Posts Tagged ‘Great Depression’

The Thinker

Trade deficits don’t matter but tariffs sure do

A couple of posts ago I pointed out that trade deficits don’t really matter. This is because trade deficits merely report the difference of the value of goods exchanged between countries. A trade deficit with China demonstrates that in general we get better bargains trading with companies in China than from buying them internally or from other countries.

Tariffs on the other hand do matter, a lot. Over the weekend Donald Trump, our “very stable genius” president demonstrated how profoundly ignorant he was on how tariffs work. Trump stated that tariffs are helping to pay down the national debt.

In the sense that higher taxes make deficits lower if spending is kept constant, Trump is right. But Trump apparently thinks it’s foreign countries that are paying these tariffs, like before a freighter from China unloads its cargo in Los Angeles the government of China wires the tariff to the United States Treasury. That’s not how it works at all. Chinese manufacturers don’t pay a tariff to bring their goods into our country either.

So who is paying? You: the American consumer. Tariffs amount to tax increases, but these tax increases are sneaky. Since you don’t buy directly from companies in China, you don’t see a tariff added to your bill of sale. But when a company you shop at does, like Walmart, they send a check to the U.S. treasury for the amount of the tariff.

Companies can absorb the tariff. Being profit-making though they will almost always pass the cost on to you by raising their prices. We saw this recently when Coke announced it was raising prices, because its cost for imported aluminum used to make its cans went up.

The Coca Cola Company of course can shop around elsewhere for aluminum. It looks like there is no better deal. The kind of finished aluminum they use is either not made in the USA or is cheaper to buy from China in spite of the tariffs. This is true of lots of products in our modern economy. One way for companies to make profits is to specialize. However, the tariff system seems to assume we principally trade commodities like oil and wheat, not rolls of aluminum with the exact thickness Coke needs for its soft drink cans.

Tariffs thus amount to sneaky indirect tax increases. Unfortunately, this is just the beginning of their detrimental effect on our economy. When we have to pay more for the same goods and services, this is inflation. And inflation from tariffs is already showing up. In June 2018, prices rose .4% from May 2018, largely due to tariffs. If this continues at this rate for the next twelve months, prices will be 4.8% higher annually. This is a significant increase in inflation compared to rates we are used to of 2% per year or less. It’s likelier though that the effect of tariffs is just beginning, and that soon inflation in June will seem like one of our better months.

As long as wages keep up with inflation, then perhaps inflation doesn’t matter. Our unemployment rate may be 3.9%, but wage growth has been anemic at best. In fact, most American workers have lost money because wage growth has not kept up with inflation. Unless Americans borrow money to make up the difference, which unfortunately they are doing at record rates, then without commensurate increases in wages they will consume less, dragging down the economy.

So it’s pretty clear that the real effect of tariffs is to stifle overall economic growth. Strict tariffs caused the Great Depression. While they allowed us to do more buying local, retaliatory tariffs as we are seeing now also made it hard to export our goods. With fewer buying our products, commodity prices for things we do make tend to collapse. So when the government charges tariffs, it is playing a very dangerous game. I’d like to think our administration knows what it’s doing, but Trump’s remarks this weekend show he fundamentally misunderstands how tariffs work. Apparently his supporters don’t understand either, as they roared their approval.

In any event, with recent tax cuts that benefit primarily the very wealthy, these modest tariffs will do little to boost tax revenues; the Post article puts the effect at .1%. But even the Post article understates the true cost of tariffs. Here are some of the other direct effects:

  • It increases government spending for social security, government pensions and many entitlements that are tied to the cost of living
  • It increases the cost of medical care, including Medicare, Medicaid and health care for veterans by pushing up prices for imported goods and services like certain medicines
  • It increases the cost of borrowing, as inflation tends to raise interest rates, which means the U.S. Treasury will have to increase interest rates to attract investors
  • Subsidies already announced will cost the government, for example the $12 billion the Trump Administration wants to give farmers to offset the effects of its tariffs

And then there are the indirect costs, which include:

  • Higher prices and inflation in general
  • Reduced employment in sectors affected by counter-tariffs
  • Lower profits as fewer goods and services are bought and sold
  • Likely increases in unemployment

Try as it might, the Trump Administration’s tariffs policies won’t do much more than partially offset tariffs’ downsides. It is likely to raise prices, reduce employment, feed inflation and reduce economic activity. Quite frankly, these tariffs are a disastrous policy.

