real-world economics review, issue no. 71
Sunday, May 14, 2017
Conservative economics yield poor results
I submitted this to the Albuquerque Journal on May 7, 2017. They didn’t publish it. Well, I’ll admit it is a bit strident, so I’ll try to do better next time. But, these are strident times.
**********************************************************The only thing more wacky than Robert Samuelson's column in the Journal on Saturday morning was its title, "Health entitlements consuming more GDP.” So called entitlements don't consume GDP, they add to and are a part of it. Samuelson complains that “entitlements” make up too much of GDP.
A large fraction of health care costs make private investors rich, which means we have a health profit system and "care" takes a back seat. The fix would be more care and less profit.
Then we have Social Security, that the rich don’t need to care about. But, most old people care. When they buy things; food, clothing, smart phones, cars, they contribute to the economy. They consume, but they don't consume GDP.
As Samuelson observes, after we add in defense and other discretionary spending, Federal spending adds up to 15-20% of GDP. I think it should be more. For those, who think it is too much, we can do what any third grader can understand: Increase GDP!
How do we increase GDP? We increase consumption, which typically makes up 75% of GDP. How do we increase consumption? We increase the income of workers by giving them a greater share of the benefits of our increasing productivity. It does not help GDP to give tax breaks to the rich. They don't spend more. They have no reason to invest in more production when customers have little money in their pockets.
For almost a half century, we have followed the neoliberal, free market, trickle-down economic myth and have paid for it with a sluggish economy. Workers have not benefited from increased productivity. By now we should realize that the neoliberal paradigm exploits labor, the environment, legislatures, and ignores the arts and sciences to enrich the few at the expense of many.
Unfortunately, the neoliberal emphasis on nonproductive financial products has increased the well known wealth gap. The financial sector acquires over 40% of corporate profits. This becomes overhead on everything we buy including productive labor. This overhead is the main reason our labor costs are not competitive.
Samuelson concludes with the old neoliberal bugaboo over federal deficits. This is just a myth to convince us that federal spending must always be avoided in favor of privatizing public services to gain more profit.
Federal spending increases demand for goods and services. Too much spending will cause inflation only if our productive capability falls short of demand. Meanwhile, deficits add to private savings, and the government can buy anything that is for sale in US dollars including labor.
So, government can be involved in increasing GDP. It can afford to hire staff for healthcare, teachers and facilities for a more capable work force, workers to build infrastructure, and to support senior citizens with a decent retirement. Our children and their children benefit from wise federal spending without having to pay off the national debt. They don’t owe it; they own it.
Samuelson and other neoliberals would have us believe it's all about money. It's not. It’s about allocation of our productive resources, which are people and facilities. We can afford anything we can do. It is not about living within our means; it’s about living up to our means.