Report

Making It In America: Building The New Economy

Eric Lotke — Wed, 28 Oct 2009 10:06:30 -0700

Key progressive leaders participating in the October 29, 2009 "Building the New Economy" conference in Washington address the issues raised in this report and discuss what it will take to ensure that the new economy that emerges from the wreckage of the old will provide Americans with good jobs.

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Executive Summary

We can’t pull out of the present downturn and return to the economy of the past—a high-consumption, low-wage economy based on asset bubbles and foreign borrowing. We need to look ahead. Our response to the current crisis must plant the seeds for the economy of the future.

The contours of the new economy are starting to take shape. Barack Obama set a different tone with an inaugural address that promised a “new foundation for growth.” Some of this is happening already: Construction crews are fixing bridges, filling potholes and laying new airport runways; work has started to improve our nation’s electric grid and create new, renewable sources of energy, and Congress is working on the biggest boon for college student financial aid in a generation, shifting $87 billion in subsidies from banks to students over the next decade.

Outside of government, we hear talk of sustainability, about returning to a real economy based on production, not consumption, and manufacturing, not finance. Celebration over cheap Chinese imports is giving way to alarm over the loss of jobs, currency manipulation, low environmental standards and dangerous workplaces that lower Chinese costs and give Chinese imports an unfair advantage.

But the opposition to reform is fierce. Wall Street is mobilizing against financial reform and regulation. Obama’s decision to impose tariffs on Chinese tires was called “economic vandalism," and modest “buy American” provisions in the Recovery Act met accusations ranging from “counterproductive” (U.S. Chamber of Commerce) to “the worst instincts of Congress” (The Wall Street Journal). And federal budget deficits generate concern across the political spectrum.

The next economy must be built on a solid platform. We need to rebuild our infrastructure, renew our manufacturing base and educate our people. America needs an industrial policy to help fit these pieces together. From workforce development to component manufacture, we need a strategic collaboration between the private sector and the government to reach our shared national goals. We need an opportunity for stakeholders to come together to remove obstacles, allocate resources, and create rules that work for everyone involved.

This report makes the case for that policy and explains what should be the key elements.

Pittsburgh, G-20 and the New Economy: Lessons to Learn, Choices to Make

Isaiah J. Poole — Mon, 21 Sep 2009 08:42:51 -0700

America faces daunting challenges. Jobs are scarce, roads are crumbling and states are reducing vital services. We face staggering levels of public and private debt.

It is fitting that the G-20 meet in Pittsburgh at this time. As White House spokesman Robert Gibbs explained, “[Pittsburgh] has seen its share of economic woes in the past, but because of foresight and investment is now renewed, giving birth to renewed industries that are creating the jobs of the future.”

Gibbs is right, in part. Pittsburgh has come back from enormous setbacks in its dominant industry, steel. A combination of deliberate planning, public investment, and partnerships between government and private industry created a new, mixed economy better able to compete in challenging new conditions.

But optimism is only half the story. As we documented in our earlier report, "Pittsburgh, The Rest of The Story," Pittsburgh’s comeback reveals the limitations of local efforts. In the absence of a national industrial strategy and a different approach to trade, the U.S. will be lucky to end up where Pittsburgh is now. It’s not the cellar, but it isn’t the Super Bowl either. Pittsburgh’s population is declining and its young people are leaving. Many high-paying jobs in manufacturing were replaced with low-paying jobs as waiters or hotel clerks, and many were never replaced at all. Real attention is needed to address the unsolved half of the problem.

America grew up as an industrial superpower, from mass-produced automobiles to the Arsenal of Democracy. But our once-robust system of economic production — the invention, design and manufacture of products — has been steadily eroded. In its place has come an economy based on asset bubbles and foreign borrowing. We’ve shifted from production to consumption, from high wages to low wages, from creditor to debtor. Even when the economy was growing, we ran a current account deficit in excess of $700 billion every year. We borrow $2 billion every day to cover the difference.

That strategy was never sustainable and is no longer available. Now is the time for a new economic strategy, one based on balanced growth for the nation and living wages for the people. As President Barack Obama said in April, we need a larger vision of America’s future:

“…. a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, or reckless speculation, or fleeting profits, but is instead built by skilled, productive workers, by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies and the innovation and discoveries that will shape the 21st century.”