But don’t take my world for it. The wreckage is already unfolding. It’s only going to get worse and may hit a crescendo around the midterms.

 
The Thinker

Do trade deficits really matter?

So we are having trade wars at the moment. Trump started all of them, first with a 30% tariff on solar panels manufactured in China but then on steel imports. It expanded into tariffs against Canada, Mexico, the European Union and more tariffs on China. Predictably these countries responded with counter-tariffs designed to give Trump’s biggest supporters a case of indigestion. And it’s working. Farming is typically a low margin business. With less demand, prices drop. With fewer crops being sold it is quickly making agriculture here unprofitable. Trump says that tariff wars are easy wins. That wasn’t the case in 1929 when they caused a global depression.

Trump acts like trade deficits really matter. Unquestionably they do matter to some businesses and people, i.e. those affected by them. After NAFTA was passed we lost a lot of our industrial base simply because countries like Mexico could manufacture stuff a lot cheaper than we could. To compete though in many ways we have upped our game. We are much more of a service economy now and we design leading edge stuff that is often manufactured elsewhere. Aside from Apple products, there is also stuff like my CPAP machine. This work is more specialized and the margins must be higher.

I don’t recall a time when the United States was not carrying a trade deficit. Perhaps we weren’t back in the 60s and 70s, but I was much younger then. And there are scattered months here and there when we do export more than we import. We have trade surpluses with some countries, like Canada. It’s a mystery then why Trump targeted that country. Mostly though it’s the other way around. While some sectors have suffered from all this free trade, I think overall it’s been a benefit.

One big benefit has been that trade has kept prices and thus inflation low. As long as these tariffs are in place, we are likely to see creeping inflation again. And Americans love imports. Low prices have helped us live beyond our means and our stagnant wages. It’s how companies like Walmart stay in business. Moreover, these imports increase competition and that too tends to lower prices. In many cases, the best quality products are available overseas. Take hybrid cars, for example. Yesterday I was in a neighbor’s Toyota Prius Prime and marveling at its engineering. This model may have been manufactured in the United States, but it’s an amazing value for the money. Since he too has solar panels on his house, most of the time he is driving using its electric motor. He’s getting very close to living carbon free, thanks to hybrids built and perfected overseas.

We have a choice of where we buy things. Most likely my next car will also be a foreign hybrid or fully electric car built or designed overseas. If I buy a Toyota Prius built in Japan and pay $30,000 for the privilege, while it causes a trade imbalance, it’s not like I didn’t get anything for my money. I get a great value in a car that gets 51mpg when it’s not running in fully electric mode. The effect of buying a foreign car is that some Americans (presumably) did not have a part in its design and manufacturing. Maybe that’s bad for the economy if we presume that whoever would have been building the car here in the states wasn’t doing work of similar or greater value. I’m not an economist but I’m not sure we can credibly make that claim.

In the case of hybrids and electric cars, American auto manufacturers are upping their game. In one case (Tesla) are providing a superior (albeit much more expensive) alternative. The Chevy Volt and Bolt are two other examples, although their cost is subsidized by generous federal tax credits. Tariffs on cars manufactured overseas do make our domestic versions more competitive, but only by raising foreign car prices. It doesn’t actually save buyers any money; in fact we pay a double penalty for tariffs: higher costs and potentially less competition.

There is certainly a convincing case to be made that China trades unfairly. To gain market share, it heavily subsidizes certain sectors like its solar and shipping sectors. It often doesn’t respect international copyright laws. In most cases though foreign products are cheaper because they can manufacture them for less. Often these industries are low profit. It’s unclear why we would want to compete in these low profit industries when doing so probably won’t give us a better lifestyle. Tariffs are at best a poor way for addressing these issues. They may work, but history is generally against you. Leveraging them in a large way like we are doing now is very dangerous, as the Great Depression attests.

