This President is center-right, but can talk liberal. Progressives may be waiting for him to have more space for a liberal agenda after he leans right to solve our financial crisis. This may be a long wait. One needs to look to his campaign for clues. It was not just what he said that really mattered; because, if one looked at the money Wall Street showered on him and the advisors he picked, it was clear from the beginning that he was going to be handled. His key advisors were corporate men and war hawks—many of whom served in the Clinton administration and were identified with policies that didn’t seem to mesh with Obama’s speeches. We were told that they had mostly moved away from their previous beliefs, and would be born-again Obamamanians.
In the past two months Obama apologists have given a multitude of excuses for his tip-toe approach to change: this is not the time; we are still at war; we have the worst economic calamity since the great depression etc., etc. One might ask, in all candor: when will the time for fundamental change be ripe, if not now?
Obama, however, has been masterful at keeping hope alive. He has reversed some of Bush’s most egregious executive orders, but, hey, this is child’s play. What is less spoken of, however, are the Bush executive orders that he is keeping in place, such as the ability to secretly detain enemy combatants on his sole call, indefinitely, in undisclosed locations abroad. He has shown no interest, so far, in a permanent proscription of some of the worst of the Bush orders that expanded executive power beyond the intent of Congress or the most liberal reading of the Constitution. I have seen no deliberate attempt to strip Congressional Acts of the past eight years of the signing statements that violate their intent.
Obama’s betrayal of (or tone-deafness on) progressive causes seems inherent in some of his recent statements at various political venues. In his speech to the Hispanic Chamber of Commerce, he made it obvious that he sees merit in privately run Charter Schools, and he seems to suggest that we have no hope of leading the global talent race without more students getting advanced degrees. This line of thinking was further expanded upon in a talk from the White House in which he explained that we are totally intertwined with every country in the world, and that our success depends on the success of every other country. Little did we know that our colonial past would lead to this.
At the upcoming G-20 meeting he will be pushing all countries to stimulate their own economies. Why, you say? They need to be strong enough to buy our products and be able to export as well to us. He even referred to how, until recently, exports were the only bright spot in the American economy. He seems to be embracing a type of globalization where no one produces for themselves, but only to export. This is reminiscent of the trap that the Third World was in when they accepted IMF and World Bank loans, and thus had to raise cash to pay their debts by selling off their patrimony. Many South American countries (most of which we officially revile) have renounced the “Washington Consensus,” and are building their own economies without dependence on Western financial institutions. Nonetheless, the IMF and the World Bank want to stay in the game, and it looks like they will have support from Obama and other Western leaders under the present emergency conditions. Woe be unto the countries that accept their help, in the form of odious debt.
What ever happened to the campaign rhetoric about the downsides of globalization? Where is the thinking that would reconsider the wisdom of having every country in the world dependent on every other one? Even some Wall Street gurus and prominent economists are showing skepticism of the model that creates global transnationals that are "too big to fail," and creates a house of cards where if one falls they all fall—more on that later.
Many progressives reject this model of the ascendancy of global capital and feel that some form of protectionism is in order for all countries to protect what it is that makes them unique, self-sufficient, and sustainable, and thus qualified to be called a sovereign “country.” If we are to reject the concept of countries (some have suggested that the EU is a step in that direction), there needs to be much discussion of how society is to be defined. My suggestion would be ecological zones or regions, but that is a discussion for another time.
Obama, along with his Siamese partner, Gordon Brown, has railed against insidious protectionism. Under Clinton we did move decisively in the direction of global free trade agreements such as GATT, NAFTA, and WTO. These votes were close, and many who voted for them might be inclined to change their vote if these measures were to come up again for a vote. Negotiating with each country individually might be the way to go, but we seem locked into the present arrangement unless Obama were to show some leadership on this issue. I’m afraid, however, that he does not even see it as an issue. In fact, in his public statements recently he has said that any form of protectionism would only make matters worse (referring, no doubt, to the universal economic meltdown). Of course, no one in the press is likely to challenge him on such an assumption.
Obama has already mad at least two grave policy errors, at least in the opinion of many progressives. The first is the decision to increase our troop levels in Afghanistan. Many credible retired Generals (and some not yet retired) tell us that the “war” cannot be won militarily. Connected to this, Obama has not renounced the “War on Terror” construct that most progressives see as counter-productive, in that it places too much emphasis on military solutions. Most thoughtful critics feel that with bombing as our chief strategy, and a primary mission to protect our own troops at all cost, we have been responsible for recruiting more terrorists. We still seem to miss that most of the resistance we face is the resistance to occupation, and to foreign troops (ours and NATO’s ) on sovereign soil. We may have to stop calling the people we will ultimately have to negotiate with "terrorists." Our support for client or puppet governments without real mandates is another closely related factor that fuels resistance. There is far too much collateral damage, and we are not winning their hearts and minds—just as we never did after a decade in Vietnam. Are we to continue to look at the countries we invade as dead-enders in the Rumsfeldian conception?
