American Crisis Part Two
from Peter Radford
The first part of our crisis was the one caused by years of neglect, deregulation, complacency, bad economic theory, rising income inequality, wage stagnation, political ineptitude, rotten management of business, over-indebtedness, and post cold war drift. Did I leave anything out? Oh yes: multiple wars we decided to pay for not with cash, but with debt.
All this pre-dates our incumbent president. All of it.
He is blameless for its creation. He is not blameless for its lack of solution.
This first crisis left us with a mountain of debt and a stagnant economy. In other words we are incapable, in our current state, of reducing our debt load and getting back to a balanced economy. We are stuck in a vicious cycle: as we pay down debt we reduce the economy, which makes paying down debt more difficult and yet more urgent. So we pay down more debt, and the economy lacks the wherewithal to break free without more help.
We are now three years into stagnation. Those who deny this do so for ideological reasons. Or out of ignorance.
The second part of the crisis, or the second crisis if you want to view it separately, is political.
Bereft of leadership and new ideas, we are fumbling well into our lost decade. We are burdened with the toxicity of the failure of past ideas. Those ideas being the ones that were manifest in the Reagan/Bush era of debt, tax cuts, reduced government revenues, increased government spending, asset bubbles, and private sector imbalance. New classical economics is dead. It died along with the bank risk models it spawned and its failure to identify the asset bubbles that destroyed livelihoods up and down the nation. Supply side economics was never serious, but it too has died. Our businesses are awash with cash and private sector investment has risen from its lows. Yet the economy still flounders.
We need more demand. We need more demand.
We will not get it. Politics intrudes and prevents the implementation of corrective policy.
This political impasse we have reached is what will cause the second crisis to be worse than the first. We stand to lose much more in this second round. Much, much more. We stand to lose our way of life.
This is because we are entering a period within which one of our political parties is trying to engage in drastic social engineering. The excuse being that, as a nation, we can no longer afford key government programs.
We can. We must.
The game being played is one of fitting facts to ideology. We are being told that we cannot afford Medicare so we should abolish it. When we call the Ryan plan an abolition – which is exactly what it is – we are accused of misrepresentation. Yet it is the truth. Redefining Medicare from its current defined benefit basis now, towards a defined contribution basis, as the Ryan plan does, is abolishing Medicare as we know it. We already know the risks inherent within such a shift. The middle class has already gone through this process before. The substitution of traditional pensions by 401K savings plans has thrown the risk of retirement onto household shoulders. They were unprepared. They were not capable of saving enough. They were not adept enough financial managers. They had to absorb all the risk. Which would have been fine if workers were compensated for this extra risk. They weren’t. Instead, employers pocketed the gains reaped by cutting benefits. And then they doubled down by failing to share the benefits of productivity gains. Workers were squeezed twice over.
And now we are told that the national debt is so bad we must cut Social Security as well. So workers, having been hammered by their employers, now have to face the indignity of being hammered by the government too.
No. No. No.
The is absolutely no reason to cut Social Security. None. In fact, given the higher risk inherent in our private sector retirement funding, a good case can be made for increasing Social Security benefits.
Pay for it from those profits not being shared with workers. Pay for it from those earnings being amassed by the rich.
We can afford it. We are rich. All we need to do is to be a democracy once more. As in sharing our wealth democratically.
This second crisis is one that will determine the next few decades. We will either emerge growing again with wealth more evenly distributed, with wages restored to their historic share, and with our middle class still enjoying the protection of a safety net. Or we will emerge as a rotten plutocracy with ever more sharply defined inequality, reduced opportunity, and a diminished middle class clinging on to whatever it can eke out from its smaller, riskier and debt burdened share of the national wealth.
We are being held to ransom by the radicals who want to establish the plutocracy. They refuse to anything constructive to help the middle class. They balk at simple things like raising the ceiling on our national debt. Think about how absurd that is: a fixed ceiling implies that an economy ten time the size of ours should shoulder the same debt. No private person would contemplate keeping their debt fixed even as their income rose ten times. Putting any kind of ceiling on the national budget deprives us of the ability to work flexible solutions. It is also arrogant: it deprives future generations of their own choice of how much debt they can or are willing to afford.
They also balk at any kind of compromise on taxes. They refuse to contemplate even restoring taxes to the levels we had during the boom of the 1990′s. They refuse. They refuse. So hell bent are they on their radical agenda, they are prepared to destroy the middle class in order to save it.
This is the second crisis.
Three years into a lost decade we now face a choice: do we dig the hole deeper and succumb to a future of lost opportunity, inequality, and division? Or do we fight back and expose the radical social engineering scheme being foisted upon us as the deep fraud that it is?
And if the latter, who will lead us? Or do we do this ourselves?