In any event, the United States is not blameless. Even before these latest rounds of tariffs, we have been subsidizing many of our own industries through longstanding tariffs, including our sugar and peanut businesses. Free trade is one of these ideals that are rarely fully realized. When it is, someone is usually paying a price. Americans pay much more for sugar and peanuts than is necessary, and now we’re paying more for steel and solar panels too.

The evidence doesn’t seem to prove that trade deficits cause a country’s decline. In some ways they can demonstrate resilience. The strong U.S. dollar shows that we are a strong country in spite of these trade deficits. To me, trade deficits suggest that our knowledge economy is our real strength. Anything that we can do to continue to foster that, for example by allowing more technical people to acquire H1-B visas, should be a good use of government. On commodities like agriculture, we are highly efficient. In spite of the burgeoning world population, we can feed much of the world. Perhaps we should be strategically reducing the amount of farmland under cultivation to keep farming profitable.

I doubt that tariffs are the instrument we need. And I really am skeptical that trade deficits matter at all.

 
The Thinker

No right to work in “right to work” laws

Wisconsin is the latest state to enact a so-called “right to work” law. With this law exactly half of the states are now right to work states. If your state is a right to work state, this means that you cannot be required to join a union as a condition for taking a job. If collective bargaining exists at a job site, the union can still negotiate benefits for you. You just have the right not to pay them union dues.

The effects on employees in these states are easily documented. In general you will earn less for the same job than in a state with no such laws. Unsurprisingly, this is because it is harder for a union to win the right to negotiate wages and benefits when they have fewer resources (union dues) to do it with. If paying union dues bothers you, there is an alternative: don’t take a job in the first place. If you think union dues are too high, as a union member you can petition for changes. Like any union (such as a credit union) a labor union is owned by its members. A union can disband itself if its members feel it is ineffective or if its dues are too onerous.

The supposed rationalization for right to work laws is that you as an employee should not have to pay from your wages fees that you do not want to pay. However, we are already required to have withheld from our wages federal income taxes, state income taxes, often city income taxes, pension contributions, Social Security and Medicare taxes. We can’t opt out of these. In many states other things are automatically withheld unless you explicitly opt out, such as your contribution to a 401-K retirement fund.

What if anything does all this have with a “right to work”? The theory seems to be that paying union dues by itself might be the difference between having a job that pays a wage you can live on and one you cannot live on. This is at best a dubious proposition, since you would be hard pressed to find a service-related profession where the real wage (after union dues) is less than a similar job without a union. It’s almost guaranteed that union members will negotiate better benefits for their members than you would by yourself bargaining with your employer.

“Right to work” laws are misnamed. You have no right to a job in any state. The closest we came was during the Great Depression. Government-created agencies like the Works Progress Administration and the Civilian Conservation Corps hired the unemployed to build bridges and improve our national parks when private industry would not. My grandfather was one of these people that depended on a WPA job during the Great Depression. Today, if you are unemployed the best you can hope for are some limited unemployment benefits and food stamps. The reality for most people is that these benefits don’t begin to cover the real cost of living, so they are employed. They are just not employed enough to have a living wage. Many of these people are so good at finding jobs that they have two or three jobs simultaneously, generally part time with no benefits. Yet they still cannot afford to live and they survive at the margins, perhaps in group housing but often they end up homeless.

So right to work states don’t guarantee any right to work. Such laws thus provide no particular incentive to get work. And if you can’t find a job, state assistance at helping you find a job will be marginal at best. Maybe there is a state unemployment office where you can go to look at local job listings, although this is mostly done online now. To the extent you can get unemployment benefits, you will likely have to prove you are diligently searching for a job. This isn’t normally a problem because you cannot survive long on unemployment benefits. At best you will draw from your savings less quickly than you would without them.

