MYTH OF THE "JOB CREATORS"

‘Job Creators’ is the latest label bestowed upon the wealthy by the GOP leadership. Romney’s plan would cut taxes and regulations for those he calls the ‘Job Creators’. Speaker Boehner’s recent comments parroted the same theme.

Who really creates jobs?

The supply side economists claim that people have an inherent propensity to spend if there is supply of goods and services. They postulate that cutting taxes for the wealthy will entice them to invest in creating supply. That was tried in 81 when the top tax rate was cut from 70.1% to 28%. The tax code was simplified and many loopholes were eliminated. When the unemployment increased to 10.4% in 1983 (source: Wikipedia) it was the expansion of government and rebuilding of infrastructure that gave the kick needed to lower the high unemployment rate. In the process, President Reagan left the largest deficit, $2.1 Trillion, even though he raised taxes seven times, cancelling half the cuts.

If it is the supplies we need to create jobs, then how come many small businesses are closing and stores are liquidating their stocks and the big corporations are not hiring. Where are those who benefited from President Bush’s tax cuts of 2001, 2003 and 2004? How come they are not building supplies? Since 2010, the corporations have accumulated $1.3 trillion of profits and interest rates are bottom low – a very friendly environment for investing. They should be lining up to expand their operations or upgrade their infrastructures.  

But none of this is happening. Why?

Real wages have been declining since the 80’s. It was home equities and two earner families that had been driving the consumption. Then came the subprime mortgage bubble burst causing the collapse of the financial institutions resulting in wholesale credit freeze and large scale layoffs. Presently, 12.7 million, 8.2% of the workforce cannot find work and the majorities of those who are working make minimum wages and therefore can only afford to purchase the bare necessities.

In 2010, the Republicans/Tea Party suddenly developed a conscience about the deficits. Government expansion and deficit spending has been the hallmark of Republican Administrations since Eisenhower. The newly elected Tea Party supported state governments, refusing to accept Federal Stimulus, have laid off 610,000, teachers; police officers; firefighters; and other service personnel while cutting taxes for their favorite constituents, the corporations. This has further diminished the already shrinking DEMAND at a time when we need more of it. At the same time these newly unemployed are no longer paying taxes resulting in further reduction of revenues for the government.

Warren Buffet tells us that motivation for investments is profits and not taxes. The profits come from demand. In 1914, Henry Ford understood this well. His efficient production line was producing more cars than he could sell. In January of that year he doubled the daily wages of his employees so they could also become his customers. His action created DEMAND. The rest is history. Another example, crude but true to the principle, is the illegal drug trade. Although criminal, the drug cartels are shrewd businessmen who stay one step ahead of the mighty DEA to satisfy the DEMAND of their products and make profits.

We had a spurt of hiring earlier in the year due to stimulus and growth in exports. However, that did not last very long because of the Euro crisis and slowdown in DEMAND in China and India. The Republican’s eagerness to cut expenses and implementing austerity is prolonging our Great Recession, the worse since the Depression.

Europe offers a clear example that austerity during a recession is a prescription for failure. The IMF has studied 173 cases of austerity packages since the 1970s and all led to recession not growth. Republican Romney reminds us that we are heading to the same fate as Europe. His prediction will come true unless we focus on creating demand. Germany, presently dictating austerity to others, did not gain economic stability by practicing what it preaches. Immediately after the 2008 crisis, Germany revived its auto industry through aggressive financial stimulation. We followed their model to revive our own auto industry after the reorganization of GM. If GM had seized to exist, thousands of suppliers would have had to cut their operations resulting in unemployment for millions more. Germany has also been subsidizing (a bad word in the Republican language) its clean energy industry and has taken the lead in solar panel technology.    

Time and again history has demonstrated that in a time of recession, the economic pump can only be primed by governments. They renew nation’s infrastructures and invest in industries of the future. The resulting employment creates demand that encourages the investors to invest in the ensuing growth.   

It is the people earning decent wages who are the real JOB CREATORS.  

When Romney and his surrogates want to give 25% tax cuts to the so called ‘Job Creators’, ask them a simple question: Would you invest if there is no DEMAND? The likely answer will be, “No, but demand will follow investments.” It has never happened.  

