Listening to the economic programs presented by the Republican candidates in their debates, I can’t reconcile them with the facts I have experienced in my own life. It would be very helpful to me, and I would think to other voters, to better understand the factual basis for these programs. Here are a few of the matters I hope the Republicans will explain, where their approach just doesn’t jibe with my experience.
The Republican program for bolstering the economy and creating jobs essentially focuses on two approaches: eliminating regulations and reducing taxes. Undoubtedly, there are some government regulations that are not necessary or not effective and even some regulations that may curtail a small number of jobs. I cannot understand, however, how getting rid of those regulations, which, by the way, will also eliminate the jobs of the regulators, will charge up the economy and create the millions of jobs necessary to significantly reduce unemployment and give employment to new entrants into the job market. Furthermore, I also cannot understand how at a time when the nation is trying to reduce deficits and debt that lowering taxes on the wealthy will create jobs.
My view is that what befell the economy and created the huge loss of jobs started well before the 2008 crash. America started to lose ground to emerging markets on a competitive basis in industry after industry as our wage and benefit levels made us unable to compete with the lower wages and non-existent benefits of labor in emerging markets. In the 1980’s, a company I led owned and operated plants in this country manufacturing jeans and other clothing. We watched as plants in Central America began to undercut our prices, to the point where we were forced to open plants of our own in some of those countries to compete effectively. Then, we saw plants in China produce equal or better quality products at even lower prices. With increasing globalization, as occurred in other industries, many of the clothing factories were closed and the manufacturing moved off shore.
The second structural development that reduced jobs was the broad introduction of labor saving technologies. Every one of us can give many examples of functions that were once performed by people who are now replaced by technology. A simple example from every day life is toll-both collection. Where once toll-booths required people to man them, now, with EZ passes and cameras, no personnel are needed. Communication through e-mail has replaced large numbers of jobs for secretaries, clerks and other office workers. Businesses have been taking full advantage of every technological development to reduce employees and increase the productivity of those that are left.
The result of our country’s inability to compete effectively and the loss of jobs to technology would have taken its toll on our economy long before 2008. What covered up the problem was the availability of large amounts of money to the public by way of uneconomic home mortgages that in too many cases exceeded the value of the homes and through credit card and other borrowings. These financings provided the funding for levels of consumption that made it appear that the economy was growing successfully. The overblown consumption helped create profits and the taxes on those profits helped maintain Federal and state deficits and debt at acceptable levels, even encouraging the Bush administration to reduce taxes and begin a very costly war. At the same time, the excess of money available in the markets encouraged over-expansion by businesses and further uneconomic lending by the banks. All this led up to the debacle in 2008.
As a result of this scenario, we now face large-scale unemployment and under-employment, with millions of people unable to find jobs, therefore reducing their consumption of goods and services. In addition, millions of Americans are burdened by home mortgages, student loans and credit card debt they can’t service, sharply curtailing their ability to access or allocate funds for increased consumption. The result is that businesses do not have a sufficiently fast growing customer base that induces them to expand and to hire more people. Until consumption begins to increase, we can expect companies to continue to operate tightly, seeking increased productivity by employing new technologies that enable fewer employees to produce more goods.
So, my question to the Republican candidates is this: specifically, which regulations would you eliminate and how many net jobs will eliminating each of those regulations create? Which of these regulations that you would eliminate will increase demand enough to induce companies to expand?
Now, let’s turn to taxes. Everyone can agree that reducing taxes on middle class and lower income taxpayers will have the effect of pumping demand into the economy since those taxpayers who are already living up to or beyond their means will, to a very large extent, use the tax savings for consumption. But that is not a reason for reducing taxes on the wealthy, since they already have ample funds to buy what they want and any tax increases will only end up increasing their savings.
Indeed, at a time when there is so much focus, particularly by Republican candidates, on reducing the nation’s deficits, there is good reason to increase taxes on the wealthy, which they, themselves, recognize. (See my article in the Huffington Post: “Why America’s Rich (and Many Do) Should Support A Tax Increase.) The arguments advanced against a tax increase for the wealthy, based on my experience, simply do not stand up to scrutiny. One argument is that increasing the tax rate will take away the incentive from the wealthy to continue to work, thereby reducing the opportunity for the economy to grow. The truth is that over many years before the Bush tax reductions, the tax rate on high earnings was much greater than it is today. Nevertheless, all of us who worked during that period not only did not drop out, but actually worked harder to be able to end up with more money. As one question recently posed to an economist who supported reducing taxes on the wealthy framed it: “Do you really believe that Bill Gates and Steve Jobs would not have worked in their garages and dedicated their lives to creating their companies, if the tax rate was higher”? The answer was that admittedly Gates and Jobs would have done what they did but the investors needed to launch their companies would not be willing to invest under the circumstances of a higher tax regime. In my experience as an entrepreneurial investor in many start-ups during a period of higher taxes, neither I nor my fellow investors would have walked away from those investments because of a capital gains rate that was a few percentage points higher.
Republicans argue that the wealthy would make their excess capital savings available for investment. But the investment community is already overflowing with funds, the banks are loaded with money and the large corporations have huge amounts of cash. There is no shortage of funds for investment or loans. There is a shortage of demand for new funds because without the expectation of increased consumer demand for their products, companies will not expand and entrepreneurs will not have the incentive to open new businesses.
This brings us to the final buzz-word offered by the Republican candidates and their economist advisors. What will create jobs, they say, is “confidence.” Now, I think everyone would agree that confidence in the future would help spur business expansion, which in turn would create more jobs. The real question is what do businesses need to be confident about and what will create the degree of confidence they need. My experience is that businesses need to be confident that there will be sufficient demand for their products before they will expand capacity and add new employees. Reducing regulations will not create that confidence. Reducing taxes on middle and lower class taxpayers by increasing purchasing power would help create some amount of confidence but at the same time would increase the deficit, creating uncertainly about our nation’s ability to address the debt issue. And the various simplistic formulae offered by some of the candidates. like the 9-9-9 formula offered by Herman Cain or the 20 percent, post card size tax return, offered by Rick Perry, will result in reducing tax revenues, increasing the deficit and imposing greater tax burdens on the middle and lower income taxpayers while decreasing taxes on the wealthy. These are programs that have little chance of being enacted.
In sum, it appears clear that nothing put forth by the Republican candidates or Republican members of Congress seriously addresses the unemployment problem or the huge debt burden borne by home owners, students and credit card debtors. How do they reply?
Mr. Lifton, a business man and political activist is writing a book entitled “Life’s Lessons and Stories from a Member of the “Greatest Generation.’”