October 2010 Archives

Is Economic Literacy Still Important in American Politics?

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David Brooks's column in the New York Times ("A Little Economic Realism," July 6, 2010) reveals that he shares with his neo-conservative contemporaries a commitment to the theology of capitalism, as opposed to its actual practice. Contrary to his beliefs, the "model" upon which the "demand-siders" rely is not based upon mathematical
elegance, but upon ample historical and empirical evidence.

The multiplier effect from government-created fiscal policies which embrace stimulus-spending can be measured and documented. Hence, for example, New Deal spending helped to mitigate the worst effects of the great depression. Nevertheless, it took World War II, as right-wing critics endlessly note, to end the Great Depression. The lesson, however, escapes neoconservatives: What World War II demonstrated was that government spending on a scale even more massive than the New Deal was needed to restore economic vitality. That, too, is the lesson of the most recent stimulus-packages proposed by the Obama administration: They have been too timid but, despite their modesty, further stimulus has been blocked by economic illiterates in the U.S. Senate.

Keynes' General Theory was a rigorous effort to explain the dynamics of a modern capitalist economy from a macro-economic perspective. The theory emphasized the importance of achieving equilibrium in the markets and the necessity of an  ever-expanding, consumer-driven population of employed workers to stimulate the aggregate demand in advanced industrial, capitalist economies. When the consumption function was depressed, as during the Great Depression, Keynes recommended pump-priming by the government--the expenditure of public monies through monetary policy--in order to create conditions approximating full-employment.

Lamentably, for the small segment of the college-educated population who may have studied some economics during the last decades of the twentieth century and the first decade of the twenty-first century, most of the economists to whom they were exposed--such as Milton Friedman and the Chicago School of Economics--were micro-economists or monetarists whose economic theories sought to defend or to reinvigorate the classical liberal economic orthodoxy espoused by Adam Smith, David Ricardo, and later by Böhm-Barwerk and the nineteenth century Austrian School of Marginal Utilitarianism. 

As a consequence, since short-term and near-horizon economic trends were
emphasized above all else, many American businesses lived and planned based
only upon quarter-to-quarter returns and were unable to anticipate or plan for the long-term.

After the 1960s, Keynesian economics fell into disfavor. This development helped to contribute to a myopic business climate. As a consequence, long-term investment and economic planning, both in the public and private sectors, were de-emphasized in favor of short-term gains and rewards which were ultimately self -defeating. Thus, for example, the continued outsourcing of jobs to the developing world undoubtedly lowers labor costs to corporations in the short term. Similarly, consumer preferences for inexpensive goods made in China and elsewhere, or for foreign automobiles, undoubtedly reduce the cost of consumption in the short-term.

The problem is long-term: as more and more American jobs have been exported to the third world and as personal debt increased, the middle class has begun to shrink. As the middle class becomes increasingly small and more adults descended into subsistence-level jobs and genteel poverty, the consumption function, upon which the American economy depended, began to shrink also. The loss of a manufacturing base and high-paying skilled jobs means that fewer opportunities for anything other than a menial existence would be available to the next generation of American adults, more than half of whom will not be college graduates.

Hence, the classical liberal paradigm of unfettered competition no longer explains economic reality. Unfettered competition based upon free market decisions in which goods and services are sold to the most willing buyers no longer creates individual opportunity for most Americans or an abundance of business opportunities. Rather, the insecurities of the marketplace persuade those who are successful to  institutionalize their advantages. Monopolies and plutocracy are the result.

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Why Are Rightwing Pundits Hawks?

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As a Vietnam-era veteran, I have always been fascinated by professedly "conservative" pundits  such as William Kristol. Mr. Kristol, who has never served in the military, has rarely hesitated to support the use of military force no matter how ill-advised or disproportionate. Kristol's op ed column which appeared in the New York Times, "The Next War President" is a case in point. Despite what Mr. Kristol may believe, the factual evidence is quite to the contrary: President  Bush did not win the war Iraq. Instead, he destroyed the economy and  infra-structure of a secular regime, albeit despotic, which had never threatened any vital U.S. interests. In the process of unleashing the "shock and awe," more than 4,000 U.S. servicemen had been killed, more that 20,000 U.S. serviceman have been injured, and many thousands of innocent Iraqi civilians have been killed or maimed while the fires of religious fanaticism have been fueled.

