Treasury Secretary Jack Lew (D-CITI) gave a major address on the economy last week at the New York Economic Club. (You can read the transcript orwatch the video.) He called the speech a “chance to discuss some of the challenges and opportunities we face.” His speech and the Q&A that followed may not have broken ground when it comes to solutions to our country’s economic problems, but they reveal quite a bit about the thinking at the top – and the extent of the disconnect between financial/political elites and the rest of us.
What are the country’s economic problems according to Secretary Lew? In order of appearance, the speech:
- Begins with economic uncertainty. “There are questions about whether America can maintain strong rates of growth and doubts about whether the benefits of technology, innovation and prosperity will be shared broadly.”
- Says fiscal problems (deficits) are out of the way so structural problems should be addressed. “We meet at a time when structural, not fiscal, challenges demand our immediate attention.
- Takes credit for austerity. “We have made tough choices to shrink our budget deficit by more than half.And over the next 10 years, we are on a path that will put our debt as a share of the economy on a declining trajectory and reduce our deficit to below 3 percent of GDP.”
- Blames the elderly for the shortage of funds for providing for their dignity. “Social Security, Medicare, and Medicaid face long-term challenges stemming from an aging population and the cost of health care.” But to his credit says the solution is not to cut these – instead we “will be better served if we concentrate first on building a firm foundation for future economic growth.”
- Says there is a lack of investment to grow the economy. “The crisis we face today is the need to make sure the economy is expanding fast enough to support a growing middle class and greater opportunity for all Americans. Investments that boost growth and job creation today, tomorrow, and 25 years from now will put us in a stronger position to address our future fiscal challenges.”
- People are still hurting. “We cannot escape the fact that millions of Americans continue to struggle, and their pain reminds us that our work is not yet finished. Unemployment is still too high and economic growth is still too slow. And for too many families this hardly feels like a recovery.”
- Says we should address inequality. “…since the recovery began, while corporate profits and non-farm productivity have risen, hourly compensation only just started rising, and not by enough to make up for lost ground. As our economy grows and our workers become more productive, this progress needs to reach the lives of more hardworking Americans.”
- We face a permanently slower economy. Even after the recovery completed the economy’s growth will be slower than in the past. “From 1948 to 2007, the U.S. economy grew, on average by 3.4 percent a year. The Congressional Budget Office now projects that after the economy settles back to full employment, the economy will grow at a rate of 2.1 percent—or only at about two-thirds the post-war levels.”
Lew offers this prescription:
On the role of government, “Economists—who almost never agree—all agree about what determines the long-run success of an economy. The labor force, the capital stock, and technological innovation. Those components have always been the driving force, the source of the “Wealth of Nations” to use Adam Smith’s words. While government can eliminate obstacles and provide important tools, the government is not what makes an economy. The private sector is the defining feature of our economy, and the joining of sound policy with a surging private sector will determine our economic future.”
The Revealing Q&A
The carefully prepared speech doesn’t really reveal the thinking at the top. There are clues, such as blaming Social Security and Medicare and not military spending for the deficit, or the use of “one-time transition revenue resulting from business tax reform” for infrastructure (which really isn’t revenue at all, it’s a huge tax break for corporations). It is the question and answer session where the thinking is revealed.
The Q&A begins approximately 22:20 into the video. Joining Lew are Peter Henry, dean of New York University’s Stern School of Business, and Terry Lundgren, chief executive officer of Macy’s Inc.
It begins with the obligatory question about addressing “labor force participation” – the number of people who are no longer working. Lew says the recovery is “very strong already.” We need to get workers back into the workforce.
The discussion immediately turns to the real concerns – the international economy. With regard to deflation in Europe, is the European Central Bank doing the right things, including “labor market reform”?
Here is where the elite view comes into play. “Reform” always, always means pro-corporate, “pro-market” changes that turn humans into disposable commodities. Labor market “reform” in Europe would mean in this question such measures as cutting unemployment benefits, making it easier to fire workers, and weakening unions. In other words, they want “lower labour costs as a result of economic and employment reforms.”
Around 32:00 the discussion turns to reduced corporate tax rates and a “territorial tax system,” which means no taxes on profits earned outside the country. This means companies will, of course, move factories, jobs and profit centers outside of the country. This would of course be accompanied by letting corporations off the hook for much of the offshore taxes they already owe.
To get this through, they note that there is a bipartisan consensus that we need to start fixing our infrastructure to build our economy. So the idea is to exploit this need for money to pay for this to get a repatriation tax holiday in which corporations pay a fraction of what they owe in exchange for paying something. They say they “need to create the sense that this is going to be a reality” to build political support.
Again at 37:40 corporate tax “reform” comes back. They say the new chair of the Senate Finance Committee is “committed to tax reform,” but this is “obviously not a before the election kind of issue.”
They want to change the tax code “to keep companies from moving overseas.” This doesn’t mean making companies pay the taxes they owe and rules about companies moving; this means lowering tax rates. But they “can’t do it without the strong voice of the business community” to “create external pressure for it.” They “commend the idea of linking it to infrastructure” because if tax reform were seen as a way to pay for infrastructure it could get through.
The moderator says, “We can do a better job of marketing this as not just a way of helping corporations.” Lew says that on the Democratic side they want to see loopholes closed, the money used for something other than tax reform while Republicans want to cut personal tax rates. Lew says they can find “a path in the middle, for job creation,” which means infrastructure.
In the elite view of how the world works everything is about the large corporations. It is not about countries. It is not about the public. It is not about what has worked in the past to make society and economies better. The thinking at the top is all about lowering corporate tax rates (and letting companies keep the hundreds of billions they owe in taxes from offshore profits.) The talk is about how to find ways to “get it through,” including making it look like this is a good way to “pay for” fixing our crumbling infrastructure – which is crumbling because for decades we have cut taxes and let corporations off from paying their taxes.
Note that there was nothing about the trade deficit in the speech or in the Q&A. (More on this later.) In this elite world, America’s problems come from corporate taxes, not actual economics.