a major determinant in thedistribution of the national income...
...In other words, do an about-face...
...To the extent that collective bargaining achieved a slight redistribution of income, this was registered in the decades from the 1930s to the 1960s...
...Caught in the highly competitive, labor-intensive lower half of the society, the working poor have a hard timeeven in the best of times...
...Given the American dedication to the open market and to the divine justice of the invisible hand, how has this corporatism grown so mightily...
...It is as common throughout Europe, for instance, as it is uncommon in the United States?where such measures are felt to be alien, if not downright subversive...
...Price supports for crops allocate public funds to a given class in the society, whether farmers or agribusiness-men...
...The way it did this is instructive for any future Administration wishing to reverse the procedure...
...Lastly, by buying or selling bonds through its "open market committee," the Fed pumped money into or out of the system...
...Indeed, the whole budgetary process is nothing more than deciding who shall get how much of that large segment of the national income embodied in public monies-federal, state and local...
...A first step in a policy of growth would be to reverse the Fed at every point: lower the rediscount rate, lower the Federal funds rate, relax reserve requirements, and use the open market operation to enlarge the money supply...
...Do you include all the money created every time anyone uses a charge card, and if so, how do you get an exact count...
...This is a gross formula, yet there is no refined way to adjust the money supply...
...Whatever the reasons, the trend in the countries of the free world, other than the United States, has been to evolve social compacts (usually more understood than expressed) that assume government, business and labor have mutual stakes in promoting the commonweal...
...To confront this dilemma, many countries have turned to the socialist solution: public ownership of the means of production and exchange...
...by 1982 it had fallen to 44 per cent...
...While the minimum wage has risen from 25 cents an hour in 1938 to $3.35 an hour in 1982, the wage floor has not actually kept pace with average wages...
...How do you control money that flows in and out of the country as Arabs buy Treasury notes or Wall Street brokerages, as American corporations tap the reservoir of Eurodollars they hold overseas, as tourists come and go...
...The implicit threat to "private property" may inspire a corporate sense of public responsibility in some countries...
...While that looks like little more than a movement of chores from one level of government to another, in reality it is a shift of the tax burden from one class to another...
...Future policy should frankly and unabashedly reverse the process????do a left about-face...
...Among nations, governments should engage in a protracted process of collective bargaining, negotiations and agreements...
...Regulatory agencies that were to hold down prices have, too often, become a means of legalizing high prices as the regula-tees began to manipulate the regulators...
...The trusts that were to be busted have boomed horizontally, vertically, con-glomerately, and multinationally...
...But none of the countries that have openly opted for democratic socialism to rid themselves of the capitalist incubus have wiped out the "bourgeoisie," nor do they want to...
...The Budget Balancing Act" (NL, May 31), "Farewell to Fairness" (NL, June 28), "The ^industrialization of America" (NL, August 9-23...
...Actually, this relative decline is greater than apparent, since most workers at the bottom wage get virtually none of the fringe benefits (retirement, health care, vacations holidays) that the better paid workers get...
...Consequently, the gap between the primary and secondary tiers of the economy has widened...
...A cartoon of the condition would depict corporations as a gruesome monster under the control of an even larger figure called government that, on second look, turns out to be an oversized puppet manipulated by the corporate creature...
...Even if the Fed had a firm definition and could measure accurately, it would have great difficulty regulating the impact of the money supply on the market...
...would perhaps be simplest to spur economic activity in the United States by glancing at how Washington has been restraining it and then doing the opposite...
...Government alone is big enough and strong enough to cage the corporate tiger...
...in January 1982, to plus 22, by the next month to minus 1. The best the Fed can do is impose a broad downward pressure...
...Fiscal policies have helped by supplementing straight wages with "social wages"????health care, subsidized housing, food stamps, legal aid...
...That "tax"????administered pricing-is and has been a prime instrument for an effective maldistribution of income...
...Even in countries where Socialist parties have never been in power, the nationalization of key industries (utilities, railroads, airlines, shipyards, steel and auto plants, banks, lumbering) is an acceptable mode of economic action...
...In 1890, the Sherman Anti-Trust Act sought to break up conspiracies and combinations in restraint of trade and commerce...
...Indeed, as countries address themselves consciously to these separate challenges they invariably find that they are not separable, that they must be viewed as part of an interconnected and interwoven whole...
...Yet public power is inhibited, and sometimes instructed, by those who have great economic power-namely, the megacorporations...
