"QUESTIONS FOR THE REPUBLICAN CANDIDATES ON THEIR ECONOMIC PROGRAMS"

By Robert K. Lifton

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.’”

Comments

[Will Reks]

The whole debate about regulations and taxes is not really based on any evidence. It's purely ideological. Increased taxes in the 1990s did not kill the economy as many Republicans claimed it would. And lower taxes in the early 2000s did not usher in an era of growth.

Regulations should be viewed as consumer protections and not a pejorative. It's probably true that certain regulations prevent business from making a larger profit. That's a tradeoff that we have to live with but I'm sure there are regulations that can be safely eliminated.

I think there is plenty of evidence to show that the market does not effectively regulate itself. This includes meat-packing plants (Upton Sinclair), Enron, the oil industry, Wall Street and countless other industry failures that have made the news over the decades. The logic is that we should tolerate such aberrations. I don't think so.

[graywolf]

A tax increase means more money in the hands of venal politicians (both parties)who will ALWAYS spend every dollar they can wrest from the citizenry.....and more, to the tune of $15 tril.

The Democrats, especially, always want MORE money to pay off their parasitic constituencies.

The Republicans (the stupid party) haven't quite figured out the game, so they half-heartedly propose fiscal sanity but don't know what it means.

[William R. Cumming]

Great post with which I largely agree. By the way was not last night's debate supposed to focus on foreign policy and foreign relations? Did it? I did not listen except to the video of Governor Perry trying to name his third department for elimination. And the Texans elected this guy three times?

Where is a new Santa Ana when we need him?

And by the way does not the current economic situation also relate closely to US foreign policy?

[Paul Escobar]

Around 2004, I was sitting in my highschool econ class.

My teacher was instructing us all to use real estate speculation as a retirement plan. We were forced to watch a PBS documentary (commanding heights) deriding tariffs, labour standards, & taxes as antiquated. Wal-Mart was highly praised for reducing the cost of goods. My generation would enjoy service-sector employment at 'The Gap', rather than some dirty old manufacturing plant.

My classmates, in inarticulate & indirect ways, could only express concern that we were (they would never use this term) basically hollowing ourselves out.

Of course, their concerns were undercut by what Mr. Lifton points out in paragraph 5: "the availability of large amounts of money [credit] to the public".

Now it's 2011, and that informal welfare scheme created by the 1% has collapsed. Yet our politicians still speak in the old 2004 jargon of my highschool econ teacher. No surprise, as the 1% welfare scheme never ended for them.

We must reclaim what we blindly ceded:

Ha-Joon Chang in THE ECONOMIST

I propose that the state of a nation's manufacturing base (its size and competitiveness) is the most important determinant of its prosperity...

[Byron Raum]

I have read a lot about these mythical hoards of parasites, slobbering at the public trough. Never met a representative member of said constituency, though.

Republicans figured out the game a long time ago. Give away money to the rich, and they will give you lots of money to buy airtime to convince the average taxpayer that there's people just waiting to steal their cash.

The purpose of government is to protect the average from the ultra-rich. The ultra-rich don't need the government - they can buy their own protection and privilege. Insofar as the government is weakened, or refuses to do its job, it is certainly venal.

America's strength doesn't come from lower taxes. It comes from the prosperity of the middle class.

[Fred]

greywolf, it is sad that you think close to half of the citizens of the Republic are parasites and that the Republican leadership is stupid. Tuesday was election day, feel free to run for office some time.

[walrus]

As a former CEO who also spent a few years as an advisor to Government on manufacturing industry development, I am in broad agreement with Mr. Lifton - the Republican "Policy" is self serving hogwash, a gift to the 1% and it is based on deliberately specious reasoning. The Republicans have invoked John Stewart Mills "Confidence Fairy" argument as well as the "trickle down" idea that the virtuous rich will climb out of Galts gulch and save us all if we grease their palms sufficiently.

Better people than I have hung drawn and quartered the "business confidence" argument aka the existence of the Confidence Fairy on strict economic grounds.

http://krugman.blogs.nytimes.com/2011/09/13/the-death-of-the-confidence-fairy/

http://delong.typepad.com/sdj/2011/08/alfred-and-mary-marshall-and-the-confidence-fairy-annals-of-the-history-of-economic-thought.html

The reality is that America is stuck in a liquidity trap. There is a want of demand, and it cannot be stimulated by lowering interest rates because they are already cut almost to zero. The fastest way out is to stimulate demand by deliberate inflation. Naturally this is anathema to the Republicans and their donors.

http://en.wikipedia.org/wiki/Liquidity_trap

As for repeal of regulations, big business needs big regulators. But it is in the field of environmental regulation that Republicans and their backers reveal themselves to be guaranteed, certified brain dead idiots, starting with the Koch Brothers. The reason for that is because pollution is actually waste of resources you paid good money for, and the lowest polluting companies therefor make higher profits than heavy polluters.