Gilded Age Taxation

Eric Lotke — Sun, 12 Apr 2009 13:00:09 -0700

» Full report: "Gilded Age Taxation"
» News Release: U.S. Tax Code Widens Gap Between Wealthy and Middle-Class Americans
» Robert Borosage: "Astroturf tea parties" and "peddling bull" on taxes
» Eric Lotke: April 15th — The Issue Is Fairness
» Bernie Horn: A Mad Tea-Party

The problem isn’t taxes. The problem is who pays taxes and who gets the benefits.

The federal tax code becomes less fair every year. Thirty years ago, the tax code was broadly progressive, reflecting shared contributions to public investments and our common good. Loopholes were fewer and covered such items as home mortgages that everyone could understand and appreciate.

Now the tax code is a scam. Billionaire hedge fund managers pay taxes at lower rates than their receptionists. Corporations get tax breaks for moving jobs overseas. Oil companies with the largest profits in corporate history receive annual tax breaks worth $14 billion, roughly twice the budget of the Environmental Protection Agency.

While rich people reap tax breaks, working people struggle just to keep even. Adjusted for inflation, weekly wages were lower in 2007 than they were in 1979.

This inequality is no accident. It is not the result of market forces, globalization or technology. It is the result of policy decisions that could have been made differently.

Income inequality is rising — measured by the ratio of after-tax income of the top one percent (1.1 million people) to after-tax income of the whole middle 60 percent (68.3 million people). Top-end taxes are declining — measured as the average effective tax rate of the top one percent. The trend lines for top-end tax cuts and income inequality since 1980 form the X in the chart on this page and in the report.

Our report explains the X. Inequality rose 144 percent; top-end taxes dropped 15 percent.

We also explain what to do about it, and how to make the code more progressive. Additional detail can be found at Reversing the Great Tax Shift by the Institute for Policy Studies.

Finally, our report explains what taxes are for. From schools to roads to hospitals. Our government performs these functions. It isn't free. And paying for our needs is the essence of responsible leadership.

Protecting the Budget From Intergenerational Warriors

OurFuture.org Staff — Tue, 17 Feb 2009 13:53:04 -0800

In recent years we have been subjected to a rising cacophony of nonsense about a looming financial crisis. No, we are not referring to the current, very real, meltdown of private financial markets. Rather, we are told, future unfunded entitlements will bankrupt our government as the baby boomers retire. Social Security and Medicare are the main source of what former Comptroller General David Walker has called the “super subprime crisis.”

Social Security and Medicare have always had enemies, closely allied to private insurance companies who would like the business, and to fund managers and others who would profit from privatization of the associated revenue streams. But recently, these enemies have been given a boost, and a claim to respectability, by the creation of “intergenerational accounting,” an economic method that purports to calculate the debt burden our generation will leave for future generations. This Policy Note assesses intergenerational accounting and related aspects of what we call “the accounting campaign against Social Security and Medicare.”

In intergenerational accounting, federal government revenue and expenditure streams are compared over very long periods—even over infinite time. “Deficit gaps” are then used to measure the financial burden of these commitments, and therefore the alleged solvency or insolvency of the government. Discounting the sum of the differences back to the present permits infinite sums to be translated into very large, but finite numbers. The results, amounting to tens of trillions of dollars, are headline-grabbing and scary-looking. Evidently this combination makes them irresistible. Even the Board of Trustees of the Social Security Administration began ago to dabble in such arithmetic several years ago.

Now the Federal Accounting Standards Board (FASAB) is proposing to subject the entire federal budget to such accounting. It has issued two “exposure drafts” entitled “Comprehensive Long-Term Projections for the U.S. Government” and “Accounting for Social Insurance, Revised,” and is soliciting comments on its recommendations. In this Policy Note, we argue that these proposals are not only wrongheaded, but dangerous. We examine the purpose of budgeting at the federal government level, and explain why government should not be subject to the same sort of accounting and financial constraints that apply to private households or business firms. That is, we explain what is different about the federal government. This leads to a critique of the FASAB proposals. We conclude that intergenerational accounting should play no role in federal government budgeting.

Beyond Recovery: America's Public Investment Deficit

Isaiah J. Poole — Tue, 10 Feb 2009 07:40:28 -0800

Conference

Click the logo for video and other resources from the 2009 "Thinking Big, Thinking Forward" conference.

EXECUTIVE SUMMARY

It’s time to look ahead. The need for a bold recovery plan to address the accelerating downturn understandably consumes Washington’s attention. Nonetheless, the challenge of getting the economy growing again, though vital, is not sufficient. Our response to the crisis must plant the seeds for the new economy of the future.