...This doesn't have to be accompanied by inflation...
...That would be a caricature of reality, since corporations in America are not in undisputed control of government...
...The examples of the Interstate Commerce Commission and the Sherman Anti-Trust Act can be multiplied...
...Pursuing what they believe to be Keynesian solutions, they have concentrated on the general level and aggregate sum of taxes, rather than on an equitable imposition of taxes...
...Of late, the tax debate has been further confused by a search for simplicity, usually expressed in recommendations for a flat rate tax...
...In many of the "industrial democracies"????developed nations that do not function under a command economy or political dictatorship????this is the key aspect of the equity equation...
...The culprit is "velocity," the speed with which money circulates: A $1 bill spent 10 times in one day has the same impact as a $10 dollar bill spent once...
...Policy in the 1980s has to start with a left about-face: It has to spur growth...
...In 1979, for example, there were 93,731 taxpayers with an income of more than $200,000 for the year...
...The United States, meanwhile, has been moving in the opposite direction...
...others paid at a rate equal to that of an average wage earner or of a businessman with one half or one quarter the income...
...Nixon's 1970call to keep "actual growth" below "potential growth...
...Use the Federal power to tax income (corporate and personal) to secure funds for revenue sharing with local governments...
...To keep minimum wages at half the level of the average (as in 1968), the floor should be set at 60 per cent of the average to compensate for the loss in fringes...
...In reality, all fiscal policy is a system of transfer payment under which some are taxed to give to others...
...This approach implies that if everyone enjoyed the same amount of human capital, they would all earn about the same...
...As the economy picks up government revenues should pick up, diminishing deficits while social expenditures are augmented...
...economies of the Communist countries (the Soviet Union, Yugoslavia, Eastern Europe, China) are increasingly allowing????today frequently encouraging????free market operations...
...An economy that may once have been correctly described as imperfectly competitive has become one that can only be viewed as imperfectly monopolistic...
...Under the guise of making it easy to fill out the form, such proposals are, in effect, a flat negation of progressive taxation: The rich and poor will pay at the same rate...
...And all three factors have taken their toll in the last 50 years...
...We made few positive decisions and demonstrated little national determination to resolve critical issues...
...Tax and budget have been employed in recent years to redistribute income, but never openly...
...Five years ago, in his book Politics and Markets, Charles E. Lindblom pointed out that no economy in the world is purely market-motivated or politically manipulated...
...Nevertheless, a Democratic Congress somewhat deterred him...
...One reason is that money wage gains may be offset by price increases...
...In part this is ideologic, an acting out of the conservative commitment to laissez faire...
...It is a system for Multilateral Anticipatory Planning?a way to map...
...Growth needs shape????the planned flow of resources, especially capital, to accomplish vital tasks that a private sector guided by the invisible hand of the market (the bottom line) will not undertake...
...in times of inflation, bad turns to worse because these second-class industrial citizens lack the power to keep up with rising prices...
...Yet growth alone????even without inflation and with careful attention to avoiding the depletion or pollution of natural resources????will still not be a sufficient strategy for the future...
...I have concluded, most reluctantly, that we can no longer measure the money supply with any kind of precision...
...The real question should be whose taxes shall be raised and whose taxes shall be lowered...
...Yet such compensatory programs have become the bete noire of the Reagan Adrninistration...
...their average was $398,563...
...Congressional salaries, public monuments, Medicaid, universities, support of the arts, space travel...
...Unionized workers need the law as a foundation on which to build collective bargaining, for if the gap between union and non union wagesbecomes too great the unionized companies must ultimately collapse...
...Collective bargaining does do something for workers in the lower depths...
...But the American aberration cannot continue...
...Rinduced anemia, the blood (adequate money) has to be circulated properly...
...in April 1981, it zoomed to plus 25, by June to minus 12...
...Walter E. Hoadley Chief Economist, Bank of America whatever the variations on the counterinflationary theme played by Presidents Richard Nixon, Gerald Ford, Jimmy Carter, and Ronald Reagan, their tune has been the same: restrain economic growth...
...Still another is that higher real earnings may be reduced by a shift of the tax burden to wage and salaried people...
...when Congress overrode his veto, he "impounded" funds, refusing?under questionable constitutional authority????to spend authorized appropriations...
...Efforts to restore progressive taxation have been sidetracked because the public debate has focused on whether taxes should be raised or lowered...