             

AFFORDABLE CARE ACT

In 2009, during the debae for the Patient Protection and Affordable Care Act I happened to be seated at a table with group of people including a retired military man. During our small talk somebody  to mentioned about the discussion in the Congress about the health care legislation. I was shocked to see a sudden transformation in the demeanor of my military friend. Appearing very distraught, he stated, “They are going to create ‘death panels’ that will determine how long us seniors can live.” I was disappointed that my fellow citizen has no clue about the Constitutional guarantees for life and liberty. Later I discovered that Death Panels was how Sara Palin defined end-of-life counseling provision of the bill. This is typical strategy of the GOP (Grand Oligarch Party) to instill fear and then appear to be the white knight that will make it all better. But it never gets better for the average Americans. 

The bill has been a law since 2009 although Tea Part controlled GOP refused to acknowledge it. After three years of legal challenges and falsehoods, the Supreme Court has upheld the law to the consternation of the Republican base. Some of the Republican leaders in a meeting immediately after the announcement have likened the Court’s decision to the September 11 attacks. They were expecting the court, in following the Citizen United ruling, to declare the law unconstitutional. The Court's decsion has enraged the Republican base and unemplyment and the economy is about to take back seat as an election issue by the Republicans. It is important for the President to explain to the voters the benefits that ACA provides to the middle and low income citizens. Detail of the benefits can be seen here.

Rest of the industrialized nations, while supporting the capitalist economic model, have a safety net for their citizens that includes not-for-profit healthcare. By upholding the law, the Supreme Court has positioned the United States to join the other industrialized nations. The insurance companies will not be able to refuse insurance because of pre-existing conditions. Insurance companies will not be able to cancel insurance in the event of lingering illnesses. College bound children can stay on their parents’ insurance. GOP will tell you that all this will increase the cost of health insurance. But that will be a lie. Here is why.

There are estimated 50 millions Americans without any health insurance. About 20 million are covered by Medicaid but the rest either do not feel they need health insurance or their empoyers do not offer one. And when they end up in the emergency rooms, their costs are paid by inflated charges by the hospitals and higher premiums by the insurance companies. Because of the mandate clause, millions will be added to the rolls of insureds allowing the insurance companies to spread the risk and therefore lower the cost of health insurance. The new law make sure that the premium is lowered because it requires the insurance companies to spend 80% of their premium revenues on direct medical services to the patients. Majority of economists and the CBO, the Congressional Budget Office agree with this assessment. ACA’s emphasis on prevention will lead to further reduce the number of patients with serious illnesses in the later years thereby reducing the cost of future Medicare participants.

Republicans, fearing breaking their pledges to their mentor, Norquist, are  outraged that the Supreme Court called the penalties as taxes and the House of Representatives wasted 80 hours to stage a useless vote in order to repeal the ACA. But it really does not matter whether it is a tax or a penalty. The affordable health care idea was first proposed by the conservative Heritage Foundation. ACA, including the mandate clause, is similar to the one signed into law by Governor Romney in the State of Massachusetts where emergency room visits have tangibly reduced. If it had been a Republican President we would not be having this discussion. It is becoming clear by the day that Republican Party is hell bent on undoing whatever Obama does no matter what their actions hold for the average American.

Matt Miller, a Washington Post opinion writer, aptly puts it, “Only in America could a Democratic president pass Mitt Romney’s health plan and fund it partly through John McCain’s best idea from the last campaign (taxing some employer-provided plans) and be branded a “socialist.”

Next Week: WHO ARE THE REAL JOB CREATORS

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The Occupy Wall Street Movement

"I hope we shall ... crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country". If you think the quote is from a liberal politician, you will be wrong. It was in a letter written by Thomas Jefferson in 1816 to George Logan, a Pennsylvania politician. 

“We now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption”. That quotation did not come from any statement by any Republican Presidential candidate.  That was the decision handed down in 2010 by Supreme Court in the case of Citizen United v. Federal Election Commission. 


According to Richard Beeman in his book titled 'Plain, Honest Men - The Making of American Constitution', moneyed influence on the election process was very much on the minds of the framers of the Constitution. There are other historical documents that allude to this concern. Yet our Supreme Court, by their ruling, has corrupted the election process in favor of the oligarchs. In 2010 elections the corporations and other wealthy interest groups, through the now legal Super PACS, legitimized Tea Party's single focus on tax cuts for the rich. Under the guise of deficit reduction, they are pursuing their goal of undermining the regulations that are meant to protect the citizens from the corporate greed. 


