An economy has a purpose

In the American tradition, governments have a purpose – a reason or set of reasons that they exist at all. The Founding Fathers felt compelled to make this clear – first, in the Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
Conservatives often argue that government has gone too far and strayed from its true and right purpose. They often use this argument as a justification for cutting government, especially human services, even in better economic times than we have now.
Liberals and progressives absolutely should fight the conservative vision of the purpose of government.
But we must not stop there.
We must make it clear that an economy has a purpose, too.
That purpose is to provide the people within that economy with the necessities of life. And to the degree to which a given economy is not delivering those necessities to its people, it must be deemed a failure.
We can argue about what those necessities are. At the lowest level they would have to include food, water, clothing, and shelter. These should be as fundamental to any economy as liberty and civil rights are to a democratic government.  Beyond those basics, some modern-day necessities of life could include education, health care, transportation and communication. Again, for an economy to be considered successful, it should provide these necessities to its people. If it doesn’t, it’s a failure, even if GDP is growing.
Both government and an economy have a purpose, but it’s important to remember that, in the democratic American tradition, a common singular purpose unifies both of these institutions – freedom.
As FDR reminded us during his 1944 State of the Union address in which he introduced his Second Bill of Rights, “Necessitous men are not free men.” It’s just common sense that, in economic matters, the rich enjoy more freedom than the poor.
It is for us, as liberals and progressives, to fight for a world of true freedom, true liberty, by articulating the purposes not only of government, but the economy, as well.  Economies, like governments, exist to serve their citizens – not the other way around.

People are Too Big To Fail

In a post reviewing President Obama’s new economic proposals, Ezra Klein also goes after the idea that the Obama administraiton is somehow “anti-business”.  He sums it up this way:

The various stimulus measures have been designed to directly support businesses or indirectly support the people who those businesses rely on.

It’s just a variation on the theme of Too Big To Fail – the idea that if we only support companies (especially large ones), we’ll all turn out okay.

Some TBTF might be needed in special circumstances, but how about emphasizing actual, individual humans as being Too Big To Fail for once?

More on economic liberty

Building on my post yesterday, I want to stress that my vision of economic liberty is aimed at individuals and families. I think if we had this framework for thinking about economic matters, the financial bailouts of the last year or so might have looked completely different.

We’ve spent a great deal of money and energy saving financial and automotive firms from failure. In a sense, the thought was that we can only help individuals and families in the economy by making sure that critical companies remained intact. We’ve developed a system – or at least a way of thinking about the economy – in which we can only help people by helping out firms.

What if we instead had made sure that the people that were part of those firms had what they needed in the economic downturn and allowed the firms, which are really just particular groupings of people, to go out of business? We could have spent trillions of dollars helping people get new skills in college, developed and funded programs that would have a genuine impact on the housing crisis, provided people with funding to move to the places where there are jobs and away from depressed areas, etc. These kind of initiatives, combined with some of the so-called automatic stabilizers like unemployment and welfare benefits, could have led to a bottom-up recovery, instead of a top-down one like is trying to be fostered now. And, of course, universal health care insurance is key in all of this, because more people might be tempted to move to new jobs, try new things, and ultimately be more productive if they knew they wouldn’t lose their health care coverage and could get proper care in the first place.

As for our current firm-centered approach, in the case of the financial sector, this appears to have been only choice in the short-term. (Sadly, the Obama administration seems committed to continuing keeping some firms too big to fail, instead of whittling them down to size.) In the cases of the U.S. automakers, I think this was much less true.

Either way, it would be great if we could come out of this current economic crisis with a different approach to our economy – one centered on true economic liberty for individuals and families.

It’s high time for true economic liberty

I want to suggest a new way for liberals and progressives to think about their arguments for government-delivered social programs – economic liberty.

It strikes me that most often we see arguments supporting everything from Social Security to health care reform framed in three ways: security, equality of opportunity, and a question of rights. These are all valuable ways to look at social programs, but I’m not sure that these frames are always persuasive to political independents, upon whom so much long-term political success depends. However, freedom and liberty are persuasive and have been so for more than 200 years.

Thomas Jefferson’s vision for America was rooted in individual liberty, and this vision was expressed economically by celebrating the “yeoman farmer,” who could sustain himself through working his own plot of land and thereby interact with other people from a position of freedom, strength, and equality. But the modern economy doesn’t permit this kind of independence. Instead of providing for ourselves, we enter into the marketplace or rely on our collective actions through governments to get the modern essentials of civilization – food and water, shelter, clothing, education, health care, energy, transportation, and security. Because we get most of these through the marketplace, we need cold hard cash to purchase these essentials, which means we absolutely need a job, which means that our economic liberty is reduced.

