We know in our personal lives that debt is bad. It hurts us and our loved ones. When we fail to budget properly and we run ‘budget deficits,’ it leads to longterm debt, poor credit ratings, and can even lead to foreclosures, bankruptcies, garnished wages, possibly even homelessness. Likewise, we are wise to be concerned about excess debt for governments, including our government. For most of our history as a nation, we’ve had some debt, but it has usually been small and manageable. Now, for the second time in 20 years (the first time was 1981-1993), it looms very large. When coupled with a large trade deficit (we import much more than we export), it weakens our overall economy. It leads, if unchecked, to higher interest rates and a very weak dollar–and this hurts not only the government, but the nation as a whole.
So, normally, we should be ‘fiscal conservatives’ and ‘deficit hawks,’ attempting to balance the federal budget and reduce the federal debt. But not all debt is equal and there are times when a government must go further into debt even if it is in a weakened economic position. Recessions and depressions need massive government spending to end–even if it means postponing reducing the problem of government debt.
Let’s explain this with an analogy from personal finances. Excessive debt is normally very bad. Specifically, maxing out all your credit cards on luxuries is foolish. But, suppose a storm blows the roof off your house. You have to fix the roof even if it means getting a loan from the bank. If you have previously run up your credit cards and have a poor credit rating, you can’t wait until your finances are better to fix your roof. You have to get the roof fixed immediately. So, that probably means borrowing at a higher interest rate and will probably mean that it takes longer to get your credit in good shape and reduce your indebtedness. That’s bad, but you have no choice.
A recession is like having your roof blown off. The recession that began in Nov. ’07 and led to the stockmarket crash of August ’08 has been much bigger than most recessions: a mini-depression or “Great Recession.” It’s like having the roof blown completely off and damage to 3 of the 4 walls, too. So, is all the government spending on recovery, infrastructure, healthcare reform, school reform, etc. risky? Yes. It probably means that it will take longer and hurt more to get the budget balanced, end the deficits, and reduce the national debt. We have some national pain coming. It would have been better if the Bush administration had not run up the national credit cards and put us in this weakened position when the financial roof was blown off, but they did. Failure to spend (wisely) now would lead to worse problems than the problem of postponing the debt reduction–just as leaving your house without a roof would be worse than the painful borrowing of money at high interest to fix it while you had a bad credit rating from previously foolish habits.
Now, WHY must government spend during a recession or depression? It seems counter-intuitive. When times are hard, families tighten their belts and spend less. So do most businesses. They cut expenditures any way they can in lean times. Why shouldn’t government do the same?
Remember the law of supply and demand? It’s the most basic law of economic, right? If demand (for a certain product or service or, in really good times, for MANY goods and services) is high and supply is low, what happens? The prices on the goods and services in short supply and high demand go up, right? Right. That can lead to the problem of inflation which, when too high, can end an economic upswing. But when supplies are plentiful and demand is low, what happens? Prices go down–maybe even drop through the floor. Now, a recession or depression involves HIGH supply and VERY low demand. (Remember the news photos of all those new cars last fall sitting in ports with no call to go to dealerships. High supply and low demand.) And it creates a vicious cycle: Money is tight, so people cut back their spending. People aren’t buying, so businesses cut back their orders. Then the businesses start laying off workers. People without jobs spend less, which leads to more cut-backs, etc. (Unemployment is a LAGGING economic indicator. When it begins, it means a recession has already been underway for a time. When a recession starts to end, unemployment is the last thing to get better.) So, if government cut back spending, too, it would just lead to even less money in the system, making matters worse.
In a recession/depression, the way out is for government to become the “spender of last resort.” Government does road repair and bridge repair and new roads and bridges–and spends money. The contractors have to hire new people. The people buy things. Government spends on “cash for clunkers” and it keeps dealerships and car parts manufacturers from heading into the same death cycle the auto manufacturers were in. Government buys new fleets of cars for the FBI, etc. The spending–the more the better–creates jobs and, over time, reverses the recession. We know this from history: This is how Franklin D. Roosevelt and the New Deal got America out of the Great Depression–which had been going for FOUR YEARS when he took office. It was quite a hole to dig out of and it took time–especially since this kind of repair was new and experimental. But by 1936, it seemed the Depression was ending. So, Roosevelt gave into the critics and became more conservative: Cut spending, raised taxes, and balanced the budget–and we slipped back down into Depression in 1937 since the economy was still too weak to stand on its own.
