November 9, 2009
It’s no secret that a variety of interested parties exert influence over both economic policies and the general understanding (and reporting) of the effects of changes, just as they do in energy, health care, education, the financial sector, and/or anything else that the Congress or various federal agencies have a role in shaping. Misinformation can lead a seemingly honest, open debate far afield from reality, inhibiting the efficiency of the process while at the same time warping the outcome.
If you don’t understand fiduciary relationships, and you still think most corporate actions reflect the same sort of priorities that pertain when a truly small business is owned by a single person, or a couple, you’re missing a key factor. Shareholders, for instance, seldom have any significant influence on the pay (or bonuses) of officers engaged in potentially risky decisions at major corporations – auto manufacturers, for instance, or the financial institutions that crumbled on Wall Street as the financial crisis became obvious to virtually everybody at home and abroad near the end of the Bush administration, when we ended up dumping billions of dollars into banks without any obvious benefit (it certainly didn’t stimulate consumer lending, as both Bush and early Obama administration initiatives were intended to do.)
In fact, if you look closely, the problem of banks that are “too big to fail” is getting worse, not better, due to consolidation. But that’s not what they tell Congress or the media; the bankers speak instead of “economies of scale” to justify even further growth. Banks are tied to the model that’s ruled economic policy for decades: debt-fueled consumer spending.
Those who talk about concerns over finite resources, such as clean water, are scoffed at, and the countering rhetoric lumps them in with “climate alarmists” and “tree huggers” in such a way that genuine free market forces are not even close to determining the value of any natural resource that cannot be mined – with the curious exception that there are some cities who have privatized their formerly municipally controlled water systems, which does begin to result in a certain market value being placed on that particular resource. Of course, once a profit motive starts driving the price up, citizens in the U.S. and abroad often agitate to re-socialize their water supplies, in an era when “socializing” is used by some to imply everything that went wrong with every non-U.S. form of government.
Similarly there’s an obvious bias in the talk about income tax cuts – it generally originates from those who are well to do, and stirs the emotions of those who have much less, but more importantly if one looks closely at the data, there’s been a strong correlation in the past between those with wealth and those whose tax rates truly go down under most of the recent approaches. Would tax cuts stimulate the economy? Assuredly so – but in what way? A tax cut on income doesn’t have the same effect as, say, a tax cut (or tax credit/investment credit) for spending consistent with our national priorities, such as alternative energy sources, or research and education, etc. Such selective, targeted changes spur spending in specific areas — a very straightforward function of supply and demand, and the result is tangible — money flows to those areas, stimulating job growth and additional investment without any necessary growth of the government (growth which makes most of us justifiably cautious in the wake of the Bush administration’s under-reported increases.)
The reason that governments trying socialism, such as the USSR, to manage resources and markets for the good of the people have consistently floundered and failed is that they don’t — and can’t — have good enough centralized information to succeed making the rapid decisions necessary to control what is arguably the most intricate challenge of any “man-made” system, the decentralized activity of a vibrant, balanced economy. Markets are efficient at managing that information; but we’ve seen a dramatic example of why they cannot be expected to function for the good of the consumers when government fails to regulate those with the profit motives.
Consumers, too, need access to better information than they typically get under the current system, no matter if you’re considering tax-cuts, politics, the price of peanut butter, new home-buyer credits, or anything else. When misinformation is tolerated (or encouraged) it undermines the effectiveness of capitalism. Free markets rely on timely, accurate information – we need to consider new incentives for the reporting of “news” and information systems we base our choices on, or capitalism is absolutely doomed to implode.
March 4, 2009
As an entrepreneur who has run several small businesses, I think it’s time to return to fundamentals on the economy, starting with investing in America again. It’s small businesses that will put people back to work; that’s how we’re going to get this country back on its feet. It’s entrepreneurs and small business owners who respond with enthusiasm instead of being bound in their decision-making by CFOs and slow-moving Boards of Directors focused on short-term bottom line numbers, (the kind of decision-making that led to the foreclosure and credit crisis, and ultimately the big business bailout using taxpayer dollars.)
To be sure, we need public education, technical schools, and affordable college tuition so young Americans are ready for these new jobs. It’s a global economy, but most of us work in the same city we live in. When we see bulldozers and excavators moving dirt, and trucks hauling instead of sitting idle at auction sites, then we’ll know things are turning around.
The President is intent on stimulating the private sector, but big businesses with names we all know have abused deregulation and the public trust. Credit card companies raise their rates willy-nilly, and hide extra fees in the small print. How much of his economic stimulus can be paid for simply by ending wasteful government spending, and eliminating tax cuts for the super-rich?
Is it a coincidence that the size of the bailout Bush proposed roughly equals the cost of the war in Iraq?
That war has been a burden on our military, and paying the debt is a drag on our economy that will linger for years. The new President is winding that down, but we’ll be paying for it for years and spending is only half of the equation. The money to do these things has to come from somewhere. Government is here to stay: In some way we need to fund the things that make government work for the people. Our elected leaders, in turn, must stop letting our hard-earned tax dollars simply line the pockets of special interests.
