Thursday, January 27, 2011
While much of the American population believes the United States is "the greatest nation on earth," "chosen" and blessed with "unique" wisdom (a theme that gets mixed reviews from foreign observers), few possessing this optimistic vision actually live in America's urban slums. Yet these conditions are, in fact, part of "the American way of life."
Further, the very fact that these conditions have persisted so long indicates that their real causes have some deep connection precisely with the actual content of "the American way of life," in the forms it has long taken.
There has been a misunderstanding as to what "residential areas" actually are. They are not simply places where people "reside" to carry on their present lives; they are places where the future is shaped through the socialization of on-coming generations. This means self-images, horizons, goals, and motivations. Residential areas breed the future proportions of assimilation into the "mainstream" vs. social pathologies, including drug addiction and violent crime, with benefits or costs to society at large extending decades into the future.
A major part of socialization is role models. One requirement of socially decent communities--quite generally, but not always--is role models of middle-class types, broadly conceived, and hence mixed-income neighborhoods, or at least avoidance of heavy concentrations of the lowest classes. This social fact is widely recognized in much of Western Europe.
Residential patterns are a huge factor affecting the character of public schools. In the United States, many of the struggles to reform inner-city public schools have focused on the schools and teachers and gone too far in blaming them for the outputs, i.e. poor student performance, without altering one the key inputs, residential patterns, which powerfully influence the culture of parents and students. Various of these school-reform efforts have applied considerable resources, and draconian supervision of teachers, but then produced only minute improvements in student performance--because of lack of student motivation. This can be traced, in large measure, to the role models that prevail outside the classroom. Inner-city students tend to think and behave differently from middle-class students because they were not raised in middle-class neighborhoods.
In the United States, despite all the departures from laissez-faire from the l880's through the New-Deal era and beyond, and while racial discrimination has been addressed by legislation and the courts, there has been little urban social planning in spatial terms to reduce extreme economic segregation in residential patterns.
The lack of such social planning inside the United States has long imposed costs, in some cases enormous costs, upon other nations, for one of the largest markets for hard drugs has long been in the inner cities of the United States. The costs in Columbia and Mexico have included assassinations by drug gangs of huge numbers of courageous local police agents, judges, and other officials.
Americans tend to assume that general economic prosperity "lifts all boats." But in the last half of the 20th century conditions in American inner cities grew worse, because of two great changes in American society:
First, massive losses of manufacturing jobs occurred, because of economic development in other parts of the world, leaving an American "rust belt" of devastated communities.
Second, the American civil rights revolution of the 1960's allowed middle-class Blacks to move from inner-city ghettos out to suburbs. Previously, many of these inner-city ghettos had a multi-class character, as illustrated by the "Harlem Renaissance" of the 1920's and other similar communities. But as the walls of racial segregation were dismantled, this out-migration left behind heavier and heavier concentrations of the lowest classes in inner cities. American public policies did little to compensate for the success of the civil-rights revolution. The very notion of "compensating" for "success" is difficult for Americans to grasp, because of their (misguided) faith in spontaneous forces in society.
What should done:
(1) Move the economy to high levels of general employment.
(2) Expand use of public funds to promote relocation of people out of depressed areas, including depressed urban areas, to places, near or far, where jobs are more plentiful.
(3) Expand training and retraining; and, to this end, abolish tuition at community colleges.
(4) For low-income groups, achieve minimum standards of housing by expanded use of housing subsidies, not discrete public housing units; and abolish the (universal) tax deductibility of mortgage interest, which is a subsidy that for decades has gone to middle and upper classes.
(5) Promote, on a large scale basis, mixed-income neighborhoods, in both urban and suburban areas.
(6) Expand governmental planning capabilities to shape urban residential patterns on a regional basis, integrating inner cities and suburbs. This can be greatly facilitated by municipal ownership of land in and near urban areas. For detailed information on long experience with such policies in The Netherlands, Germany, Sweden, and Finland, see my Land Ownership and the Social System.
America's great business oligarchy
What, then are the attitudes of the conservative business community in the United States? It has the fixed political aims of obstructing use of government for popular well-being and maximizing opportunities for private investors to pursue enormous personal wealth. This includes speculation in the full capitalist repertoire of assets, including speculation in land.
