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April 25, 2017

ECONOMIC GROWTH? WHAT GROWTH?

Now we are told our economy has new hope for growth occasioned by the endorsement of losing parties in the recent French election given to Emmanuel Macron, who is running against Madame Le Pen in May for the French presidency. Macron is a business-oriented pro-EU, pro-euro sort who accepts the reality of a global economy while Le Pen, a friend of Putin, is a racist and one who has said she will close the borders to refugees and has threatened to pull a Frexit in leaving the EU and dumping the euro as the nation’s currency. Our Dow jumped a few hundred points with the prediction that Macron will win in May, a likely result now with the endorsement of the first round losing parties.

Where have we heard this song before, i.e., the status quo is sure to win against the racist, antihero sort who promises to make America (or perhaps France) great again? No way he (or she) could win? He did, though not by popular vote count but a win nonetheless. Could it be that Wall Street with its cozy Dow predictions and the certainty of the outcome of the runoff French election in May be suffering from a similar miscalculation with its underestimation of the French voters who are getting the Trump treatment by Le Pen with her brash vows to upset the applecart with her anti-refugee and racist rants? Don’t bet the ranch on it because, as Yogi cautioned, “It ain’t over till it’s over.”

We see similar reactions with the Dow when the Chinese economy outperforms expectations, or when the Chinese put the arm on North Korean nuclear adventures, or with anything that happens anywhere that is seen to be a positive for the American economy as measured by stock values. My point in this essay after this brief background to set the stage is that these occurrences elsewhere are what economists call externalities, that they have little to nothing to do with economic growth of our economy, that they instead only give stock brokers talking points with their pitches that run the Dow up or down depending on whether a particular externality is deemed to be good or bad for “the market,” whatever that illusory concept may be.

Stiglitz rightly describes our economy as a pie, where all its participants are always trying to get a bigger slice for themselves. For the last forty years or so, Wall Street and the financial sector have increased their slice via a number of ruses, ruses such as buybacks, mergers, acquisitions, low worker wages, increased tax breaks and less regulatory controls etc., but since the pie (our economy) is not getting bigger via economic growth, the bigger slices they take leave less for the rest of us participants whether worker or consumer or revenues to government in this day of austerity economics.

Meanwhile, the politicians who loudly lament about our national debt do not seem to mind increasing it with their policies of tax cuts and less regulatory control of the rich and corporate class while vigorously enforcing its austerity limits as applied to help for the poor, the unemployed and the sick. Government, it seems to me, is ultimately a moral matter, and the present handouts from our treasury to the rich and corporate class while eschewing the entreaties of the poor and sick is immoral.

So, short of the noble idea of changing politicians to reverse this immoral wrongdoing, what can we do? We can make the pie bigger so that there is a bigger pie to slice, all in the hope that those who have ever smaller slices can increase the size of their slices in such a bigger pie. Pies can only get bigger not with moneychangers’ estimates of Dow measurements but with investment in additional production of goods and services in the real economy. But, you might well ask, why should investors pull us out of this economic funk when demand is so tepid? Why should they produce goods that would sit unsold in warehouses across the nation when demand has gone south? What kind of business plan is that?

The answer, of course, is to eradicate the median wage inequality (adjusted for inflation) we have been suffering for the last four decades. Wages have fallen woefully short by comparison with the booming Dow, with which they used to increase in tandem, and it shows up in the demand side of the supply and demand curve. If wages were increased, say 50 percent across the board, imagine what that would do to aggregate demand! The warehouse shelves would soon be empty and more workers (in non-robotized positions) would be necessary to replenish the empty shelves, all of which amounts to real economic growth. Inflation? Try the only thing worse than chronic inflation, i.e., deflation. Think Great Depression.

Can’t be done because of imports made by cheap foreign labor which operate to suppress wages here? Bologna! Sweden and Germany face the same foreign competition we do but are doing well because they are smart manufacturers. Wages there are much better than those here and their middle classes are growing by the day while here millions of the middle class have fallen into poverty, so don’t tell me it can’t be done. It can and should be done before we reach a tipping point of civil commotion.

Well, yes, but with the rich and corporate class doing so well these days with a static economy and no investment risks at hand, why should they leave their comfortable niche? What can we do about changing such a mindset of the rich and comfortable when they are doing so well with the status quo? Left to my own devices, I would stop giving them tax cut handouts with nothing in return and tie such tax breaks to their monitored investments in new production and wage increases, thus increasing both demand for their goods and services while providing the wherewithal to consume them via increases in their workers’ wages which, by the way, would increase ancillary employment as well in serving such workers.

I am sure there are other and perhaps even better ways than Swiss bank accounts to have the rich and corporate class stimulate our economy with reinvestment of their profits in America’s economy and a substantial increase in their workers’ wages, and would welcome any plan which would obtain the same result, a result, incidentally, that would provide the rich and corporate class with greater profits than their current reliance on tax and regulatory handouts would provide while they keep the pie from growing, a win-win result for all of the participants in our greatly expanded pie, so let’s get on with it.    GERALD     E

 

 

 

 

 

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