What would a right to work look like? A right is distinguished from a privilege because it is inherent and inalienable. You have the right to practice the religion of your choice. If you had a true right to work then either a employer would have to hire you or the government would be the employer of last resort. You might not like the work they would give you but it would be work that you are capable of doing. And since it would be work instead of free labor, they would have to pay you a wage. And since we work to survive, the work would have to pay a living wage, i.e. you should be able to live above the poverty line from a full time job.

You’ll see none of this in any “right to work” state, or any state at all, which means there is no right to work in this country. What they really are is “the right to opt out of paying union dues while enjoying the benefits of a union should your job be covered by a collective bargaining agreement.” Of course if because of insufficient union dues, the union goes bankrupt then you are out of luck. And as is often the case in right to work states, with no requirement for you to pay union dues, most unions can’t organize to win collective bargaining rights. Unsurprisingly “right to work” states have much lower rates of unionized workers than other states.

Without a labor union not only are you likely to have fewer benefits, you are also more likely to lose your job, which contradicts the whole “right to work” philosophy. You are an “at will” employee, which means you can quit for anytime and any reason and leave your employer in the lurch. Your employer also has the right to fire you at any time, and generally for any reason except those few reasons (like due to your sex or race) prohibited by law. Of course, it is very hard to prove that you were deliberately fired due to these factors, so basically you can be let go at any time, for any reason or no reason at all, and with no severance pay unless there is a state law on that. You might be able to retain your health insurance under the COBRA law, only if you can pay the full cost of the premiums while getting no income.

Right to work laws are simply snake oil wherein the state gives you the “right” not to pay union dues at the almost certain cost of a reduced standard of living and with a greater likelihood of sudden unemployment. If it were explained to workers this way almost no employees would want them.

 
The Thinker

The dangers of deficit fever

Why study history? After all, many people (particularly students) find history boring. However, there are excellent reasons for studying history. By observing our actions in the past and their effect we can predict with a fair amount of confidence whether they will work again. For example, based on our experience during the Great Depression, cutting spending lead to less economic activity and prolonged the Great Depression. Lesson: the government should keep spending in ways that stimulate the economy until a recovery is sustainable.

So what are we doing as we just begin to emerge from the Great Recession? Why, we are cutting spending! With history as our example, we now know that we are almost guaranteeing a double dip recession. Moreover, what we are cutting suggests profoundly stupid choices. It appears that whenever we finally emerge from our economic doldrums and near double-digit unemployment, our status of still being a superpower will be problematical.

It is easy to look at countries like Greece, which is in the midst of a terrible deficit-driven crisis, and figure we need to buckle down ourselves. Greece is buckling down, largely because it had no choice. Here is what austerity is also bringing in Greece: a sharp and marked drop in standards of living, a rise in already high unemployment rates, and credit that is hard to get and when available only at usury rates. There is also a lot of civil strife. Students, pensioners and government employees are marching in the streets. Rioters have already killed some people and damaged considerable property. Greece is on the edge of anarchy.

However, here in the United States both our “welfare state” and our total debt as a percentage of GDP is a fraction of Greece’s. This suggests we are in no danger immediate danger from excessive debt. In fact, as financial markets now look shaky again, even more money is flowing into U.S. Treasury bills. So our country is still seen as a safe haven for money, and our debt is seen as good debt, at least compared with other investments. Unlike in Greece, only a small percentage of us retiring at fifty-five or sixty are retiring on a pension. Most of those retiring are retiring only because they lost their jobs and no one will hire them.

Having lost their jobs, they have far less money in their pocket, so they are spending less. When people spend less and earn less, governments collect less in the way of taxes. For the most part, state and local governments cannot raise taxes enough to make up the difference, so they must cut services instead. And since states and local governments have little in the way of bloat, essential services are being cut. Firefighters, police and teachers that thought they had steady jobs are finding themselves unemployed. Here is a real trickledown effect. Because they have less to spend, retailers receive less and perhaps cut their workforce, or reduce hours. When retailers sell less, they need less from wholesalers who also cut jobs. When wholesalers need less, producers and manufacturers make less so they cut jobs. So the economic effect keeps trickling down, exacerbating unemployment, reducing tax revenues and extending our economic doldrums.