Progressive urban policies in the United States could be strategically advanced by getting rid of that oligarchy--through the type of socialist transformation proposed in detail in the writings cited above.
Wednesday, January 26, 2011
Such a policy should be financed by federal grants to the state governments, or depending on the situation, federal grants to students. The financing should come from the federal individual income tax, with higher and more progressive rates.
It makes no societal sense to maintain financial barriers between individuals and training and education that can increase their future contributions to society. Future contributions are a matter of investment.
The United States, beginning in the 1830's, pioneered in the idea of free public education. This was long one of the great attractions for immigration to the United States. But, unlike quite a number of other countries, the United States has never carried this principle beyond the secondary-school level.
Instead, it displays an enormous patchwork of public and private scholarships, which require a vast assortment of public and private bureaucracies, and family financial aid forms, to decide eligibility. All this is a considerable and unnecessary cost to society.
This American situation reflects, in two respects, the individualistic political culture of the United States:
(1) One is the inherited individualistic theory that education is for the individual only, not society, and should be viewed as an investment of tuition money by the individual, analogous to investing in a small business.
(2) A second, however, is the self-interest of much of the American middle classes in not bearing the tax costs of expanding educational opportunities for lower-income groups. Yet the extent of this attitude is influenced, again, by the individualistic political culture of the United States. The proof is the fact that in much of Western Europe, where governmental authority and activity are far more accepted, middle classes are far more willing to set aside narrow self-interest and pay far higher taxes in order to equalize access to both healthcare and post-secondary education.
What, then, are the attitudes within the American business community? Here there is schizophrenia.
Many individual American business leaders have long advocated, in urgent declarations, upgrading of the American labor force and improvement in American public education on grounds that this is necessary if the U. S. economy is to remain competitive.
A huge part of the American business community, however, measured by the behavior of the Republican Party, perpetually emits a chorus of demands for cuts in "entitlements," lower taxes, and smaller government, and persists with massive propaganda designed to promote within the general population blind hostility to taxes and governmental activity.
The United States would be better off if its great business oligarchy were displaced by a socialist transformation, of the type proposed in detail above.
Saturday, January 22, 2011
What is needed is a health-care system that is equal, universal, comprehensive, privately provided but publicly funded, and compulsory through the tax system.
The United States has spent some one hundred years debating these issues, since Theodore Roosevelt's campaign of 1912. At every stage, a huge part of the American business community, and the bulk of America's great business oligarchy, have fought tooth and nail against expansions of the role of government in health care.
The Obama administration's health-care law, which was the most that was then politically feasible, achieved very significant reforms. In type, it is essentially the Swiss system, i.e. use of private insurance companies but with regulation and subsidies to remove some of the worst abuses. It, however, falls far short of what should be the aims in a civilized society.
I. Two Major Surgeries
There are two major surgeries among the many further reforms that are needed:
A. Exclusion of the private insurance industry
The function of medical insurance should be transferred to government, and the private insurance industry should be prohibited, by federal law, from offering any insurance in the medical field, with criminal penalties for the officers of any company violating this prohibition.
There are a considerable number of reasons for this conclusion, relating to cost reduction, equity, and political considerations:
1) Administrative costs of the insurance carrier would be reduced, for several reasons:
- Administrative costs are inherently higher when the insuring organization is administering a multiplicity of insurance plans, designed to appeal to differing income levels and health status, as compared to a single plan covering all medically appropriate procedures and treatments.
- Private insurance companies compete for larger shares of the market with extensive advertising, which is paid for by premiums. Most of this expense would be removed by governmental provision of medical insurance.
- Private insurance premiums pay for astronomical salaries and perquisites of the chief executives of private insurance companies. The same work could be done equally well by civil servants for a tiny fraction of these costs.
(2) Private insurance companies have a vested commercial interest in appealing to differing income levels and health status, thus playing different groups against each other by appealing to their narrow self-interests. This tends to destroy any political sense of solidarity within the population on behalf of providing health care on a fully equal basis.