Think of it this way: who has more economic liberty – the average individual or household that is desperate to hold on to or get a job so that the flow of essential goods and services won’t stop, or the independently wealthy person who can work as desired and still buy everything he or she needs? Most of us live lives of quiet economic desperation, especially in recessionary times like these, and because we live in the modern economy, we can’t just go back to our farms and till our own soil for sustenance. That economic desperation is antithesis of liberty.

Liberty is an essential American ideal and goal, but when it comes to economic liberty, liberals and progressives have almost completely ceded that rhetorical territory to the right. Do a quick Google search for the phrase “economic liberty,” and you’ll find the results heavily skew toward libertarian and conservative viewpoints. Same goes for “economic freedom.” It’s not a stretch to say that the right owns this concept.

That has to change. Liberals and progressives need to redefine and claim the idea of economic liberty. Universal health care is about economic security, but it’s also about economic liberty – giving people more power to walk away from jobs they don’t want and try new things. Providing for education equalizes opportunity, but it is also about economic liberty – giving people the power to achieve whatever their will and good fortune provide to them in life. And having adequate food, water, and shelter is a human right, but having those also serves economic liberty – giving everyone a stable, equal material platform from which to exercise their power in a democratic society.

As always, the trick is how to make this kind of economic liberty real. Certainly one way would be for every individual or household to earn enough wages so that they, like the independently wealthy, could buy all they need and save enough to sustain their independence. This is an attractive option, seeing as it would give everyone the ability to choose the exact mix of goods and services they want, further enhancing liberty. But it’s hard to envision this kind of distribution of wages becoming a reality.

A second alternative is all of us working together through taxation and government guarantees of the needs of life. We have already traveled far down this path through our social safety net programs and public education. We are currently engaged in a battle to expand this approach through universal health care.

Whatever the approach, the goal should be the same: the expansion of true economic liberty to all. We take it as a given as Americans that we are guaranteed civil liberties, such as freedom of speech and religion, and generations of Americans of every political persuasion have been inspired to rise up to defend and expand these liberties. Now it’s the time to build a new American consensus to demand and expand our economic liberty, and thereby ensure our security, opportunity, and rights.

Crafting a household-centered bailout

I’ve pretty much been on board with the idea that we need to save the financial system in order to help re-start the economy. I’m not happy with many of the specifics (I generally think the existing financial players are getting too many breaks), but I’m willing to see the government do something to keep the financial system alive in the short run.

What’s been seriously lacking so far, though, is an equivalent emphasis on a bailout for American households and individuals. Helping actual people has been way down on the priority list.

And apparently even programs targeted at households are not doing so well. The New York Times and others report that the Bush and Obama administrations’ programs to help homeowners who are underwater on their mortgages (owe more than the house is worth) or that face foreclosure are starting out very slowly. Perhaps it will take some more time, but when will issues directly affecting American families get the attention they deserve? We can go a lot farther that we have to help families themselves.

For example, from the NYT article:

“Even if they do drop your loan payment, you can still be in deep negative equity, which is not an immediate crisis,” said Adam J. Levitin, an associate professor at Georgetown University Law Center. “But let’s say you need to relocate because the auto manufacturer you work for is radically downsizing. You are faced with losing your house in foreclosure or a huge balloon payment. And neither of those is palatable.”

One of the ways our economy will rebound is if workers can get to where the jobs are. Today’s out-of-work employees first have to get out from under their houses. That likely leaves them broke and unable to afford to move. We could develop some sort of “labor market restructuring assistance program” (LMRAP – limrap – not as cute as TARP, I’ll admit) that makes it easier for people to get out of their homes (with, dare I say, even some debt forgiveness) and money to move should they find a job.

Sure, it’s not that simple, and there would be all kinds of details to work out. But it sure wouldn’t be any more complex than the bailout of the financial markets. And it would be a people/family-centered bailout, directly helping them get over some of the worst parts of this economic downturn.

Economic patriotism

Conservatives spend a lot of time belly-aching about “patriotism.” (Actually, they’ve been pretty effective at it and have pretty much owned the word. More work for liberals to do…)

But what counts as patriotic is not that simple, especially in a globalized economic age.

The bailouts of the auto industry being managed by the Obama administration might end up being good for “General Motors,” the entity that just happens to be headquartered in Detroit, but as William Greider points out in the Nation, it’s important to remember that some American citizens are being thrown under the bus:

So this is how the auto bailout will work. American taxpayers pump tens of billions into rescuing General Motors from bankruptcy. Then GM pays us back by shipping more jobs overseas — the equivalent of four assembly plants.

The United Auto Workers sent a letter to Capitol Hill the other day that revealed the terms. GM’s restructuring plan envisions a doubling of the vehicles it will import from overseas factories, from 372,000 to 737,000, in the next four years. GM’s imported cars — already 15.5 percent of its domestic sales — will rise to 23.5 percent. “The overall number of vehicles GM will be importing in 2014 represents the production of four assembly plants, the same number that GM plans to close in the United States,” UAW legislative director Alan Reuther noted.