The Republican Congress is so concerned about the deficit that they would like to cut most of the governmental services except the defense. Yet the 81% of the deficits since the end of the WWII had occurred during the Republican Administrations. Reagan and Bush racked up $3.4 trillion by cutting taxes on the rich. When he took office, President Reagan informed us how to measure deficit to the end of the budget of the departing President. He said that if we stacked thousand dollar bills, a trillion would be 67 miles high. When he left office the stack had grown to 191 miles. See details here. Two tax cuts, prescription drug plan and two unfunded wars during the G W Bush administration added $6.06 trillion. Although Clinton left a $235 billion surplus after a paying $360 billion debt, he had accumulated $2.23 trillion interest on Reagan - Bush deficit. By the end of G W Bush budget on October 1, 2009, the total deficit stood at $11.63 trillion. Tea Party/GOP conveniently assign the Bush's last budget deficit and the interest to Obama thereby bloating his numbers to over $4.2 trillion, although his $1.4 trillion is part of the Bush tax cuts, Obama stimulus and the wars. The Grand Oligarchs Party, the GOP demonstrates total dishonesty when it comes to deficits. 


Although the federal corporate tax rate is 15% to 35%, during 2008 to 2010 the 12 fortune 500 corporations received $62.4 billion in Tax Subsidies while earning $171 billion in profits. Their Effective Tax rate was - 1.5%. See details here. According to the Congressional Budget Office, during the last three decades, for the 1% of the population, average inflation-adjusted household income grew by 275%. The rest of wealthiest fifth of the population, not including the top 1%, saw household income grow by 65% during that time, faster than the rest of the population. During the same period, the income of the poorest fifth grew a meager 18%.    


Reagan's record tax cuts, motivated by supply side economics, failed and the unemployment reached 10.8%, he began spending on the infrastructure. That triggered the recovery. Although he had to increase taxes four times to take back half of the original cuts, the government spending had already begun to increase payrolls. Compare Clinton, who raised the taxes in 1993 and industry responded by providing 23 million jobs. The Tea Party/GOP plan continues to fall back on the failed supply side economics by cutting more taxes on the back of the 99% Americans. They believe that millions of Americans are unemployed by choice just as the foreclosures are the result of bad choices by the mortgagees. 


They would gut the EPA, created under Nixon Administration as the chemically contaminated sites were found and people were getting sick. The Love Canal, NY is now forgotten when resident of the whole city had to be relocated. Also retired to the history is the Valley of the Drums where thousands of chemical waste filled drums were scattered on a 23 acre site near Louisville, Kentucky. It took us decades to clean many of our polluted lakes and rivers and many more need attention. There may be ways to make the agency more efficient, but to make it ineffective, as the sponsors of the Tea Party/GOP would like to do, would be a crime.


The subprime mortgage was nothing more than a fraudulent scheme in a freewheeling capital market. It bloated the housing market as it sucked in the unsuspecting mortgagees into low cost loans that were then used to create securities giving false value to the holder. The trading of such stocks enriched the financial managers and brokers alike who received billions in bonuses while the working Americans, once faced with the real cost of the loans, began defaulting. I am sure that some of the GOP presidential contenders would dismiss the plight of the underwater mortgage holders because of their bad choice. GOP, the Grand Oligarchs Party, by opposing the Consumer Financial Regulations, demonstrates that they feel no pain for the millions of Americans who have lost everything in the subprime scheme. 


Our election process has become so corrupt that majority of the time the bills are crafted by lobbyists' staff. Immediately after a Presidential election, the opposition begins to dismantle the elected officials and fund raising for the coming elections gets under way in earnest and no time is left for the affairs of the nation. The Occupy Wall Street movement is crying out against the injustices meted out by our representatives on behalf of their financial supporters. I hope that by the next elections, the protests have raised the ire of the voters so that we do not elect a candidate who pledges allegiance to an individual's whimsical idea. There can only be one pledge - to uphold the Constitution and work only for the welfare of all the citizens. 

The Jobs Plan

The White House jobs package was positively received by majority of economists. the reason for their optimism is the reduction of the payroll taxes that will encourage the indigenous industries to generate employment. It will not benefit global corporations, so the new jobs cannot be exported. Many economists are optimistic that this can create from 600,000 to 1.6 million jobs by the end of 2012. 

Nothing will happen until the Congress passes the bill. The House Republican leaders John Boehner and Eric Cantor have signaled they are open to some infrastructure spending and to a program that Obama will pitch to help train unemployed workers. Based upon their declared goals, one has to question their sincerity. Immediately after winning majority in the House in 2010 elections, The Tea Party Republicans declared their primary goal to do whatever it took to defeat President Obama. Rush Limbaugh declared that, "We will get rid of this president even if we have to bring the unemployment to over 10%." No matter how much we ignore his statement, the actions of the new GOP (Grand Obstructive Party) during the debt ceiling negotiations demonstrated their determination.  