The American Dream isn’t about letting lobbyists control who pays taxes and who gets rich, it’s that any child in this country should have a chance at becoming a productive adult who can support and raise a family comfortably. Working full-time and pulling your weight should mean you don’t have to worry about grocery bills, the price of commuting, or paying to see a good doctor when you or your family needs medical care.
Tax credits for continuing education make it tempting to better yourself. The tax cuts for the middle and lower class earners proposed by the Obama administration make a start at offsetting the skyrocketing costs of groceries, health care, and college, but we need to go further. One great idea is to give tax incentives to companies that cover increases in health care costs while the President tries to reform that out-of-control system.
Public pressure and increased scrutiny are starting to make companies think twice about huge salaries and bigger bonuses for wealthy executives while pleading for bailout funds and cutting paychecks and benefits and pensions of the people who do the real work. Let’s take it a step further and tax those who make money by exploiting cheap labor overseas. Our government needs money to operate, no matter if it’s to build roads, insure products made overseas are safe, or to keep our military strong, and if a company doesn’t want to pay American workers they still have an obligation to contribute and support the system that has made their success possible. We need to reverse the trend of layoffs and plant closures; we need to rebuild the foundation of our economy – and the American Dream – by putting Americans back to work.
September 23, 2008
Even if the Department of the Treasury recovers some the Wall Street bailout funds over time, the idea of spending perhaps $700 billion or more on top of our current national deficit is mind-boggling. Can somebody justify for me why countless families are losing their homes while executives at these “failed” and restructured corporations earned hundreds of millions of dollars but aren’t being asked to return any of it? Can you tell me?
I heard an analogy from Professor Roy Grow, the Frank B. Kellogg Professor of International Relations in the Carleton College‘s Department of Political Science, to help you think about what’s set up the crisis on Wall Street. The international relations program was originated in 1937 by former Secretary of State and Nobel Peace Prize winner, Frank B. Kellogg, through the establishment at Carleton of the Kellogg Foundation for Education in International Relations.
I’ll paraphrase Professor Grow’s dialectical discussion:
Imagine you’ve got ten large, healthy, competitive men gathered together. Set the task for them: win a game of basketball. They’ve all played basketball before. In fact, they’re quite good at it. But this isn’t college, with some fans of both teams cheering them on, there won’t even be a referee to call fouls or out-of-bounds. All the rules they’ve dealt with learning the game? Effectively gone, because you’ve deregulated the game.
Who will win?
There’s a fundamental problem with deregulation of the kind – and scope – that has taken place on Wall Street. Once there’s no reward for playing by mutually agreeable rules the ONLY reward is winning – at any cost. The value of deregulation seemed so great: let free markets determine what’s best; let competition determine the practices without the restricting burden of oversight.
In what other industry would you have confidence enough to let the people with the most to gain act without regulation? Would car companies be so concerned with passenger safety without regulation? Would you want doctors to practice unregulated- no assurance they’d act with YOUR best interest in mind? Lawyers? Accountants? Toy Manufacturers? Food processors? I’m not suggesting there’s nothing good about a free-market economy, nor am I suggesting every insurance company or investment firm is run by greedy executives, but there have been snake-oil salesmen preying upon the unwary since before the dawn of history as nearly as I can determine.
At one time we might have run such fast talkers out of town, or even applied tar and feathers, or worse. The notion that we’d let them leave smiling, with everything they’d pilfered intact, on their own schedule and terms? That, my friends, is a farce.
We’ve got a big problem. We’ve left foxes guarding the chicken coop. To borrow a phrase freighted with partisan overtones, we need to be “as careful getting out as we were careless getting in…” to this mess. I don’t pretend to know what the solution is; economics is not my forte, nor that of most of my close associates. I do know this: hasty proposals abound in any perceived crisis, but unless you’ve already been expecting the problem and have a plan in place taking time to consider several reasoned solutions often yields superior outcomes to adopting either the first idea or the one advanced by the loudest voice.
I’m disappointed, but not surprised, that some have tried to use the crisis for their own political and/or financial gain. That confirms the readiness of snake-oil salesmen and their ilk to exploit any suffering for their own personal advancement, and demonstrates one peril of trusting the lofty ideal of a free-market to work to everyone’s mutual benefit in the never-ideal real world.
Given that it’s tax dollars about to be put to use to repair the damage, given the complexity of the system(s), and balancing that complexity against the obvious repercussions to inaction, I hope a transparent set of priorities will allow wiser men than me to conceive and begin to implement the kind of oversight that has obviously been missing from this segment of the economy for years.
Given, lastly, that Senator Barack Obama had the foresight to write publicly to both Fed Chairmen Bernanke and Treasury Secretary Paulson about his concerns over looming repercussions from the questionable lending practices at the foundation of this crisis in March of 2007: Obama’s got both the fundamental familiarity and the network of advisors to facilitate identifying fiscal policy changes that should be on the table. It’s unfortunate that such an exercise would likely disrupt Obama’s presidential campaign, but he and his team have already given the problem serious thought; they must be included in the process.