(3) Private insurance companies promote the voluntary principle, allowing healthy persons, in various degrees, to opt out of insurance pools. This increases the per capita cost for persons left in the pool, as opposed to spreading medical costs over the whole of society.
(4) Private insurance companies, and the business community generally, hold that competition and private-sector bargaining with providers are "essential to controlling costs." Direct governmental regulation of fees charged by providers, however, can be equally effective, and far simpler in avoiding complicated organizational structures. This reduces actual total administrative costs.
(5) The Obama reform will mean high administrative costs in enforcing the requirement for citizens to purchase private health insurance. A far superior approach to compulsory health insurance is to provide universal health care free, or nearly free, and then to force most citizens to pay toward the costs through a progressive tax system, which would redistribute the burden within society.
(6) Finally, use of commercial companies to achieve a social purpose requires extensive governmental regulation, and this, even if it nominally removes all undesirable behavior of private insurance companies, must work uphill against resistance, for two reasons:
- The executives of private insurance companies are hired and fired by shareholders, who have only one interest, maximizing profits, which is extraneous to the social purpose.
- Particularly in the United States, there is within the business community a deep culture of hostility to governmental regulation, which is perpetually illustrated by the behavior of the Republican Party.
The fee-for-service method of remunerating physicians, hospitals, and other providers should be extensively curtailed or abolished altogether, because it vastly inflates costs. Billions of claims for individual medical procedures must be processed, which requires a vast assortment of private and public bureaucracies, and it offers endless opportunities for padding of medical charges.
It should be replaced by payment of physicians by salary, under one or another arrangement, and funding (reimbursement) of hospitals and other providers by various types of global financing.
Many other countries have long ago moved away from the fee-for-service concept. Americans cling to it because it is part of an individualistic political culture.
If someone were to propose that military hospitals be financed by fee-for-service, there would be an instant verdict of insanity. That is the appropriate verdict for the existing American use of fee-for-service.
II. The Choice of Level of Government
One option is to transfer the function of health insurance to state governments, with regulation and equalizing grants from the federal government. This is essentially the Canadian system. An eminently intelligent plan of this type was the Wellstone bill (S.491), introduced in 1993, in the 103rd Congress, 1st Session, by U.S. Senators Wellstone, Metzenbaum, and Simon. This approach has the political advantage of appeasing the American fear of "centralized authority," i.e. the federal government. By the same token, however, it has the great political and administrative disadvantage of cumbersome relations with fifty state governments.
The optimum approach is to locate a system of universal health care at the federal level, and do so, not by creating any new administrative structure, but by adding it to the existing Social Security system, which has field offices in every small community across the nation.
Moves in this direction were considered in 1935, but President Franklin Roosevelt, one of the nation's most powerful Presidents, was forced to retreat by more powerful forces, namely massive lobbying by the private insurance industry, intense opposition from the American business community generally, and popular fear of "socialized medicine," which a huge part of the American business community has always promoted by massive, and misleading, propaganda.
III. End the Business Oligarchy
The most fundamental reform would be to get rid of America's great business oligarchy, which has obstructed reform in health care, and a thousand other fields, for a hundred years and more.
Friday, January 21, 2011
The Federal Debt
The standard business propaganda is that government spending (for domestic, civilian, purposes) is "excessive" and leads to huge public debt that must be "paid back," and this means a "crushing burden" on "future generations."
This is misleading in several respects:
(1) This leaves out the subject of military spending.
(2) Whether government spending leads to debt at all depends on whether the spending is matched by taxation.
(3) A public debt is not fully analogous to a private debt. A private debt in the singular is a single contract. But a public debt is composed of millions of individual debt securities. If the debt is not to grow, the interest must be paid out of taxation, not out of borrowed funds. But the principal can be refunded indefinitely; governments routinely pay off old securities by floating new ones. There is no legal obligation to "pay back" the total principal. Governments, however, have a practical interest in paying down the principal in order to reduce the interest burden on the government's budget.
(4) A substantial part of a public debt is typically an internal debt, so that payments on this part of the debt go to a nation's own citizens and own financial institutions. This part of a public debt is thus a circular process within the nation, and is no "burden" whatever upon the nation, with the exception of the administrative expenses, which are an infinitesimal fraction of the total outstanding debt.
