Friday, November 4, 2011

How Democratic Economic Policies Have Failed

The post right before this one explains in detail how conservative and regressive economic policies have failed, and while Democrats (Obama especially) are guilty of making many of the same errors, I won’t be rehashing them here. In other words, when a Democrat keeps tax rates on the wealthy low (Obama), it’s wrong; when a Democrat cuts spending on essential services for the poor (Clinton and Obama), it’s wrong; when a Democrat engages in frivolous wars (Kennedy/Johnson), it’s wrong.

While Republicans may have been able to squander America’s full potential all on their own, I think they needed the help of the Democrats to get us where we are now. With Democrats, their mistakes can be explained as one of two things: either they adopted Republican policies that don’t work, or they applied proven solutions to the wrong problem. Democrats have killed American manufacturing with shortsighted trade policy, skewed labor markets and caused inflation by raising the minimum wage, and complicated the tax code for the benefit of wealthy donors.

The signing of NAFTA by Bill Clinton in 1994 was the official beginning of the end of American manufacturing. It became not only easy, but almost necessary in certain industries to move production to another country, one where not only are workers paid a fraction of the wages, but factory construction and sometimes even maintenance are covered by the host country. It became a no-brainer to move manufacturing across the border. With all tariffs and other trade barriers out of the way, businesses fled the US, with more following the first wave in order to compete.

The trend quickly became finding the cheapest nation to exploit, where not only were workers (sometimes children or the elderly) made to work long hours for pennies a day, but other restrictions such as environmental or worker safety laws were lax, or completely non-existent. I’ve heard more than one Democrat callously remark, “Well, they wouldn’t work that job if it wasn’t the best job they could get,” or “Obviously they need the money.” I guess it’s more important to have cheap plastic crap than give a second thought to child laborers being exposed to lead, mercury, and a world that sees them as a labor commodity and nothing more. As least you have your Air Jordans, right massa?

But I can’t blame companies, because they have been over-paying minimum wage workers for a while now. The minimum wage is a good thing, it’s a guard against predatory labor practices, but the problem is, since the 90’s, Democrats have tried to use the minimum wage to close the income gap, and that doesn’t make any sense. The only reason to raise the minimum wage is if minimum wage workers are being underpaid. You can’t prop up the faltering middle class by doing anything with the minimum wage, but you can cause inflation, discourage low-level hiring, and raise the price of goods.

There is a class of workers in America who is being abused, namely undocumented workers. They are paid well below minimum wage, and they work hard labor that takes a toll on the body. The problem is… raising the minimum wage won’t help these people, either. In fact, it just discourages them from ever becoming documented, because if they have to start earning minimum wage, they would be fired for an undocumented worker who will do the same work for a fraction of the price. The way to combat this type of exploitation might require its own essay, but the long and the short of it is: you need to eliminate barriers of entry into the US, grant full citizenship to anyone who comes to our borders, and keep people honest from day one. This whole sneaking-across-the-border-and-working-while-undocumented thing is all part of a culture of deception that needs to end, for the benefit of everyone involved.

I guess I can’t talk about Democrats and the minimum wage without mentioning unions. I think it might shock some people to hear, but I don’t much care for unions. I see their very existence as being a rather shameful indictment of our system. Just to try to show you my perspective, let’s look at what unions do:

Let’s see… some people feel exploited, so they band together, elect people to represent them, and then those representatives fight for the interests of those who elected them. Good job, unions, you invented democracy… except not really.

Unions should be, in my opinion, redundant. The sad thing is, they aren’t. There isn’t anyone in government who represents workers, there aren’t politicians writing legislation that defends the rights of workers. Unions are borne out of the failure of government to actually represent the people. Unions are literally the result of failure, which in my mind, is already a red flag.

The other major problem I have with unions is… they wield power, but I have no control over them. I hate that. Call me an old fashioned, egalitarian kind of guy, but I don’t like it when rich people wield power I have no say over and I don’t like it when working-class people band together to wield power I have no say over. No one in a healthy democracy ought to have power without the express support of the population as a whole. I don’t like it when the Koch brothers have politicians at their beck and call, and I don’t like it when Democrats fawn over the AFL-CIO. Sure, the Koch brothers are just two guys and the AFL-CIO is over 12 million Americans, but America is composed of over 300 million.

This gets into the general idea of special interests, which fits nicely into another problem Democrats have. I read and hear Democrats criticize Republican politicians constantly for how corrupt they are. I have bad news for any Democrats who labor under the illusion that their party of choice is somehow any better: Democrats are as bad, if not worse, than Republicans.

In 2010, 37 large corporations reported multi-million, and sometimes even multi-billion dollar profits, while paying zero taxes. How mind-bogglingly damaging this is might be hard to grasp, because I doubt most Democrats can fathom the implications of it. America has one of the highest corporate tax rates in the world, at 35%. The fact that so many blue-chip companies are not even paying any taxes at all is less important from a tax revenue standpoint than it is from a business standpoint.