Wait! You’re saying. I learned that what finally got the U.S. out of the Depression was not the New Deal but World War II. That’s right, but it wasn’t the war itself. Wars are expensive and usually hard on economies even for the victors. (That’s why G.W. Bush’s insistence on further tax cuts during two major wars was disastrous–you NEVER cut taxes during wartime. It meant borrowing the $3 trillion–and counting–for the wars in Afghanistan and Iraq. It was part of that running up of the credit cards which made us so economically vulnerable to this huge recession.) WWII helped the U.S. out of the Depression because it was a MASSIVE government spending program–far larger than anything ever envisioned by the New Deal. We needed to replace every ship destroyed in Pearl Harbor, plus build more. We had to build a new Army Air Force from scratch. We needed new tanks, new guns. The draft itself was a massive jobs program that overnight nearly ended unemployment. From an economic standpoint (as opposed to actually beating the Axis powers) we could have pushed all those planes and tanks and battleships into the oceans and kept building more. Factories reopened for the war effort. Thousands were hired. New money was put into the economy in a virtuous cycle. THAT’S why WWII brought us out of the Great Depression–nothing to do with war itself.
When wars end there is usually an economic slowdown–a recession or depression. We had one at the end of almost every war the U.S. has fought, including the Civil War (unemployment doubled after the war–not counting the newly freed slaves now entering the job market–and the South, which had been the richest part of the nation, became the poorest for most of the next century), the Korean War, the Vietnam War (ended in ’75 and Jimmy Carter got stuck with the bill om Jan. ’77), and Gulf War I (led to the Bush I recession). So, why was there no recession at the end of WWII? Several reasons–all of which illustrate our main point that not all debt or all spending is equal.
- The Marshall Plan. The U.S. spent millions of dollars to rebuild Europe and Japan after WWII. And we cancelled war debts. That made it harder for us to balance our federal budget in the short run, but it gave us markets for U.S. goods and services: So, that U.S. manufacturers that were no longer making many tanks or bombers could make and sell other things.
- The G.I. Bill. Returning soldiers were helped by federal spending to go to college or learn a trade that led to higher wages and less unemployment–it also delayed some of their return to the job market, so that unemployment didn’t rise dramatically.
- The women (Rosie the Riveter and her friends) who left their homes to work in the factories while their husbands and fathers and brothers fought and died overseas, mostly chose to return to domestic life–which allowed the returning male soldiers to take their place–also preventing a huge unemployment spike at the end of WWII.
- VA and FHA loans for houses. The federal government helped many American families (there was racial discrimination here so that most of the help went to white families) buy their own homes–especially returning soldiers. This, along with the federal highway system under Eisenhower (more infrastructure spending), created the suburbs–which may or may not be a good thing in our new ecological era. But at the time, it was a great boon to the American economy. Every house built was more money into the economy and so was every home purchased. And none of it would have happened without federal programs.
So, yes, high deficits and debt on behalf of government is usually bad. Frivolous spending should be avoided: Like price supports for tobbacco and farm aid programs started during the Great Depression aimed at small family farms that are now going to subsidize millionaires who don’t live anywhere near the factory farms they own. Or the military budget which is higher than the next 25 nations combined (and, except for a global war following a Depression, excessive military spending is usually bad). Tax giveaways to the rich also lead to massive deficits–as they did under Reagan and Bush I as well as Bush II. We know from history that “trickle down” economics doesn’t work–not much trickles down. Balanced budgets and a “pay as you go” system is normally much smarter.
But not all debt is equal and there are times when all governments need to engage in deficit spending–or deficit investment. Think of it similarly to times when small businesses realize that they either have to grow or fail–and they borrow (carefully, we hope) to invest in new or better equipment, to hire new people, open a new branch. They don’t expect to see the fruits of this investment in terms of profits for a few years. Similarly deficit spending during a recession is an investment that should pay off when the recession ends. How soon depends on factors such as how big the recession is and how big the deficit was BEFORE the recession.