Now, personally, I’m for globalization and trade. I think the general benefits of trade are well-proven, and I think that, ultimately, humanity will benefit from becoming more interconnected, not less.

However, that does not mean we should sacrifice people in the short-run.

And since we still have nation states, it certainly begs the question of why our national trade policies would be run to the detriment of its citizens. William Greider:

Other nations like Germany, Japan, France and of course China impose national obligations on their producers and multinational corporations–demanding that companies retain their highest value-added production and best-paying jobs in the home country. The US gives its multinationals a free ride–even assisting them in dispersing production and capital to low-wage economies while keeping open the US market for their imports. Our own companies game this system endlessly–producing cheaply abroad, then selling the “US brands” back into the home market.

Economic entitites, like corporations, really have moved beyond the nation state, playing in a global economic system. Nations, meanwhile, have remained, well, national. And as long as we have national governments, they should serve their citizens – all of their citizens. That would be true economic patriotism.

Update: This isn’t just an American issue. And it’s not just for auto workers.

At the Wall Street Journal, Robert Frank runs a great blog called “The Wealth Report.” He tracks the lives of the truly wealthy – people that live in a different world he calls “Richistan.”

The other day he had a post about how some wealthy Brits are threatening to leave the country (take their toys and go home) because the U.K. government was considering raising the top tax rate from 40% to 50%:

“I won’t pay. I’ll leave,” British entrepreneur Peter Hargreaves told the Times. “Why wouldn’t I? If I stay I’ll pay half a million more a year in tax. If I leave the country I can save [three million pounds] a year. It’s almost like the government is offering me a bribe worth [three million pounds] a year to go and live abroad.”

The actor Michael Caine has voiced similar concerns.

Quite some British patriotism there.

I’ve seen this “flight of the rich” argument in different places before. If ever there was a time for public shaming, this would have to be it. How strong could your patriotism really be if you just run away from your country because of policies you don’t like? I’d like to see some conservatives stand up rake these kind of “patriotic” rich people over the coals, but of course, they won’t.

And this brings up another point related to my comment on corporations in the original post above. The truly wealthy have already gone “post-national,” just like corporations. The world is truly their oyster, while the rest of us are left “patriotism” and “nationalism” – both “isms” that must seem like sucker’s games to them.

Frank continues in his post with an interesting conclusion. The rich might complain about higher taxes, but really, they “have no where to go:”

Almost every developed country in the world is raising taxes on the wealthy. Germany is boosting its capital-gains taxes. Other European countries also are turning to tax the wealthy. The U.S., of course, is likely to raise taxes on the affluent. Many states, from California to New York, already have imposed a “millionaire’s tax” that hits nonmillionaires.

Sure, they wealthy could move to Monaco or the Caymans or any other tax haven. But the fact is, the wealthy like to be at the center things–of ideas, culture, finance and socializing. After three months of coconut drinks, even the Caymans would get tiring. Not to mention the bad PR that comes from living in a tax haven, as with Johnny Hallyday in France.

At the same time, the U.S. and other governments are making it harder for people to use offshore tax havens. If they earn money in the U.S., it is going to be harder to shield it from the authorities.

In other words, the wealthy may grumble but they may have few options other than paying up.

The social safety net = economic prosperity

Conservatives love to talk about how “welfare” and “entitlement” programs destroy the character of Americans by undermining their willingness to work and generate economic prosperity.

There are all sorts of problem with this view. Among them, what’s the evidence? There are plenty of rich people who could retire today with a high quality of life, but something keeps them coming to work. And if this character destruction is true, why, then, don’t we have a 100% estate tax. For gosh sake, we’re actually harming those children of rich kids by not giving them enough incentives to get out there and produce! And it’s a view that’s a bit heartless. The idea is that the suffering caused by the vagaries of life – or yes, even by people who just plain screwed up – is okay because it builds character.

But these arguments and others against don’t go far enough. They just refute the conservative viewpoint.

But this essay in the latest issue of the American Prospect goes a step further. It provides a positive economic reason to advocate for the social safety net. Our economy would be more flexible, more dynamic, and more robust if we provided people with enough shelter from substantial risks (like losing employment and health care) so that they could try out new economic undertakings and grow the economy.

Now, being a good liberal, I would want to put some studies and numbers behind this notion. How much additional economic growth would be created if people were more free economically speaking because they didn’t have to live in the “quiet desperation” of losing their health care? That’s an interesting liberal economic research project.

Update: Here’s a link ($) to a WSJ article comparing the social safety nets of Germany and the U.S. and the various trade-offs and impact of the two systems. The WSJ still does some excellent journalism.