January 11, 2012
Yes, the country has a few problems.
We have managed, with government bailouts of banks and automotive companies and a half-hearted stimulus effort, to squeak through the recent recession without dropping off into the depths of depression. We have lost much manufacturing to foreign countries. Our skills at technical innovation and commercial exploitation have brought new products to world markets, but many of the skills needed for creating, maintaining, and using these new products are not yet sufficiently available among American workers. We are still fighting a costly and frustrating war. We struggle to transition from damaging fossil fuel energy to clean and renewable energy. And importantly, we are short of good, high-paying jobs.
Meanwhile, in Washington, the congress carries on internal uncivil war and guerilla war with the president. The city is awash in spin, hype, blame, and block, strong in language, weak in accomplishment. What makes this so ironic is that both parties would agree that both bold leadership and congressional cooperation are needed in restarting the economy. Complicating the issue is the large national debt and the Republican anti-government fixation on reducing it by downsizing government and trimming the national safety nets for the lower and middle classes -- without asking anything more of wealthy Americans.
What a change this is from the cooperation of the two parties during the economic recovery after World War II. In 1945 national debt, in terms of GDP, was much greater than it is today. From 1945 until 1981, through five Democratic and four Republican presidential terms, marginal taxes on upper incomes ranged as high as 94% and were never lower than 70%. During this period, the economy grew robustly, new businesses came on line, workers at all levels saw increases in income, and the national debt was reduced from 117.5% to 32.5% of GDP. Yet, despite much higher taxes on wealthy Americans, new job formation was good and the share of income for the top 1% was maintained at a more equitable 9 – 11% of total national income.
So why the rigid resistance by Republicans to any increase in taxes for wealthy Americans? From vague statements that higher taxes would “kill jobs,” we can only infer that investments in risky start-up business ideas and early business development, undertaken mostly by wealthier individuals, would be reduced by higher taxes on these investors. This kind of argument ignores the magnitude of income and wealth held by top earners and investors.
In 2008 the Federal Reserve reported that the amount of money held in financial assets by households and nonprofits was $40.814 trillion. This amount of capital was 2.8 times more than the total value of all goods and services produced in the U.S. in 2008! A study reported from the University of California, Santa Cruz in 2007 found that the wealthiest 5% of Americans owned 72% of this financial wealth. So the wealth of the top 5% consists of many trillions of dollars. That amount of wealth makes the money risked in early business ventures look like pocket change.
But capital invested in financial markets can be contrasted with capital invested in consumer markets in terms of the jobs it produces. Consumer markets consist of goods like houses, food, clothing etc. and services like medicine, science, entertainment, education etc. In 2011, these markets provided 92.5% of American jobs at all skill levels and represented one third of the total economic assets of the nation. Financial markets, on the other hand, provided wealth enhancement in a very narrow sector but represented two-thirds of the total economic assets of this country while providing only 7.5% of American jobs.
With the country beset with many challenges, why don’t we recognize that it will require a truly national effort to restart our economy without waiting years for a slow healing process? We know too well that noisy, Democratic and Republican infighting has proven to be both distasteful and dangerously ineffective. In major war crises of the past, we responded as a nation with everyone making sacrifices. People served in the military at smaller wages and risk of life. Women donned work clothes and did manual labor in manufacturing and agriculture. The wealthy gave up as much as 94% of their income. Personal sacrifice for the national good was a widely accepted value.
Currently, we are in an emergency of high unemployment and sizeable national debt. In response to the debt, Congress proposes to impose on lower income people the pain of reduced social help in retirement, joblessness, and health care. In this situation, it is only fair that wealthy citizens also put their shoulders to the wheel and pay higher taxes. Think what even one trillion dollars could do for stimulating the economy, controlling the national debt, and adding jobs if redistributed from private accounts to the consumer economy by taxes on high-wealth families.
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