Moreover, our supposedly precious children are getting inferior educations. They are stuffed into classrooms with more students, lose opportunities for extracurricular activities and in at least 120 school districts have four-day school weeks. We will depend on their income in our own retirements, but it’s hard to understand how. By teaching them less today, they will likely be behind children in other countries. All these negative effects are because we are now alarmed over short-term deficits that it appears we can comfortably sustain over the short term.

If you have trouble starting your car, you might pump the accelerator hoping the engine will start. The same is true with our economy. What you don’t do is the moment it sputters to life stop giving it gas.

Deficits remain important in the long term. However, Republicans don’t seem to understand that raising taxes is a viable way to solve deficits. If deficits are truly more important than anything else is, then raising taxes has to be on the table. Otherwise, keeping taxes low is more important than deficits, which is the philosophy they have traditionally embraced. It is also important to get spending in line with revenues. But first things first. First the economy has to be vibrant enough so that economic activity reduces unemployment and drives wealth. When this happens, tax collections also increase, reducing deficits.

Unquestionably, we waste and misdirect much of our tax dollars. Our spending on war in Afghanistan is an egregious waste of money because it is a lost cause. A lot of the money given to the Afghan government instead lines the pockets of its largely corrupt Afghan officials. It also goes to pay off warlords who look the other way so our supply trucks carry cargo safely to remote locations. Aside from the wars in Iraq and Afghanistan, huge amounts of money are wasted within the Department of Defense. Secretary of Defense Robert Gates agrees. There is also huge waste in the Medicare system. Some of these expenditures, like building aircraft engines we don’t need, do feed American families. However, but they don’t go to buy things we need to make our country stronger and safer.

It’s pretty clear what we do need to do.  We need to create jobs for the unemployed that will leave us with a stronger country. Jobs provide money, but also feed faith in the future. You don’t get there by laying off teachers, policemen and firemen. These are our first priorities, which is why it makes no sense for Republicans (and one turncoat Democrat) to kill a bill that keeps them employed. You also get there by building and rebuilding bridges and roads, funding innovative research for the 21st century and by investing in the educational needs of all our citizens, activities that are underway but where more money is likely needed. You don’t get there by cutting off unemployment benefits because people have been two years without a job. All that does is breed poverty and homelessness. However, if a chronically unemployed person at least has a check coming in, maybe he can pay his rent and buy food and clothing. That money stimulates a lot of economic activity.

You also raise taxes where it makes sense to do so. Aside from the poor economy, what is feeding the deficit? Mostly tax cuts that we gave to the richest Americans. These are people who can certainly afford to pay more taxes and in some cases genuinely want to pay more taxes. These huge tax cuts drove the problem that caused our deficits to explode. Certainly now is not the time to raise taxes on middle and lower income people, but those who can afford to pay more in taxes certainly should, particularly when richer Americans historically have paid much higher tax rates and still maintained a great standard of living.

Perhaps to achieve fiscal solvency it will be necessary to extend retirement ages or cut benefits in social programs like Medicare and Medicaid. These cuts become much more likely though in a hampered economy. I know my lifestyle would take a severe hit if I lived on half my income. The same is true with our government. A thriving economy will be the engine that creates this wealth again, as it did under Bill Clinton.

We need to spend more to get this economy moving again, even if the debt numbers look scary in the short term. Just as importantly, we need to spend wisely, investing on essentials like education, our state and local governments, and our infrastructure. Doing so prepares us for the economic challenges of the 21st century. To narrow the deficit, we need to repeal tax cuts given to the rich. At the very least, we need to redirect wasted money from places like Afghanistan into useful activities, like maintaining basic services for our citizens. What we do not need is what we have now: a panicky and foolish Congress that cannot see that their version of austerity is just another word for continued recession, unemployment and our quick descent into a second world country.