Mitch McConnell, the Republican leader in the Senate, immediately branded President Obama's proposals as 'overly partisan and a political smokescreen.' He further emphasized that the president's policies simply do not work and that, "This isn't a jobs plan, it's a re-election plan." One wonders what the Tea Party Republicans have been doing since 2008. During the healthcare debate they rumored about the death panels and when that did not work they made deficit as their rallying cry. No doubt deficit is a long range problem and must be addressed but our immediate problem is the stagnant unemployment. Improved employment will not fare well for the GObP. 

Harry Reid, the Democrats' leader in the Senate, meanwhile, said that Republicans also had their eyes squarely on the 2012 vote.

"The other side seems convinced that a failing economy is good Republican politics. They think if they kill every jobs bill and stall every effort to revive the economy, President Obama will lose," Reid said.

The GOP's actions during the debt ceiling negotiations demonstrated their willingness to go as far as possible in pursuit of their goals when they were willing to allow a US default that would have shaken the already wobbly financial system of the world. We need to impress on our representatives that they need to attend to the affairs of the state. So far Harry Reid's statement rings true when he said, 

"Republicans aiming at the President have caught innocent Americans in the crossfire."

The Republicans are balking on doing away with the loopholes for the corporations and the wealthy in order to finance the Jobs Plan. More on that in my next post. 

Elections in the USA

The elections are still over a year away but the mudslinging is already in full swing. Since the Supreme Court bestowed life on the corporations and made them persons, there is no shortage of funds to disseminate misinformation and charge the emotions of the unsuspected.

Unlike other industrial nations where an election period lasts three to four months, electioneering in the United States never takes a break. Immediately after an Election Day, the opposition begins its campaign to dismantle the winning President and his party. National interests take a back seat to the schemes hatched by the minority to obstruct everything from simple confirmation of officials to the legislative agenda that brought the majority in power. Arguments on matters, sometimes of no national importance, are given prominence by the media and winners and losers are announced as in a sporting event.

Fundraising for the next elections begins immediately after the elected officials have taken their oaths. According to Center for Responsive Politics $ 5.2 billion was spent during the 2008 elections and $3.6 billion for the 2010 midterm. It is estimated that the 2012 elections will cost nearly $8 billion. At this rate the outside influence that the founding fathers feared is already showing its muscles. In order to keep the donors in line our representatives take positions that prevent any compromise. Compromising had been the bedrock of our system, but over time it has become a sign of weakness. The performance during the Health Reform Act and recent arguments in raising the debt ceiling are good examples.  

This behavior of our elected officials is forced upon them by the framers of the Constitution, albeit unknowingly. They had no example to follow and their foresights concerning our freedoms and rule of law have been nothing less than a miracle, but the bicameral system with a two year term for the members of the House is no longer working and is subject to outside influences. The honorable men, who spent five months of their time writing the Constitution without any compensation, expected gentlemen farmers or business owners to take two years out of their avocations to serve the nation. Instead our representatives have evolved into professional politicians who serve two masters with diverging agendas.  

The European nations that followed our experiment in democracy chose the Parliamentary system of government. Parliament is the final authority and a law once passed cannot be challenged in the courts. Here, on the other hand, the enforcement of a law can be delayed for years by court challenges or denied funding while the citizens are kept in a limbo. If there is a deadlock or the public becomes critical of the leaders, a no-confidence vote can topple the government and elections are called to elect a new Parliament.  The process takes no more than a few months. The absence of scheduled elections motivates a representative to diligently attend to the affairs of his nation thereby securing his position. Our system, on the other hand, provides job security to those whose campaign coffers are full.

It will be a miracle to see a Parliament in the USA, but we can implement some significant changes to make our system more responsive to a changing world. There was a discussion during the writing of the Constitution for the President to have one term of seven years. A change to an eight year term would free him or her from moneyed influence, political affiliations and stress of campaigning while addressing myriad of national and international problems. To allow the members of the House enough time to attend to the affairs of the nation, their term of office should be extended to four years with a maximum of three terms. In order to encourage the participation of multiple parties, we need to institute open primaries and limit the amount of money that can be donated by anyone including the corporations. Nowhere in the industrialized world have the lobbyists carried so much influence as they do in the USA where their staff is allowed to actively participate in the framing of legislation. No wonder that we have over 50,000 tax codes to facilitate special interests.  

Those who believe in the sacredness of the Constitution should pause to read the following inscription from the southeast wall of the Jefferson Memorial. It was excerpted from a letter dated July 12, 1816 from Thomas Jefferson to Samuel Kercheval. It reads:

I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.