To my knowledge, it was an American CEO who first made this observation, which has now been backed up by experience and research. By way of a trivial example, environmentalists here complained about Gold mine tailing runoff killing waterbirds. We fixed it, recycling Sodium Cyanide ($1300/ton) and recovering and selling Copper ($4000/ton). Very quick payoff and happy ducks to boot. You get the idea, it's a pity for them that the Koch brothers don't.

http://www.lightgreen.com/files/pc.pdf

The proper economic name for Americas problems is rent seeking behavior. My favourite example is the Louisiana Florists Licence.

http://www.usatoday.com/news/nation/2010-03-10-florists_N.htm

Until you tar and feather the legislators who enact such economic abominations, nothing can improve.

Overseas competition? Ignore the whiners. Tell them to either get internationally competitive or go out of business. Governments job is to remove barriers to allowing this to happen and to ease the pain of the workforce. Low value adding businesses will always go where labor is cheapest. Don't try to stop it. Focus on high value add activities and skill your workforce accordingly.

Deficits? Debt? Fix your economy, do what Keynes suggested and the problem goes away. Worked nicely here.

The entire American economy reminds me of an abused second hand Ferrari. Pull it apart, cut the rust out, polish it and it should hum nicely.

[New Orleans]

"A tax increase means more money in the hands of venal politicians (both parties)who will ALWAYS spend every dollar they can wrest from the citizenry.....and more, to the tune of $15 tril."

Nothing's as satisfying as more platitudes when faced with serious issues.

[optimax]

We need to strangle the financial sector until it is small enough to drown in a bathtub. Borrowing from Norquist or Freidman or some othe neoliberal.The financial sector has grown exponentially in the last sixty years. It skims our wealth off the top, it draws capital away from the real economy that creaTES A MIDDLE-CLASS to the already wealthy elite,it undermines democracy by giving a largewr voice to those with money (corporations are people and people are human resources) and will lead to financial collapse as it always does.

http://en.wikipedia.org/wiki/Financialization

[E L]

Having barely lived through one Texan, we now have a dimmer Texan running for President. Now is the time to read the US Constitution strictly as Perry demands and apply it to Texas. The Constitution does not expressly provide for the acquisition of territory from other governments. Thus, we should immediately return Texas to Mexico as it was acquired unconstitutionally. In addition, the Dallas Cowboys could not continue to promote themselves as America's team and Jerry Jones could be required to obtain a visa. He does remind me of an alien (cf., Men in Black).

[turcopolier]

EL

I think that Texas should be encouraged to divide itself int ofour states; Fandango, Houston, Panhandle and New Virginia. California should be three; Cloudcuckoo, Callahandia and Sasquatch. No, except for the panhandle we don't want West Virginia back. pl

[MRW]

Read this book:

Seven Deadly Innocent Frauds of Economic Policy

Buy at Amazon or read for free online here. (First page is blank in online version)
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Second page contains the testimonials. That will tell you whether you are interested in going further. You should. Prepare to have everything you believe in challenged, and to realize that you still think pre-1972, which his when we went off the gold standard.

Who said this isn't the 21st C. ;-)

[Fred]

West Virginia was the best thing that Lincoln and the Union did for Virginia. I'm not sure it has been the best for the people in West Virginia.

[rkka]

"The Republican program for bolstering the economy and creating jobs essentially focuses on two approaches: eliminating regulations and reducing taxes. "

That will work just as well as it did from 2001-2006, when a Republican President and the Republicann Congress held all power at the Federal level. After the brief, mild, shallow recession of early 2001, economic growth resumed by the 2nd quarter of 2001. In response, the Republican President and the Republican Congress cut taxes and reduced regulation.

Private sector job losses continued for another Two Full Years.

The number of private sector jobs did not recover to its January 2001 level until mid-2005.

There is nothing about Republican policies that increases private sector jobs. They are a fraud, nothing more.

[confusedponderer]

No, fraud? No, for the GOP their economic voodoo is gospel.

According to the creed, tax cuts are good for and against everything. They work economic miracles. Governance? Isn't that another word for cutting taxes, deregulation and getting the corrupt, incompetent and wasteful state off the back of corporate donors?

That's because what's good for Koch industries is also good for Joe Sixpack, or Plumber, or whatever. The benefits so generated trickle down, golden shower like, and ... fertilise the American economy.

Just suspend your disbelief and join the cult.

[William R. Cumming]

Perhaps time to refresh memories and read Thorstein Veblen's THE THEORY OF THE LEISURE CLASS [1899]! Check Wikipedia.