 
The Thinker

Government is the price of progress

Some years back I read a review of the book Children of the Depression. I purchased the book, which is full of glossy black and white pictures documenting ordinary life for children in America during the Great Depression of the 1930s. The pictures were found in the archives of the now defunct Farm Security Administration. In their raw and unvarnished form, they detail the heartbreaking daily poverty of ordinary Americans living through those times, with an emphasis on how the lives of children were affected.

Both my parents lived through the Great Depression. My paternal grandfather was a civil servant, so my father was only tangentially affected by it. My mother, born in 1920, had her entire life view shaped by being young and in a desperately poor family during the Great Depression. Looking through Children of the Depression, I can see that world through my mother’s eyes.

Here are a few snippets from my mother’s autobiography that gives you some inkling of just how awful and life was for her during this time:

When Dad lost his job, that was the end of meat in our diet every day. Now it was depression soup (a mixture of oatmeal, onions, water, salt and pepper).

How did we keep warm? I’m hazy here but I do believe welfare gave use some coal, but not enough to keep our drafty house warm. We are not proud of this, but we stole some from the trains that would pass near us. A few blocks to the east of us the train had to slow down to make a turn and the older boys would hop atop the coal cars and when they would get within blocks of our house, they would toss coal off as fast as they could. When the train would slow down they hopped off and gathered their booty in burlap bags and carried them home. Things got so bad at times the boys would hop a night train and go out early to pick it up.

There is much more to her story. Her family depended on sporadically available charity clothing and food. She routinely missed the first few weeks of school because she had to earn migrant labor wages in the fields harvesting the crops like sugar beets. Holes in her shoes were left unfixed, and she used cardboard insets instead. Naturally, there was no money for doctor visits, drugs, dental care or therapy. She was just one daughter in a family of twelve supported by an immigrant father. Her father, who emigrated from Poland, dropped out of school after the third grade. During better days, he was employed as a butcher.

Leafing through Children of the Depression, you can see that my mother’s tale was wholly ordinary and one of millions. Many people dealt with much worse than she experienced. While her family’s house was sold at auction, they managed to evade being thrown into the streets. They were eventually able to pay off the back taxes and reclaim their house. Therefore, unlike many in America during the Depression, they did not have to live the vagabond life. Such was life in Bay City, Michigan and much of America in the 1930s.

As bad as the Great Depression was, it could have been much worse. While modern welfare benefits were unknown, there were surplus food and goods that the government sporadically made available for the poor. My grandfather eventually found employment as a laborer helping to construct a bridge over the Saginaw River. This was just one of the many projects funded by President Roosevelt and the Democratic Congress during this period that succeeded in putting many chronically unemployed people to work. The government did not choose to stand on the sidelines while so many Americans suffered so deeply.

A couple days ago, I learned about the Otto Bettmann book The Good Old Days – They Were Terrible! It describes life in the 1880s. By comparison, the Great Depression seems wonderful. A diarist on DailyKos summed up some of the key findings, which include:

FOOD: Adulteration of foodstuffs was problem and conventional practice in the 1880’s. Alum, copper, and sulphur were often added to bread flour for preservatives. Coloring for candy was often toxic, sickening children and adults alike. “Bogus butter,” a mixture of animal fats, calcium, or potatoes (whatever was on hand) was bleached and processed in disgusting conditions and repackaged by merchants and labeled as butter. Canneries operated under filthy conditions, and the process itself often was proven detrimental, through the use of chemicals added to preserve. Slop fed to cows often made the children sick

SANITATION: Cities such as Chicago, Pittsburgh, New York, Helena Montana, Leadville Colorado, generally suffered from putrid conditions. The air stank, refuse filled the streets, garbage and food refuse was dumped everywhere, the waste of humans and animals alike trickled through crowded streets. Unhygienic conditions on the streets were matched by interior conditions in workhouses, orphanages, factories, asylums, hospitals, and farmhouses. Life in the country did not proved an escape from unsanitary conditions; private wells were often contaminated by close proximity to barns, privies, and household refuse. Many homesteaders lived with farm animals in their homes during winter months.