(5) Where part of a public debt is an external debt, this is a different situation. Payments on this part of the debt go to foreign individuals and institutions. The tax liability to make these payments is, indeed, passed on to future generations as an unearned liability. But future generations also inherit wealth from present generations, which are, by and large, unearned gains. Business propaganda routinely cites one side of the ledger without citing the other. This is the reverse of the accounting used by the Enron corporation, which cited assets but concealed liabilities.
All of this business propaganda has been highly effective in deceiving large sectors of the American public, and thereby creating unwarranted hysteria about public debt and thus--the main aim--generating popular hostility toward governmental activity for social purposes.
On the other hand, there are serious issues connected with the public debt of the U.S. government. It has spiked upward for reasons in addition to Keynesian action against the recent recession, namely two wars in Iraq and one long war in Afghanistan, all fought essentially without raising taxes. In future decades, for demographic reasons, the terms of the Social Security system will have to be revised, though there is no economic imperative whatever that precludes expanding its scope. As the American population ages, medical costs will continue to rise, and there will be growing pressure to confront the reality that the American system for delivering health care is inefficient in the extreme.
There are, in fact, large reductions in government spending that could be made without affecting basic welfare purposes. The following point to a few examples:
- The U. S. military establishment is larger than the military establishments of all other nations combined; it should be reduced.
- A far more efficient, and less individualistic, system for delivering healthcare should be adopted.
- The tax deductibility of mortgage interest, as a universal policy, should be abolished.
- The subsidy for corn ethanol should be abolished.
- Dozens of public four-year universities across the nation admit and retain students who are unprepared for college, not only in academic background but also in motivation, because university administrations are maximizing, not genuine education, but their budgets--by inflating enrollments; this is utter waste that should be ended.
- There are countless government programs, and vested interests behind them, that deserve re-examination.
Contrary, however, to the central aim of business propaganda, there is no economic necessity whatever that precludes expansion, even large expansion, of entitlements that, among other purposes, equalize access to healthcare, post-secondary education (for qualified students), and decent housing located in socially decent neighborhoods, or expand the scope of the social-security system, even to a universal system covering the entire population--so long as the tax level is adjusted accordingly.* * * * * *
The questions, then, are what parts of American society are to bear the burdens (1) of the austerity involved in paying down the U. S. external debt and (2) of any expansion in domestic social programs.
Business propaganda holds that "we" cannot afford to do both. Yet the slightest glance at the American scene reveals mansions springing up in the countryside, luxury town houses, luxury apartments, and luxury restaurants in fashionable locations, yachts in marinas and in residential yacht slips, and wealthy gated communities--all reflecting high living by the upper middle classes and wealthier groups. Much of our private spending is on luxuries and trivia. Moreover, the United States has attempted to manage its social problems with one of the lowest overall tax levels of any advanced industrialized nation.
It is the perpetual aim of the conservative business community, and of America's great business oligarchy, to keep burdens off the affluent parts of American society and on the lower classes by blocking governmental activity that improves their basic conditions for a decent life.
Measured by civilized purposes, that oligarchy is a predatory and oppressive interest, which should be removed by a socialist transformation, of the type proposed above.
Saturday, January 15, 2011
There is a simple proof of this fact: Following Pearl Harbor, it did not take the United States "four years" to convert to a war economy that wiped out unemployment; this was done in a matter of a few months.
Where market forces predominate, initiative is located in households, and firms respond to consumer demand; if households are not spending normally, for whatever reason, private firms sit and wait. The time necessary for a full recovery, then, can depend on the extent to which initiative is transferred from households to government.
We may now identify some of the limits of the actions of the Obama adminstration, which, like any government, has operated under various constraints:
(l) In view of the visible weakness of the recovery, the stimulus package was not "ineffective" but too small. When Secretary of Treasury Timothy Geithner was asked about this recently, he explained that the administration did not know what the exact effects would be of a stimulus package of a given size; that if the administration had requested a larger package Congress would have debated it for a long time; that it was therefore decided to request a smaller package that could get Congressional approval promptly; and that the issue could then be "revisited" later. This means that a constraint lay in a group of more conservative Democrats in Congress.