...Widening the gulf between the rich and poor parts of the globe is not only unethical and distasteful, it is economically inefficient and politically explosive...
...At a time when all sorts of new policies are required-to grow, to control inflation, to redistribute income, to conserve resources and develop alternate sources, to build an infrastructure, to relate to other national economies-it is not possible to live with laissez faire, to make a policy of non policy...
...there are too many unknowns and uncontrol-lables for anyone seriously to pretend that the money supply can be adjusted in a closely calibrated manner...
...This means the national income has to be so distributed that consumers will be able to provide the market for our market economy...
...in practice, the term became merely a euphemism for redistributing income to the top...
...Contracts for defense, building roads and cleaning up nuclear waste apportion funds to particular persons...
...For some years, t he solution has been to urge workers in the Other Economy to acquire more "human capital"????in the form of education, skill, experience...
...The development of a strategy for giving a better break to the working poor who are trapped in the Other Economy is essential to economic equity and efficiency...
...And it should be a multilateral affair...
...This role of fiscal policy has to be recognized and used openly...
...So do expenditures for food stamps, medical research...
...The visible hand of government has to be used (as it is in other market economies) to give constructive contours to an expanding society...
...Further, the systematic application of organized human intelligence to the problems of physical survival on a crowded Earth cannot be confined to one nation or a contained coterie of countries...
...Effective Demand is M (money supply) times V (velocity), or D = MV...
...The "market" did not cause and will not cure the economic melancholia of the years following President RichardM...
...The Federal income tax still preserves some elements of its original progressive purpose...
...The United States, for at least a century, has tried to cope with "trusts" by busting them or by regulating them...
...Nevertheless, over the long haul concentration in the ownership and control of income-producing wealth provides the economic elite with the political prowess to frustrate????sometimes to nullify and reverse-efforts to tame the corporate tiger...
...As early as 1887, the Interstate Commerce Commission was set up to prevent rate gouging and discrimination by the railroads...
...The ratio of reserves to deposits in banks was fixed at a level that made it more difficult for these lending institutions to extend loans...
...Raise the tax rates for higher incomes and reduce the rates for lower incomes...
...The most pernicious, and least understood, assault upon the progressive principle has been the New Federalism, which seeks to lessen the Federal role in financing the nation's needs and to give the responsibility to the separate states...
...Contrary to the moralistic injunction that the system????like God????helps those who help themselves, the truth is????to quote Michigan University's Barry Bluestone...
...The agenda of these working "committees," as varied in their character as are their national cultures, goes beyond growth and equity to questions of controlling inflation, making the most judicious allocation of resources, and relating to other economies...
...With this overview in mind, let us go to some of the details...
...Local levies????state, county and municipal????are almost always regressive...
...In the fiercely competitive, unstable, labor-intensive secondary sector, however, union power is limited by economic constraints...
...Yet assuming the economy begins to recover, it does not follow that unions will be able to repeat their earlier advancements: They are handicapped by changes that have taken place in the labor law...
...The United States has long been a mixed economy but, by refusing to recognize what it is, has failed to use public power in a conscious and orderly fashion to bring about maximum efficiency and equity...
...An expanded money supply?plus lower interest rates????should spur buying, production, home building, and employment, and should rescue small businesses from bankruptcy...
...In pursuing his monetary policy, however, Nixon had a free hand????although to all appearances he had no hand here at all, since manipulation of the money supply is the domain of the "independent" Federal Reserve Board...
...Fine tuning" is a fiction, as the Fed should know better than anyone because it keeps a close watch on the ups and downs of the available funds and is aware that, its efforts notwithstanding, the country has been riding a roller coaster...
...In the overall, tax exemptions and handing over the tax task to local governments represent a use of fiscal instruments to redistribute income in favor of the privileged...
...Social programs should be widened and strengthened and, as they are applied to the working poor, should not be viewed as compassionate charity but as just compensation to the unjustifiably underpaid...
...In 1968, the minimum was 56 per cent of the average wage...
...as subsequently amended by the Taft-Hartley and the Landrum-Griffin acts, and as interpreted by boards and courts, the NLRA has become an obstacle to most unions...
...The flip side of fiscal policy is expenditure...
...The basic notion of the supply-siders is correct: To balance the price equation, it is not necessary to reduce demand if it is possible to increase supply...
...Many liberals have habitually misformulated the problem...
