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October 8, 2014


It is clear that we are living in two different economies, one in which the corporate and investment class is prospering with both their domestic and international operations and with unregulated capital in the trillions sloshing across international borders at the touch of a key, and the other relatively closed economy in which the rest of us (the poor, the outsourced etc.) live, unable to outsource our labor to Germany or other enlightened countries where labor is paid its just desserts or to otherwise command a fair return for our labor here given right to work laws and the chronic wage inequality foisted off on us by – guess who? The corporate and investment class, whose less wages = more profit formula of greed knows no end, and who are characteristically opposed to all “government wasteful spending” except, of course, for the military (who are past masters at “wasteful spending”), which it supports in order to have the public pay to protect its holdings both here and abroad, and additionally, because the huge military budget (with flying flags as cover) and Wall Street defense contractors are joined at the hip in profiteering at public expense on the flagless tax and capital gains side of this unseemly partnership.

Back to economic policy – This failure to share new wealth labor has helped create has been going on since circa 1974 (see Piketty) but its debilitating effects have been greatly accelerated by disastrous trade agreements (with their outsourcing of labor and capital) negotiated since then. One is tempted to throw in the towel and quietly watch his/her country, its economy and its people go down the tube, right? Wrong.

There is a bright side to all this mayhem beyond the theoretical and it is this: Events are once again proving the Keynesian principle that national debt, properly managed, is unrelated to national prosperity. (For instance, what you owe the bank is not related to your current economic output and your credit will remain unimpaired so long as you meet interest payments to the bank. Your task is to make more money so that you can have the capacity to pay on the principal which, as politically translated into policy, plainly requires a policy change from dead end austerity economics to Keynesian economics. Such a desperately needed policy change would then set the stage for an increase in wages, a substantial reduction of unemployment and a giant uptick in economic performance. Ancillary effects include increased demand and reduction in government outlay for social services.) Following are the facts which prove this economic truth; facts that destroy the foundations of austerity economics as policy, a policy that has never worked and will not work in large economies (see Stiglitz).

Let’s look at our history of economic policy. We have erroneously adopted the following mantra as articles of faith, bedrock propositions that are not to be questioned: “Taxes on the wealthy must be lowered, public spending must be cut, and government budget deficits must be reduced.” That’s it. Look no further for guidance on policy. Under this view, distinctly national capital is critical to the future wealth of the nation. There is only so much to spend when in a closed economy. (see Reich).

There is only one problem with such a long-held view. It is obsolete and completely wrong and out of whack with economic reality today. Times have changed, and so must policy change to accommodate the new realities of outsourcing and capital that are sloshing across borders with impunity, guided only by capitalists in search of increased profits and paper shufflers in search of increased “spread.”

Back when national economies were largely closed and depended upon national savings for capital to build new factories, canals, bridges, educate the young etc., there was some argument for the propositions of old. We neatly divided all economic activity into what we called the “public sector” and the “private sector.” In such a configuration, the public sector spends money; the private sector earns and invests it. Private enterprise builds factories, finances research and development, shares the new wealth thus created with labor and the nation enjoys a higher standard of living as a result. “Investment” was seen as exclusive to the private sector; “spending” was for government, whose public-sector activities were not classified as “investment.”

That was a wrong classification both then and now. The “government” is and was even then heavily involved in “investment” as well as spending with its canal and highway expenditures and provision of rights of way for railroads building a transportation corridor from one of our coasts to the other. That was not spending; that was investment. “Spending” is immediate; “investment” is long-term.

When the “government” makes expenditures for the education of the young, provides land (via eminent domain or its own ownership) for bullet trains or highway detours around congested urban areas and other such expenditures, such outlays are “investment,” not “spending.” There is no immediate gain from such investments in traditional “profit” terms, but they have both long and short term value as in convenience to the motoring public and commercial trucking interests, for example, where traffic accidents and traffic delays while burning costly gas are lessened and workers and others are home sooner for time with their families. Those are the “returns on investment” for government. Not all such “profits” can be measured and/or quantified by the Wall Street yardstick of value in dollars, but one can be assured that billions of dollars and waking hours are spent on congested streets and highways waiting on “traffic to move.” Anecdotally and parenthetically, I have a nephew who lives on Long Island and calls the Long Island Expressway “the biggest parking lot in New York State.) I have read that Los Angeles is worse.

Government “spending” as opposed to “investment” would include tax reductions and other such loopholes in the internal revenue code favoring the rich, where the money otherwise collectible goes down the dark hole of consumption or investment by the rich (perhaps in China or Greek bonds), gone forever from our crying national need to repair our pockmarked and even dangerous infrastructure of bridges, roads and public buildings, among other desperately needed domestic initiatives in need of funding, funding we are reluctant to do given our austerity as policy, policy based upon a different era when national funding was our only source of capital. With trillions of dollars in world-wide capital now available, national income, though a meaningful statistic for some purposes, has little application to our now global situation. The cost of capital is about the same around the world due to competition and we don’t have to depend upon national income as a source of funding for important national initiatives.

I will expand on this funding issue and, among other things, how the failure of government to educate its domestic workforce encourages further outsourcing – a vicious cycle. Stay tuned.   GERALD   E


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