(2) The Democratic Party under President Obama has not fully offset the effects of the recession on the tax revenues of state and local governments. Their "budget balancing" efforts have continued to disrupt public and social services and to undercut the stimulus measures that have been taken at the federal level. I discuss this issue in detail in this post.
(3) There are a wide range of investments in infrastructure to which the Democratic Party under President Obama is committed but which go far beyond what the Obama adminstration has done. These include thousands of bridges that need repair or replacement; port facilities that lag far behind current standards in many other countries, which negatively affects the competiveness of the U.S. economy; modernization of long distance transmission lines within the electric power grid; and development of high-speed passenger rail lines. From the point of view of job creation, such construction projects have the advantage that they involve many opportunities for unskilled labor.
(4) There are "green" branches of the economy the Obama adminstration wants to promote, but there are potential investments in these branches that go beyond what has been done. Where the constraint is capital, this can be provided by tax concessions. But where the constraint is risk, government could acquire controlling equity positions in such firms and then order expansions in production such firms would not otherwise undertake, or undertake so soon.
(5) By extension, there is an ultimate weapon against any weak economy, based on the fact that government can take risks private firms are unwilling or unable to take: Government could acquire controlling equity positions in a large number of major firms, spread geographically across the nation, and then order their managements, on pain of their replacement, to expand production, and thus hiring, to meet the demand for their outputs that would exist if households were spending normally. Such simultaneous investments would cause fear of being laid off to evaporate and accelerate transition to high levels of employment. The government could then, as one option, sell its shares back to private investors. Since stock prices would have risen, the government would have a good prospect, as in the case of the government's equity stake in General Motors, not only of recouping its investments, but of receiving a substantial profit. Such profit could be accurately described as a return to risk-taking. But it would be risk-taking by society as a collectivity through the instrumentality of government.
In a nation where fear and distrust of government is a powerful tendency, what, then, of beliefs within the American population itself? Large parts of the American population believe that - by a populist misconception - the collapse of large financial institutions would be "just Wall Street" and would pose no systemic danger to "Main Street"; that deficits in the budget of the national government - by false analogy with "households" (which, in fact, often spend out of borrowed funds) - are evil in the abstract, without regard to the business cycle; that the current size of the federal debt poses some immediate crisis, which it does not; and that governmental ownership in firms is evil in the abstract, regardless of the practical consequences.
The conservative business community, through the Republican Party, then perpetually operates on the fulcrum of such beliefs with misleading and massive propaganda, and has been brilliantly successful in making curse words out of "bail-outs," "deficits," and "debt."
The real causes of the present weak recovery thus lie in the political system. They are beliefs that pervade large sectors of the ordinary American population itself, and massive promotion of such beliefs by a great business oligarchy.
Much of that business oligarchy, in the United States, is animated by a fixed aim of discrediting use of government for popular well-being.
The best interests of ordinary Americans would be strategically advanced by getting rid of that oligarchy -- through gradual adoption of a decentralized market socialism for large firms, with taxing away of great personal wealth.
Thursday, January 13, 2011
Keynesian policy, however, faces an obvious political dilemma, which Keynes himself pointed out, which can be called the "Keynesian dilemma": It is politically easy during a recession to increase government spending and cut taxes, but it is politically difficult during the high parts of the business cycle to adopt the reverse fiscal action, i.e. cuts in government spending and/or increases in taxation, that can be necessary to prevent serious inflation.
Governments around the world have often not used their full fiscal powers against recessions because they have been uncertain about persuading their populations to accept the appropriate reverse fiscal action following a recession. The dilemma is nothing less than how to reconcile democracy with intelligent management of the economy. This reality is very different from conservative portrayals of government as inherently evil and the people as inherently wise.
Given the consequences of recessions, in severe social dislocations and widespread suffering, there is no socially responsible alternative to Keynesian policy.
On the other hand, skepticism about large use of the Keynesian instrument during recessions can have a rational component, namely doubt that the nation has the political maturity to adopt the appropriate reverse fiscal action following a recession.