...For labor to make some contribution to a more equitable distribution of income, the law will have to be rewritten????to outlaw state statutes that prohibit union shops, to legalize situs picketing, and to repeal the restrictive provisions of Taft-Hartley and Landrum-Griffin...
...Planning must be planetary????for both plenty and peace...
...Of course, since what is won in collective bargaining may be offset by taxes and administered prices, such revisions would hardly assure effective income redistribution unless accompanied by other reforms, particularly in fiscal policy...
...The robot revolution could make or break whole civilizations...
...workers with substantially the same capital attributes earn substantially different wages...
...Some of them paid no Federal income tax at all...
...Collective bargaining by itself, for instance, has a limited impact on income distribution????as is statistically evident from the fact that, despite the growth of unionism in the United States in the last half century, the shares of income have remained the same...
...As Adam Smith put it two centuries ago, when the "dealers" decide to narrow the competition, they can "levy an absurd tax upon the rest of their fellow citizens...
...Too much of our life is at stake...
...But the purpose was always to restrain and to continue to restrain until inflation was routed...
...Quite ironically, in some of the socialist-leaning countries, with their traditions of class struggle, class collaboration between capitalist corporations and laboristic governments has become standard practice, while in the United States, where class politics is antitradi-tional, relations between the big three?government, business and labor-are fundamentally adversarial...
...We clearly cannot afford similarly to waste the 1980s...
...Instead, they have preferred to "socialize" capitalism-to wed capitalist economies with a socialist ethic, to evolve a modus vivendi and operandi between the public and the private sector that will best serve the interests of the nation...
...But the Fed was responding to Nixon's call...
...The real issue, though, is whether????in an awkward fashion????we shall restrain or recover: To grow or not to grow is the question...
...Although income is often distributed much as it is in the United States before taxes, there is greater equality of income after taxes...
...Once the economy began to slump in the '70s and '80s, unions were unable to check the growing maldistribution of income...
...But after a century of experience, it appears that legislation (and enforcement) to contain corporate concupiscence has worked inadequately...
...To survive, America must plan to plan-still another left about-face...
...What is required is a left about-face: Close the loopholes...
...Subsidies to shipping lines, railroads and aircraft companies likewise distribute public funds to specific populations...
...In its original form, the National Labor Relations Act served to encourage unionism...
...It raised the "rediscount rate" that banks must pay when they borrow from the Federal Reserve...
...and "Responses-4" (NL, September 6...
...Finally, planning must be anticipatory, addressing itself not just to what is but also to what is likely to be...
...In 1981, tax loopholes cost Uncle Sam approximately $260 billion...
...Would-be recipients of such expenditures know only too well that their share of the national income depends very heavily on their ability to make their needs known in Washington...
...An example is the robot, the machine with a mind...
...In fact, no one can define "money supply" confidently...
...a combination is necessary, for all of these interact...
...And no one knows how to control velocity...
...The economies of Western Europe and Japan are clearly an amalgam of politics and markets...
...I f it all rushes to the head, the country will end up with a huge headache...
...Another is that real wage gains may grow absolutely but not relatively as a portion of national income...
...Economic recovery is therefore basic to any union efforts to get a fairer share of national income...
...But this principle has been whittled away by special exemptions that allow certain types of income to escape taxation...
...In August 1980, themoneysup-ply shot up at the startling rate of 20 per cent, by December it had nosedived to minus 5 per cent...
...Any definition of the money supply," wrote Frank E. Morris, president of the Federal Reserve Bank of Boston, "must be arbitrary and unsatisfactory...
...Although there are several ways to arrive at greater income equity????Collective bargaining, taxes, social programs, minimum wages-they can all be nullified if corporate power is used economically and politically to perpetuate an income pattern favoring the wealthiest...
...How do you deal with theimpact of barter on the relative price of goods...
...A one word answer would probably be, politics...
...It could simply add fat, rather than muscle to help cope with, among other things, plant obsolescence, crumbling physical infrastructures (schools, streets, sewers, rail beds, bridges, water systems, etc...
...The ailment was man-made and can be man-unmade...
...Since then, many other laws have been enacted to break or brake corporations...
...Among the reasons for this may be the readiness of some of the European countries (and Japan) to resort to public possession when they think it timely...
...Instead, under the guise of " balancing the budget," the fiscal power has been used to take from those who have little and give to those who have much...
...All economies are a "mix" to one degree or another...
Vol. 65 • September 1982 • No. 17