Yes, this was just a bit of the way things were actually like during those glorious, wonderful days of laissez faire capitalism. They must have been wonderful, because I hear modern current conservatives brandishing obsolete slogans like Thoreau’s “the government that governs best governs least”. I have to wonder: we are aspiring to return to days like this?

While that is unlikely, we do see more and more steps in this direction. We saw it emerge in recent times with the election of Ronald Reagan, who appointed people with open contempt for the general welfare. Of course, we also find ample examples of it in our current administration. We see it in its hostility to raises in the minimum wage. We see it in its refusal to create meaningful increases in vehicle fuel economy. We also see it in its inability to acknowledge honestly that global warming is largely a result of human activity. While our president makes inane statements about prosperity like “We’ve got to make the pie higher”, in actuality he is very deliberately making the rich richer and the poor poorer. Because of his tax cuts that disproportionately benefited the rich, when necessary commodities like gasoline rise in sharply price, those of lower incomes bear most of the pain.

Economic conservatives these days seem very much out of touch with reality. For one they seem to assume that liberals and progressives are against capitalism. They think that we embrace unbridled socialism as utopia here on earth. Except for a few liberals on the fringes, this is just plain wrong. Progressives like me understand that capitalism is a vital ingredient in social progress. However, capitalism is just one force that enables the promotion of the general welfare. The other part is government, which has the duty to promote the general welfare.

Centuries of unbridled capitalism have demonstrated beyond argument that by itself capitalism does not lift all boats. Instead, unbridled capitalism gives power to the wealthy. Moreover, by restraining government so that it does not do much to help the general welfare, it perpetuates the class system. Our social security system was created by the government because the private sector could not provide it and it was needed. Nor would free markets ensure that all laborers could earn a living wages. Capitalism does not care a whit if human beings are forced to live in tarpaper shacks or whether communities have modern sewage systems. Capitalism is simply a means that helps to maximize profits for the owners of the company. As is amply evidenced in the hallways of Congress and state legislatures across our country, businesses will petition endlessly to shift the costs, risks and burdens of industry off them and onto anyone else. They call it “being more competitive”. When you hear those words, beware!

Just as unbridled capitalism is not ideal, neither is unbridled socialism. Capitalism is a necessary engine for progress, but it must be constrained so it becomes win-win. Companies need to make profits, but also need to be constrained to ensure some of the profits indirectly improve life for all Americans. In addition, the government needs to give capitalists the maximum freedom to earn those profits consistent with allowing its benefits to affect the commonweal. This is, at its heart, what the economic aspects of the progressive movement are all about. It should not be the least bit controversial. It should be “No duh!”

Economic conservatives need to sober up. Libertarianism is simply not a workable philosophy in our modern world. We need agencies like the Food and Drug Administration, otherwise we are back to snake oil salesmen and unsafe food. We need the EPA, if for no other reason than capitalists need consumers around to buy their products. While there are perhaps some agencies whose missions are of dubious value, the vast majority have survived because they are involved in vital regulation and monitoring. This enables both the general welfare and provides a platform so that entrepreneurial behavior can continue to flourish.

Those who pine for the 1880s are sadly misguided and recklessly foolish. Except for the J. P. Morgans of the world, most of humanity lived short, sad and miserable lives. Ironically, China is becoming a case for why progressive government is needed. While some income levels in China may be creeping up due to largely unchecked capitalism, lifespan is decreasing from the resulting unchecked pollution.

Like it or not we now live in a far more complex world. Unless we all become like the Amish, the combination of increasing populations and quickly evolving technologies will make it inevitable that government will need to expand. If you object then to be consistent, you should give up your computer, cell phones and automobiles, none of which would be as cheap, safe or work as well without necessary and relatively benign government regulation. Like it or not, our complex and modern world and growing government is here to stay.

 

Switch to our mobile site