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July 10, 2014

This will be the next to last part in this Piketty series, so it is time for an overview. We have seen why the use of either inflation or austerity as a policy tool to reduce our long term deficit will not work, and how the use of either of them can lead, variously, to chaos in financial markets, long term national decline (Britain in the 19th century) etc. (see earlier parts) This and the final part, unlike earlier ones, will (after a definition of terms and unmasking of pretense) discuss WHAT WILL WORK. Keynesianism will work. Higher taxes on the untaxed and lightly taxed will work. Their combination with investment in ourselves rather than spending billions in tax cuts and ever more subtle tax loopholes will work. We know such combinations when employed as policy will work because they have worked before (see Keynesianism and the New Deal during the Great Depression).
We know that hard times call for greater and not less investment in our people and that all must share the pain in working out our economic recovery, including the 1% as well as the rest of us (who are still suffering due to the prior excesses of the 1% – excesses which will end with adoption of Keynesian tactics). We know that recovery can be within reach and that we can work ourselves out of this economic mess if we adopt Keynesian tools and courageously employ them in our efforts to make recovery happen.
We can confidently expect, of course, to hear and see rantings and ravings from the superrich (whose investment economy is at historic highs) as their cozy relationship with the taxing authorities is sullied and they are (finally) called upon to help share the load with the rest of us (who live in the real economy – one that went negative last quarter on the road to recession, which is defined as three consecutive negative quarters). Republicans and other austerity hounds (influenced greatly by lobbyists for the untaxed and lightly taxed) are constantly in the news telling us that taxes are too high and that government must cut “spending” etc. The naked truth is that these people are not against taxes; they are only against taxes on their rich campaign contributors. How many times have you heard or read of these apostles of austerity loudly proclaiming that “taxes are too high on the poor and middle classes?” I daresay few, if any. After all, it is the taxes collected from the poor and middle class that support their patrons. If the poor and middle classes were to get, say, a 50% tax cut, and the present tax rates on the rich were unchanged, then the government would come to a virtual standstill and face the Third World cliff in short order. We would arrive at the cliff prematurely because we failed to both responsibly tax as well as responsibly “invest” our resources in education, infrastructure etc. (again see earlier parts)
We need some new definitions shorn of the hysterical propaganda beamed at us by Fox News and business pages of newspapers. Here’s a start. Investment in our people is not spending. What these austerity hounds call “spending” is not spending as we understand it. When the government “spends” tax money for goods and services in order to carry out its functions (e.g., money appropriated for the military to carry out one of the government’s functions, i.e., the responsibility for provision of national security), that is spending. That money is not coming back, though spent for an important purpose; but when the government invests money in education, infrastructure etc., that money is coming back down the road and is thus an investment as distinguished from spending. The austerity hounds deliberately intermix the two for political purposes; the balance sheets for government and that of corporate America have different headings. One entity’s spending is another entity’s investment.
As an example to point up the difference, the money invested by government for GI Bill education has come back to our treasury in multiples in the form of enhanced revenues as well as innovation to keep us competitive on the world stage, not to mention the improvement in the lives of the well-educated in terms of their own security and aspirations for their families and the aggregate demand their enhanced compensation brings to the marketplace, which in turn provides for employment of others and profits to those providing the goods and services for such upticks in demand. Wonderful investment! Great for the economy as well as the people involved! We got our money back, and much more! By contrast, someone tell me how “spending” on tax breaks and loopholes for the superrich is a “public investment.” We will never see such giveaway payoffs again (though they may in Shanghai and Zurich).
Actual “spending” by our government as thus defined (and by many state governments which have adopted austerity regimes) compares very favorably with that of other developed countries as measured either per capita or ratio to GDP, but our “investment” in education, for instance, is now far behind that of Western Europe, guaranteeing that we will be outdone in future innovation and economic performance unless we get off this austerity kick (which has already cost us trillions in lost economic performance). With the deployment of Keynesianism, the polar opposite of austerity economics, we will end austerity as policy and regain our economic sanity – and an economy that will work for the many instead of just the few and, surprisingly, continue to enrich the few while ending their maltreatment of the rest of us. There is ample wealth to go around; Keynesianism works to see that it is fairly shared, a noble and long-awaited outcome. We need to elect politicians who will shift economic gears from policies that don’t work to the one which will, whatever their political stripe.
I will comment further and more specifically on Keynesian economics as well as Piketty’s plan to reduce or even end the drag of long term debt on the economies of the developed world (including ours) in Part IX. Stay tuned. GERALD E


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