We must not, once we pull the economy out of recession, return to business as usual – a high-consumption, low-wage economy based on asset bubbles and foreign borrowing. That strategy was never sustainable and is no longer available.

A sustained recovery will require a dramatic change of course – and a dramatic change of priorities. We must make the investments vital to a dynamic economy able to sustain a broad middle class in a global economy. This requires investing in the public goods that are the foundation of a healthy society and a dynamic economy – from a 21st century infrastructure to world-class public schools. We need to curb short-term private speculation and bolster long-term public investment.

The crisis forces us in that direction. And the Obama administration has wisely offered up a plan – The American Recovery and Reinvestment Act Of 2009 – that would make an $800 billion down payment on vital investments, from clean energy to public schools, which can and should be sustained for the future.

We should begin with infrastructure, the backbone of the economy. Much of our infrastructure dates from the World War Two era; many of our water pipes were laid in the 19th century. We need to rebuild our transportation infrastructure for rail lines and mass transit. We need to rethink our energy sources to move away from polluting technologies and destabilizing dependence on foreign oil. Finally, we need to return attention to our people, the ultimate resource. We need quality daycare for the young – with professional salaries and standards – and guaranteed, affordable health care for everyone.

Deficits in Perspective

One concern that constrains our thinking is, of course, the federal budget deficit. The word has “deficit” become a stand-in for words like waste and irresponsibility – so running a deficit is nearly synonymous with irresponsibility, rather than an economic variable to be taken into consideration among many others.

The U.S. annual budget deficit is likely to exceed $1 trillion next year, a stunningly large number. Measured as a percentage of GDP – that is, in proportion to the size of the economy – a $1 trillion deficit appears more manageable. The question really is one of scale. Are we going so far in debt that we can’t dig out?

In fact, our debt is not extraordinary by historical or international norms. Scott Lilly of the Center for American Progress and former director of the Joint Economic Committee, points out that a $1 trillion federal budget deficit in 2009 “would push the public debt – even after the profligacy of the Bush years – to about 47 percent of GDP, and a $2 trillion-dollar deficit will push it to only about 53-percent levels — only a few percentage points above where it was in the early 1990s.” This is lower than most advanced industrial countries – all of whom are raising their deficits now also. France’s public debt is 67 percent of its GDP; Canada’s is 64 percent. Japan sets the scale at 182 percent.

Large deficit spending to make sensible investments to put people to work in this crisis, therefore, is both necessary and affordable. In the long term, of course, sustained expansion of public investments vital to our future will have to be paid for. That will require new priorities – squandering fewer resources on policing the world and subsidizing agribusiness, for example. Progressive tax reforms would also be a good start – closing loopholes, collecting unpaid taxes, taxing income on wealth at the same rates as income on work. We can afford to make these investments. Indeed, it will cost us much more – in economic inefficiency, a poorly educated citizenry, lost markets – if we do not make them.

Will Workers Survive State Budget Belt-Tightening?

Susan Ozawa — Tue, 13 Jan 2009 12:30:36 -0800

The Second Report of the Congressional Oversight Panel

Susan Ozawa — Tue, 13 Jan 2009 09:07:20 -0800

ASSISTANCE FOR HARD-PRESSED FAMILIES IS ONE OF THE BEST WAYS TO PRESERVE AND CREATE JOBS

Susan Ozawa — Sun, 11 Jan 2009 12:26:35 -0800

ASSISTANCE FOR HARD-PRESSED FAMILIES IS ONE OF THE BEST WAYS TO PRESERVE AND CREATE JOBS

Susan Ozawa — Sun, 11 Jan 2009 12:18:28 -0800

Main Street Recovery Program

OurFuture.org Staff — Tue, 23 Dec 2008 12:07:47 -0800

Our economy now faces the most serious crisis since the Great Depression. The financial crisis that was triggered by the bursting of the housing bubble has now spread to the real economy, and we face a sharp downturn that is spreading across the globe. A serious recession now seems unavoidable in the United States, as well as Europe and Japan. The developing world is already struggling with financial turmoil and economic decline. For the first time since the 1930s, we face a real risk of deep worldwide economic contraction.

Restoring economic growth will require a bold, multifaceted plan. This must begin with a recovery program for Main Street — substantial fiscal expansion to revive the real economy.

Main Street Recovery Program

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