Suppose you start a business and you get to a point where you incorporate. There are many financial reasons to do this, most pertaining to personal liability, protection of personal assets, establishing pensions, a desire to sell public shares, establishment of an independent credit rating, or even for tax purposes. The problem is, the tax situation when it comes to businesses is not only inherently complex, it is complicated further by years of extraneous deductions, credits, and loopholes.

As a new business, unless you hire very competent corporate tax lawyers to navigate this legal landscape, you are going to be paying way too much in taxes. What’s more, your business model may not be conducive to the preferential treatment the law provides to pre-established corporations… many of which conveniently lobbied lawmakers for laws which directly benefited them. Put simply, America only has one of the world’s highest corporate tax rates if you are too small to have paid off lawmakers for the exemptions necessary to keep your business nearly tax-free. We have a tax code that benefits large, well-established businesses while being almost punitively cruel to new business ventures.

Personally, I used to think the entire corporate tax scheme should be eliminated. I still flirt with the idea as an ideal, but The Gun Toting Atheist reminded me that without a corporate tax of any kind, the owners will just buy “company cars” and “company homes” which they will then use as their own, bought with tax-free funds and at the expense of the company. In my mind, the whole point of having no corporate tax while having a high tax rate on the wealthy is that a corporate tax just takes money from the pocket of the whole company, when I just want to discourage income inequality. The way to discourage income inequality is by discouraging those at the top from hording all of the profits for themselves, and the way to do that is steep, progressive income tax rates, not corporate taxes.

Essentially, I don’t see the current business tax code to be a problem pertaining to the nation’s deficit, at least not directly. Rather, the current business tax code discourages competition in the free market by stifling start-ups and favoring those who are already successful. Many of the loopholes exploited by large businesses pertain to green initiatives, which seem good on paper, but whose end result is not a cleaner natural environment, but instead a leaner business environment. If you are paying 35% of your profits in taxes, you cannot compete with a company that already has billions of dollars while paying no taxes.

There are established solutions to all of these problems, and many of these problems have multiple solutions. The easiest is likely also the most important right now: in order to undo the damage of free trade policies to the American labor market, America can take two different approaches. Either we need to get off our ass and seriously work to educate our population, both children and adults, in order to produce a workforce that is capable of competing in the economy we have left (namely fields like medicine, electronics, and other science based industries that require skilled labor that cannot be bought for cheap elsewhere), or, if we decide we hate science… we can enact protectionist policies like trade tariffs (which would need to be preceded by negating any free trade agreements). With tariffs raising the price of imported goods, it will cease being profitable to produce most goods outside the US to be imported here, and slowly but surely, jobs will trickle back into the US (but the price of just about everything will go up, sometimes drastically at first, but this does equalize over time in most cases, except when a necessary or unique resource or product cannot be produced domestically).

The solution to the minimum wage being too high is rather simple… lower the minimum wage. Deal with the problems raising the minimum wage was meant to address in a more constructive manner, like increasing taxes on the wealthy.

The most complex problem has to be fixing the tax code. It would be easiest to just scrap what we have and start over, in my opinion; that is the lazy way out, for sure. We have a very burdensome tax code, and I honestly doubt we could come up with a worse one if we started from scratch. Well… I’m sure Republicans could find a way (9-9-9 comes to mind…), but maybe if Democrats showed a little effort and caucused as one, they could stand up to any Republican attempt to do something so idiotic (and even when Democrats fail, something like 9-9-9 could never stand the test of time-time-time).

Cynics will point out that no matter what you do, money will always find a way of weaseling into the halls of congress. I couldn’t agree more. The difference between me and a cynic, however, is that I still see the virtue in trying, because I have witnessed success (only because I cared to look for it, though). I know you cannot stop all corruption, but you can stop enough of it, and I know you can achieve economic success as a nation through a robust capitalist market regulated by a duly elected government. Too many countries have succeeded at doing this for me to just pretend that government will always fail. I guess you could say I have become skeptical of government cynicism.

Someone who is that cynical, who believes government can never do anything right, is not someone speaking the truth. They may honestly believe it, but that doesn’t make them right, it makes them ignorant. The examples are out there, all across Scandinavia and even in far-flung nations like Japan. There is even more than one path to success, but the end result always looks the same: there are rich and there are poor, but those two economic groups are more close together in successful economies than they are in the US today. They more resemble the US post-WWII, in the 50s, 60s and 70s, when marginal tax rates on the rich was at or over 70% for decades, the decades in which this country experienced unprecedented (and thus far unmatched) growth for all Americans.

All you need to know about the fall of America, in my opinion, is to look at the top tax rates under Reagan. In 1980, the year before he took office, the tax on the top income bracket was 70%. When Reagan left office in 1989, it had been decreased to 28%. The rich have been getting astronomically richer ever since.

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