      Bush's actions were not only indefensible but ironic, given the  the fact that Cheney and Rumsfeld had helped to shore up Saddam Hussein's regime after the Shah of Iran- the CIA's puppet - was overthrown. It is equally important to remember that Saddam's invasion of Kuwait occurred only after he believed that he dad received a green light from G.H.W. Bush's ambassador to Iraq who declined, when asked by Saddam, to  take a position on whether or not the U.S. government rejected Iraq's historic claim to the territory of  Kuwait and was reported to have informed him that it was a matter of supreme indifference to U.S. policy-makers.
   Kristol's claim that the president is "our commander-in-chief"and that this designation is the "heart of the job" is also not supported by history or by the text of the Constitution. The president is "the commander in-chief of the army and navy of the United States, and of the militia of the several States, when called into actual service of the United States..." Article II, section 2, par. 1. He is not yet - and hopefully will never become -the "commander-in-chief" of  the civilian population of the United States.

       Kristol's inability to grasps the essential distinction between the exercise of civilian and military power is perhaps at the heart of his unwavering support for the Israeli war machine. Sadly, Israel has become a garrison state, far removed from the original, secular Zionist dreams of Theodor Herzel. It is increasingly populated by ultra-orthodox immigrants from other countries who believe that God has anointed them to exercise dominion over the entire country as well as all the biblical lands of Judea and Samaria, despite the contrary aspirations and claims of the Arab-Israeli population, most of whom have resided in the area for a  millennium or more, and the Palestinian population.

      In his farewell address, Dwight D. Eisenhower warned about the dangers which a growing military-industrial complex posed to the United States. The Israeli example of a perpetual "welfare through-warfare"state should give every American pause and remind us of Eisenhower's wisdom.

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The New York Times, in an article by  Michael Cooper entitled "Elections Pose Obstacle To Rail Expansion" (October 5, 2010), reports that, "Republicans running for governor in a handful of states could block, or significantly delay, one of President Obama's signature initiatives: his plan to expand the passenger rail system and to develop the nation's first bullet-train system." Cooper observes that the Republican candidate for Governor of Wisconsin, which state received more than $810 million in federal stimulus money. Similar sentiments have been voiced by Ohio Republican candidate for governor, John Kasich; Florida Republican candidate for governor, Rick Scott; and California GOP candidate for Governor, Meg Whitman (with whom Governor Schwarzenegger has publicly disagreed).  

      Today, the United States remains alone as the only major country in the world that does not have a high-speed rail system connecting the entire country. This fact appears not to trouble a number of these Republican candidates who, pandering to the anger of the electorate, have continued to repeat the myth that government is part of the problem, and not a part of the solution to America's economic woes. By contrast, almost all European Union countries, including the United Kingdom, France, Germany, Sweden, Italy, Holland, Belgium, and even Bulgaria have constructed and operate high-speed rail systems, as has Russia, China, Japan, Malaysia, Singapore and Taiwan, among others.

     Perhaps the greatest contrast to what passes for current political discourse in the U.S. is provided by the example of Spain.Until the 1970s, Spain was a third-world country ruled by a tin-pot dictator, Generalissimo Francisco Franco, and his Falangist Party. Today, Spain continues to inspire. Since the 1980s, the Spanish government has embarked on an ambitious program to connect all of Spain to a high speed bullet train. The Alta Velocidad Española (AVE) is a service of high speed trains operating at speeds of up to 300 km/h (186 mph) on dedicated track (The name is literally translated from Spanish as "Spanish High Speed", but also a play on the word ave, meaning "bird.)" When completed, this train network will be the most extensive in Europe, with several operational links with France and Portugal. It is, at present, the most ambitious high-speed rail plan in the European Union. The Spanish government - with the strong support of all political parties and its citizens - has committed itself to stitching its disparate regions together, notwithstanding the €100 billion ($130 billion) cost.  

      What the political leaders and citizens of Spain and many the other countries understand is that investment in public infrastructure and public goods has a direct, positive, stimulative effect upon a domestic economy: it creates jobs in building trains, railroad-rights-of-way, and in creating demand for related goods and services. If the U.S. were to commit itself to building a national high-speed railroad system, it could begin to re-tool the domestic industrial economy which has been largely out-sourced by short-sighted businesses to China and elsewhere. Idle plant facilities at General Motors and Chrysler could be used to build domestic bullet-trains. By giving preference, as part of a comprehensive industrial policy, to other U.S. manufacturers, the effect would be to stimulate  demand - and, hence, new jobs - for domestic  steel, rubber, plastic,  glass and related industries as well as create thousands of well-paying  construction jobs.

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Do Lobbyists Own The American Political System?

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