The Only Real Solution to our Economic Problems is Active Democracy

In a recent article in the Los Angeles Time, economist James Galbraith argues that “Stimulus Alone was Never going to bring Recovery.” See http://www.latimes.com/news/opinion/commentary/la-oe-galbraith-economics-20110815,0,843976.story

I agree in part with his solution: “Let’s build a new financial system to serve public purpose and private business. And let’s start to act on our actual needs and problems: jobs, foreclosures, public investments, energy security and climate change.”

I also agree that the patient, our national economy, is not going to recover on its own. In fact, I have long predicted that until we address the underlying causes of our economic problems, our economy will only get worse. However, I disagree with Galbraith’s assessment about the “causes” of the Great Recession. I therefore also disagree about the effectiveness of his proposed solution. Given that our economy is in the worse mess it has been in 70 years, we need to look much deeper than merely economics to understand what our problems are and how to solve them.

I have taught courses in problem solving for 20 years. One of the key principles of problem solving is that one must determine the “underlying” or hidden causes of a problem in order to create a truly effective long term solution. Economists tend to think the solution to all problems must be economic – just as carpenters see the hammer as the solution to every problem. But we can not solve problems merely by focusing in on symptoms – or by proposing solutions that solve only a part of the problem. Instead, we must examine our assumptions and peel the layers away from this onion. This requires going back over time and seeing where we took a wrong path – so that we might better recognize how to get back on the right path.

The reason the federal stimulus program did not restore our economy was primarily that the money was given to the wrong people and used for the wrong purpose. Instead of directly creating jobs on Main Street , nearly all of the money was given away to corporate bankers on Wall Street. Corporations were handed trillions of dollars. This led to a fake Stock Market rally and billions in Wall Street bonuses for the super rich.

US Corporate Profits reach a new record in 2010

(Annual Profit in Trillions $):

SOURCE: US BUREAU OF ECONOMIC ANALYSIS (BEA)

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

But because there were no strings attached that this money be used to create jobs, very few jobs were created (less than a million jobs, when more than 10 million jobs were actually needed). Thus, the recovery went no where. But this latest saga of corporate corruption was only the latest chapter in a very long and corrupt story.

Our economic problems did not start in 2008. For many years before that middle class families were being slowly driven into bankruptcy. During the Bush years, there is a tendency to focus on the big problems – the fact that he ballooned the national debt by giving away trillions in tax breaks to the super rich and added another trillion to the debt by putting two wars on our national credit card. But there were many other smaller wounds inflicted on middle class families. Not only were banks deregulated – leading to predatory lending and causing credit card interest payments to triple, but oil companies were also deregulated – causing gas and energy prices to triple. Health gouging corporations and drug companies were also deregulate – causing health care costs to triple. Together, corporate deregulation cost middle class families thousands of dollars a year – money which was no longer available to spend at local small businesses supporting an expanding local economy. Instead, the money went towards wealthy corporations further increasing the concentration of wealth at the top.

In addition to tax breaks for the rich, rules were also re-written to essential exempt wealthy corporations from paying State and federal taxes. This caused two problems. First, in order to pay for essential services like schools, the tax burden was transferred from the rich to the middle class – costing working families even more thousands of dollars a year. The Tea Party blamed the government for raising their taxes. But in fact, as a percent of income, government is much smaller now than it was 10 years ago. Taxes on the poor, including payroll taxes and sales taxes, went up to pay for tax breaks for the rich.

The second problem was even worse. Granting corporate tax breaks and expanding corporate tax havens gave wealthy corporations a huge financial incentive to ship capital and jobs overseas. Because Free Trade agreements were not fair trade agreements, the US economy was essentially destroyed long before the collapse in 2008.

A final “symptom” is the corporate control of the media which promotes propaganda such as the nonsense that the unemployment rate is only 9% when even basic math confirms it is closer to 25%.

To find a time when the government and the media actually told the truth and treated people fairly, we would need to go back to the 1950’s under Eisenhower when the “effective” tax rate on corporations and the wealthy was 50%, when the media was required to be balanced and serve the public and follow the “Fairness and Equal Time” Doctrines in order to receive a license. Banks, oil companies and health insurance companies were regulated which meant that costs to working families for essential things like health care and gasoline were kept very low. Taxes on the poor and middle class were also much lower because taxes on the rich were much higher. This meant that the middle class had much more discretionary income which they could spend at local businesses helping to expand the local economy – growing jobs from the bottom up.

But if all of these things are mere symptoms than what is the underlying or common problem?

One can certainly blame banks and corporations for destroying our economy. One can also blame a weakening State and National government for deregulating the banks and oil companies. But before every economic calamity, there must have been a political calamity to allow the deregulation which led to the economic calamity.

Elimination of the Media Fairness Doctrine did not just happen. It happened because some corrupt politicians allowed it to happen. Elimination of Glass Steagall Banking regulations did not just happen. It happened because corrupt politicians in Congress passed a bill in 1999 to permit it to happen. Even in Washington State , tax breaks for wealthy corporations did not just magically skyrocket from $20 billion per year in 2000 to $50 billion per year in 2010. This huge expansion of corporate welfare occurred because corrupt State legislators passed several specific bills – such as the “no strings attached” Boeing Tax Break Bill in 2003 – which illegally transferred billions of dollars away from our public schools and into the pockets of private corporations – money which Boeing then used to outsource jobs to South Carolina, Italy and China.

This is why I concluded years ago that our underlying problems are not economic – but rather they are political. Our problem is extreme corporate corruption of both political parties – whereby corporations bribe politicians and pay for the re-election campaigns of the most corrupt politicians. Elections have turned into bidding wars in which the most corrupt person accumulates the most corporate campaign contributions and is most likely to win. The only solution to this problem is not public financing of campaigns – but rather active participation in Democracy. This means becoming a PCO for your precinct and organizing your neighbors and building a political network in your community and attending political party meetings and demanding that the long term needs of people be placed ahead of the short term greed of corporations.

People would like to believe that they can passively sit back and that government will solve our problems – or that big business will solve our problems. But until we take back our Democracy and recognize that WE ARE THE GOVERNMENT, our economic and social problems will only get worse. There is no doubt that corporations bought the election in 2010. We are seeing today the disastrous consequences for our economy and for the American people. But there will be another election in 2012 and 2014. Just as the people took back our Democracy by electing Progressive Democrats in 1932 – saving our country from Fascism or worse – so can we work to elect Progressive Democrats in 2012. Until we kick the current group of corrupt “corporate” politicians out of office, and replace them with progressive Democrats, there will not be an economic recovery.

Just as our underlying problems are political rather than economic, so to is the solution political. Only after the election of progressive Democrats will we see restoration of a fair tax system and a fair economy with opportunity, liberty and justice for all.