Thursday, February 12, 2015

Strive for shared prosperity

Albuquerque Journal columnist Winthrop Quigley, in recent columns complained that there were too few rich people in New Mexico to stimulate the economy. His discussion was interesting, but I took issue with the following letter to the editor.


In his UpFront columns on February 5 and 7, Mr Quigley presents some interesting discussion on the state of wealth in the state. However, he fails to consider the role of sales upon which capitalism runs. Investments are made in anticipation of sales and fail if sales are not forthcoming.

Mr Quigley champions the mainstream, neoliberal line that investment by the rich drives the economy. That is the decades-old, failed, “trickle-down” story that leads to the idea that we need to coddle the rich so we can all prosper. So far that isn’t working.

Rich people putting money in the stock market doesn’t create jobs. That is just a manner of saving. It’s nice to have some rich people around; they are the result of a prospering economy not necessarily its wellspring.

Sale of products, from socks to computers, drives investment in production. One doesn’t need a rich uncle to expand her business. If there is consumer demand and a good business plan, a commercial bank can make the loan. Bank credit is largely the source of investment funds in the whole economy. It is not widely recognized that commercial banks create money upon making loans. Contrary to the common view that saving deposits create loans, the opposite holds; loans create deposits.

Rich people are nice to have around.

Banks will not loan to build inventory that will go unsold. The empty restaurant does not hire more busboys. And, no producer increases production unless sales are increasing. 

In the absence of federal fiscal stimulation, which could be done readily without raising taxes, the state must find ways to increase customer demand in addition to creating new businesses. Of course, great products create their own demand, if people have money to spend. To bootstrap itself the state will need to generate more revenue and increase consumer demand.

As a start, higher minimum wages create more customers with money to spend. Right-to-work legislation is just a way to keep wages low. Higher wages may threaten a single business, but across the whole economy higher wages mean more sales. To free up funds for current consumption, the state might create incentives to refinance loans for those deep in debt.

Investment in more and better education should be a high priority to develop a more capable workforce. The young are our future. Rather than an expense, they are an investment for all of us.

Although the state has programs to assist new businesses, it will require more revenue and new approaches. A gasoline tax with a sliding rate to keep the price constant would counter severance tax losses. Perhaps the state should expand the New Mexico Finance Authority into a public bank to increase its ability to fund development. A more progressive tax structure would help. Also, the state might add tax-backed bonds at lower rates to its panoply of offerings.

By pursuing both sales and investment, we can have more rich and fewer poor people. That is shared prosperity.

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