Corporations developed in the industrial revolution as a way to limit the liability (risk) of entrepeneurs in starting a new business. They can be useful. In fact, these days most churches and other non-profits have formed “limited liability corporations,” (LLCs) so that, for instance, if someone falls and is hurt on said church’s property, they can only sue the corporation for damages–not every churchmember for every asset they own. But corporations used to have far more limited rights than they currently do in the U.S.–and were only granted their charters if they could show that the corporation, whether for-profit or not, served the common good of society. They certainly had far fewer rights than human persons under U.S. law–but now they have more rights than human persons. What changed and what are the consequences?
As Thomas Hartmann documents in his book, Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights (New York: Rodale Press, 2002), the trouble started in 1886 with a U.S. Supreme Court decision, Santa Clara County v. Southern Pacific Railroad Company. It was a simple tax case (Santa Clara, CA claimed that Southern Pacific Railroad owed back taxes) that should have had nothing to do with corporate personhood, due process, or human rights. But the lawyers for Southern Pacific Railroad used much of their time claiming that the corporation was a legal person who should be granted all the protections of the 14th Amendment. The Supreme Court seemed to agree. (Seemed because the claim that corporations are persons was not made in the judgment of the case, but in the headnotes which are not legally binding. Nevertheless, most subsequent court decisions have acted as if this case determined corporate personhood.)
Now, the 14th Amendment was passed in 1868 to defend the rights of freed slaves and other African-Americans. But this Supreme Court, a VERY conservative court, the SAME Supreme Court which, in Plessy v. Ferguson, upheld segregation laws as treating the races as “separate but equal,” used the 14th Amendment to apply all the protections the U.S. Constitution gives to human persons to corporations. (In fact, as Justice Hugo Black would later point out, during its first 50 years, less than 1% of the cases involving the 14th Amendment that appeared before the Supreme Court had to do with the rights of African Americans–and a full 50% had to do with the rights of corporations.) Plessy v. Ferguson was overturned in 1954 by Brown v. Board of Education of Topeka, KS, but, so far, no case has ever overturned (or, amounting to the same thing, decided that the Headnotes are not law) Santa Clara County v. Southern Pacific Railroad.
What are the consequences of the legal fiction that corporations are persons? Many. If corporations want to elect politicians that favor them over the common good, they can donate to campaigns–just like human persons–and usually with far more money to donate. They can use the First Amendment’s guarantee of “the right to petition government for a redress of grievances” to lobby for their interests in the halls of Congress. They can use the 4th Amendment’s protection against search and seizure to keep authorities from surprise inspections–allowing it time to cover up health and safety violations or violations of pollution laws. They can use the 8th Amendment’s ban on excessive fines, bail and “cruel and unusual punishment” to limit the damages in lawsuits–as when Exxon-Mobile was able to get the fines from the Alaskan oil spill by the Exxon-Valdez greatly reduced. How meaningful are safety and environmental laws without surprise inspections?
The fiction of corporate personhood ends up giving corporations more rights than actual persons. A human person cannot be two places at the same time–but a corporation can. Thus, they can open an office in the Cayman Islands and avoid paying any U.S. taxes–while benefitting from U.S. laws. Corporations are potentially immortal, whereas human persons die–so corporations pay no inheritance tax. Corporations can have billions of dollars available which few human persons do. Lacking a soul or conscience, corporate persons need not heed its guidance.
I believe we need a Constitutional Amendment declaring that corporations are NOT persons and not entitled to any of the protections afforded persons under the Constitution. This would allow surprise inspections by regulating institutions such as the Environmental Protection Agency, the Occupational Safety and Health Agency (OSHA), the Wage and Labor Board, the Department of Labor (inspecting to see if corporations are illegally suppressing workers’ rights to form unions and engage in collective bargaining), Immigration and Naturalization Service (inspecting for undocumented workers), etc. We also need a Constitutional Amendment declaring that money does NOT equal speech (or there could be no free speech, since the one with more money can buy more speech), so that campaign finance laws which restrict donor amounts by persons or corporations are not, thereby, restricting free speech. We need to require that all corporations have their charters renewed every 10 years–and that they must justify their continued existence as corporations based on whether or not they continue to show that they benefit the common good.
First, let me say that unlike some Marxist-Leninists who designed “command economies” that were centrally planned and extremely bureaucratic, I do not deny the need for markets or for private businesses. “Command economies” failed the test of history: They were grossly inefficient and only worked at all by suppressing individual freedoms in a totalitarian state–and even that fell under its own weight eventually.