If progressive social policies are to be maintained and advanced, then the emphasis in reverse fiscal action, beyond terminating temporary stimulus measures, has to be, not on reductions in public social spending that protects and advances well-being and equity in society, but on increases in taxation, which reduce private spending.
With the required political leadership, however, there is a way of cutting through the "Keynesian dilemma": The most effective approach is to legislate increases in taxation far in advance by implanting automatic formulae in the national tax system, with the tax increases taking effect, not by the calendar, but according to specified points in the upper phases of the business cycle, with adjustments as may be needed.
The Obama adminstration and the Democratic Party might have gotten into less political trouble if, while the Democrats still controlled both houses of Congress, they had packaged their stimulus measures, not with mere proposals or discussion, but with actual enactment of such tax legislation.
Such legislation might, indeed, be repealed or amended in some destructive way. But political responsibility could then be fixed.
Tuesday, January 11, 2011
Recessions cause tax revenues of those governments to plummet downward and expenditures, for unemployment insurance and other social measures, to spike upward.
In recent decades, many states have adopted "balanced budget" amendments to their constitutions imposing restrictions on state borrowing that apply even during recessions. These "reforms" have been spearheaded by the business community and the Republican Party, but Democrats, in order to show their support for "fiscal responsibility," have widely supported these moves, and have not acted to reverse them. These state constitutional provisions, unless offset, guarantee that every major recession will create a wave of state, and therefore local, budget crises that, in turn, will force cuts in dozens of types of public and social services and all the social chaos this entails.
Within much of the business community, this is of little concern, because many of these services are viewed as "waste" and are precisely among the targets of the call for "smaller government." They are viewed as the tail of the "real" economy that can wag up and down with the business cycle with no "real" damage to society, because society is viewed, in the first place, not as a community, but as a playground for private investors to seek personal enrichment.
State governments during times of prosperity typically seek to build up reserves with which to ride out the effect of the next recession on their tax revenues. But during a deep and prolonged recession these reserves tend to be exhausted, and budget crises ensue. Then any effort to "balance" these budgets will push the regional or local economy deeper into recession; if taxes are raised, consumer purchasing power is reduced; if expenditures are cut, public sector employees are laid off, reducing consumer purchasing power, and when state and local government agencies cut back their operations they reduce their orders for goods and services from the private sector, which likewise pushes the economy further into recession. These things, then, in turn, reduce state and local tax revenues further.
There is thus a circular interaction of the public and private sectors at the state and local levels--unless this interaction is severed.
One option is for states to repeal or loosen these "balanced-budget" constitutional provisions so they can protect such services during recessions by sufficient borrowing. But this is hopelessly unreliable.
The most effective approach, by far, and the simplest and cheapest, is for the federal government to make offset grants to state and local governments that fully compensate them for the declines in their tax revenues that are caused specifically by recessions, and to do this under permanent legislation that takes effect by automatic formula.
Part of this approach, in fact, has long been used in the United States, and has been used by the Obama administration, under an established designation called ARFA (Anti-Recession Fiscal Assistance). This action by the Obama administration reportedly has offset about one-third of the effect of the recent recession on state and local tax revenues, and a chorus of economists has urged that additional federal action offset the other two thirds.
If this is not done, then state and local governments will (mindlessly) go about attempting to "balance" their budgets--by cutting services and/or raising taxes. These efforts disrupt such services and push the economy back toward recession, and thus undercut stimulus measures taken at the federal level. This is one of the factors causing the current weak recovery.
In the United States, a huge part of the business community has the central and steady aim of discrediting use of government for popular well-being, and uses massive propaganda to exploit popular ignorance of basic economic facts. Its power over public opinion is indicated by the huge percentage of Americans who believe the federal government's budget should be balanced on an annual basis, without regard to the business cycle, and that budget crises of state and local governments during recessions are caused simply by the "fact" (an ideological position) that "government is spending too much money."
In the United States, the conservative business community is a predatory interest, driven by greed, that perpetually interferes with the conditions for a civilized society.
Thursday, January 6, 2011
What would family life for ordinary Americans be like if that business oligarchy were gradually removed by taxation, and its useful economic functions performed by other arrangements?