Market economies distribute things efficiently–but not always fairly. It is a myth that the “invisible hand” of a “free market” will always distribute goods and services in an optimum fashion for a society. The myth is based on a misreading of Adam Smith, founder of modern capitalist economic theory. Smith said that value and the wealth of nations was created not primarily by agriculture or trade, but by labor. He argued (rightly) against monopolies tied to aristocratic families and to government preference for one company over another. Rather, trusting in competition between companies, with everyone acting in his or her own interests, the good of the whole nation would be served. That was his “invisible hand.” We ought to be suspicious of this for it amounts to saying that if everyone is as greedy as possible, everyone will benefit. Think of that: Every religious and moral system in the world condemns greed as a vice. But the “invisible hand” (a secular substitute for God’s providence?) of a benevolent free market supposedly works by turning greed into a VIRTUE. (Not Smith, but the later American philosopher Ayn Rand, made this explicit in her horrible, but widely influential, book, The Virtue of Selfishness. Milton Friedman was a disciple of Rand and, in turn, Ronald Reagan was a disciple of Friedman.)
But the real Adam Smith was not the hyper-capitalist of later American myth. (In fact, the term “capitalism” did not exist when he wrote The Wealth of Nations.) He argued against what today would be called “globalized free trade,” for instance by arguing that tariffs that made another nation’s goods more expensive and favored one’s own nation could be especially helpful when one was developing an industrial society. He argued against policies that would “outsource” jobs to other lands. Believing that poverty could hold down the development of a nation as a whole, Smith advocated taxing the rich to provide for the poor. He also recognized that external factors such as pollution or war debts could undermine the “invisible hand” of the market in creating and distributing wealth.
So, while Smith advocated “free markets,” what he meant was an end to monopolies tied to aristocratic families or to fuedal guilds. The extreme laissez-faire form of late modern capitalism owes more to Milton Friedman and his political disciple, Ronald Reagan, than to Adam Smith. As well, Smith didn’t believe that all moral values should be reduced to market values. The man who wrote The Wealth of Nations also wrote A Theory of Moral Sentiments.
For more on how Adam Smith would not fit very well in today’s capitalism, see Thom Stark’s “Quest.”
There are no “free markets” if by that we mean markets with absolutely no government intervention. In any economy more complicated than a small village, a market cannot even exist without government “intervention.” After all, just to HAVE a market takes at least the following:
- Standardized currency, backed by government guarantee of the worth of that legal tender.
- Standardized weights and measures–and a bureau of same to set those standards and enforce them.
- A mechanism for enforcing contracts.
Beyond that, for an efficient market, one needs some other things:
- Public roadways, waterways to move goods and services. One can move everything by rail through private rail companies, but chances are the railway lines will be publicly maintained. Bridges, public dredging of rivers and ports for commercial access, public airports even for private air shipping companies–all are government interventions in the market.
- Safety standards for workplaces and for products. And a government agency to enforce the standards and review them.
- Pollution standards and government enforcement mechanisms.
- One doesn’t usually want privatized access to drinking water, so there is usually public water and sewage.
One can have purely privatized garbage pick-up and utilities, such as electricity, but these tend to be “natural monopolies” without much competition. So, usually, for the benefit of the whole community, these are either publicly owned or, at least, publicly regulated.
Public transportation systems, partially paid for by taxes, partially by user fares, help keep down congestion on roads (or keep it from getting worse), reduce pollution, and provide efficient transportation for all those without the means or desire of private transportation.
Then, too, every society decides that not all values can be reduced to market values. Somethings are so valuable (or so dangerous to the common good) that the society judges that they should not be bought and sold. If they are to be distributed at all, they must be distributed by non-market forces. Thus, in our society, several drugs are illegal (e.g., cannabis) and others (e.g., alcohol) are strictly regulated and not allowed to be sold to minors–this is a large interference in the marketplace. Also, in our society, we do not permit sex to be distributed by market forces. When we forbid pornography (or certain types of it, such as “snuff” films) or regulate it who can be filmed (no minors) and to whom it can be sold (again, no minors), we interfere in the market. When we forbid child labor or slavery, we interfere in the market.
The idea of a market that has no government interference is an illusion–and would not be desirable. Once we see and acknowledge this basic truth, we can see the true nature of the debate: Over HOW MUCH and WHAT KIND of government interference in the marketplace. Now that is a debate worth having. I do not think any political party or ideology has a corner on all the answers there. But when anyone starts with the premise, “Government interference in the marketplace is always wrong,” you know they are either quite mistaken or being deceptive.
By “socialized medicine,” I mean, of course, systems like those in the United Kingdom or Spain where all hospitals (clinics, etc.) are government owned, private insurance can only be supplementary, and doctors, nurses, and other healthcare workers are all government employees. It’s simple: That system may have its strengths (the Spanish and the British seem to like it), but it would violate the U.S. Constitution–specifically the “takings” clause which forbids nationalizing private firms without just compensation. So, if you fear socialized medicine –don’t worry. If you long for it–move to Spain or the U.K. It ain’t happening here.
What COULD happen here (although not with this current legislative session on healthcare reform) is socialized health INSURANCE similar to systems in Canada, Australia, New Zealand, France, and almost every other industrialized, capitalist, democracy. The doctors, nurses, etc. do not work for the govt. They just BILL the govt. for fee for service. This is usually called a “single payer” system. Instead of thousands of rival health insurance plans (all looking over doctors’ shoulders authorizing or forbidding procedures), the doctors, patients, and families make all the medical decisions and the govt. foots the bill through taxes. It is possible, and certainly legal, that such a system could be put in place here: Simply expand Medicare (which ALREADY IS socialized health insurance) from covering everyone 65 and up to covering all U.S. citizens, PERIOD.
However, that option is NOT being considered currently in Congress. It was removed from discussion at the very beginning of the year. In my mind, that was a mistake, but there it is. What could happen, is that we could get a “public option” of govt. health insurance that COMPETES with private insurance. We also might get permission for the states that want to do so to experiment with single payer healthcare in their states (Canada’s plan began in one Province). If the public option proves popular, Americans could turn it into a single payer system. So, what is being considered is NOT socialized medicine (no matter what Glenn Beck says) or even single-payer (no matter what all of Fox News says), but a centrist reform that, IF DESIRED BY THE AMERICAN PEOPLE, could one day become a Canadian style system.
It simply gives the American public more choices–something Republicans usually claim to want. If the private companies are superior, then they will beat the public option in the competition of the marketplace. If the govt. option is superior, it will win out. Insurance companies and Republicans seem to be afraid that they cannot compete–or cannot without lowering their prices. But isn’t that capitalism?
At this link, there is an excellent article that argues that single-payer, universal healthcare would NOT lead to socialism, communism or fascism. Rather, it may be the best way to defend widespread home ownership and small farm ownership in America. ( 3 of 4 home foreclosures are healthcare related. 70% of bankruptcies are healthcare related.) I would also argue that it encourages small businesses (they don’t have to wonder how to provide healthcare to employees and can then offer higher wages) and makes large businesses more competitive (lack of universal healthcare adds $500-=$1000 to every car made in America, reducing our competitiveness with other countries).
I am sending this article to the WH and to leaders in Congress. We need to change the way the debate is being framed on healthcare. Please read and distribute widely.
A new economic study shows that income inequality is at an all-time high. The top 1% of Americans gained over 50% of all economic growth from 1993-2007. Why does this matter? We don’t think that everyone needs to have exactly the same amount of wealth, do we? No. I believe in a more complex form of equality than that. But this means that the super rich got much richer while everyone else went backward or stayed the same–often by working multiple jobs.
Basic to the American idea of equality of opportunity (I believe in more than this, but this is deep in our national consensus morality) is the absence of an aristocracy and the ability to move out of one economic class into another. But we have been moving away from this. Economic mobility is now easier in Britain (which still has an aristocracy) than in the U.S. which supposedly doesn’t.
The implications of this study are wide reaching–far beyond what I can reflect on here. But I would say this is a strong argument for the reintroduction of the inheritance tax on property of a $1 million or more. It’s not a “death tax,” but an anti-aristocracy tax.
My friend, Mike Broadway, who teaches theology and ethics at Shaw University Divinity School, is just finishing an 8 part series on Economic Recovery for All: Theological Reflections on the Economy over at his blog Earth as it is in Heaven. I urge my readers who are interested in economic justice, especially on solid theological reflections from a Christian faith perspective to go to Mike’s blog and read that series (based on a working paper for an ecumenical campaign for economic justice) and interact with Mike on it there. It’s really fine stuff and I only wish the deliberations of Congress and the White House were informed by such powerful reflections.