Recently, the very tentative cessation of hostilities in Iraq has been shown to be skin deep in view of the increasing number of suicide bombings despite our hardened protections. It does make one speculate about the firmness of our pledge to leave Iraq completely. Remember, we still have some bases there that sure look permanent. Were it not for the Bush-negotiated Status of Forces Agreement promulgated just before he left office, I’m not sure we would leave on the timetable Obama is now committed to. Of course, agreements can always be changed, but Malaki’s chance of remaining in office is much enhanced with U.S. troops out. Of course, staying in Afghanistan indefinitely places us in the area, and in control, of the oil assets. The anti-war movements should not yet disband.
It is quite possible that, ironically enough, Obama is to the right of Bush on troop deployments all over the world. If we are joined to all the countries of the world at the hip, who will protect these dependent charges, if not the U.S.? The cost of our country policing the world is not a prominent topic for discussion at the present time. Obama has appointed a hawk in Richard Holbrook, as special envoy, who will undoubtedly be involved in policy making, and probably beyond just Afghanistan and Pakistan.
The second big mistake, I believe, is continuing to cater to AIPAC in our purported efforts to broker a peace between Israel and Palestine. Secretary of State Clinton visited Israel, but did not visit Gaza, and holds to the idea that Gaza is a territory in the control of terrorists (avoiding dealing with the fact that those terrorists were elected by the people of Gaza in a fair election, by all accounts). Asked what she thought of Israel continuing to promote settlements on the West Bank, the best she could say was that it was “unhelpful.” Unhelpful!?. It is a violation of Security Council resolutions, and is blatant aggression. Not only that, our supplying Israel with military equipment makes us complicit in a war crime and violates our own laws. With a new more hawkish government now taking over in Israel, peace seems ever further away. I frankly don’t think the U.S. officially cares one way or another—the status quo is fine. Our main aim is to have a client state there ready to do our bidding if called upon.
Obama’s friends are capitalists, and Obama answers to Wall Street. Of course, he would argue that the little people (all versions of the middle class—there is no lower class in the lexicon of politics) are doomed if our financial institutions collapse of their own perfidy. Apparently, no evidence is required for such speculation. After all, even if these financial giants take untoward risks with our money backing them up, we still have the option of dropping out, getting off the grid, putting our dollars (or, even better, gold) under the mattress. One of the ways big capital is supposed to help ordinary, non-financial people is to bring innovative products and techniques to life. In this way the economy grows, and a rising tide lifts all ships.
Well no, we have tried that, and it has failed. The rising tide only lifts the million-dollar yachts. In recent days Obama has emphasized that all will be well when the economy starts to grow again. I submit that the idea of growth at all costs (grow or die) is a major factor in the scams that have torn our economy apart. Progressives might be more inclined to stress sustainability, but not the kind of sustained growth that still seems to be the prescription of Wall Street and our government.
There are always going to be frauds like the $65 billion dollar swindle engineered by Bernie Madoff. Lax regulations are an open invitation to more and bigger frauds. But many frauds are actually legal. Take, for instance, sub-prime lending. This is but a euphemism for predatory lending. Putting people in debt beyond their means, and then rigging the contract so that default is a foregone conclusion is fraudulent no matter what you call it.
Most of Wall Street is inclined to blame the victims of sub-prime lending; but it is the greed for growth that led to the ingenious schemes and rationales for making silk purses out of sows’ ears. “A” paper will never have the same appeal again—most of the trust factor is gone. Rating agencies are almost totally discredited after succumbing to payola. If you listen to the stock market analysts today, their language is a lot more contrite and humble. They seem to be getting it that when twelve and a half million American are out of work, and millions more feel vulnerable and insecure in their jobs, the 70% of the economy supported by consumer spending is in jeopardy. In some ways today’s crisis on Wall Street is the revenge of the little people (and maybe Karl Marx). They did not take to the street for vengeance—they stayed home and out of the stores. An economy dependent on impulse buying and conspicuous consumption cannot long prosper when people can barely afford necessities. Obama seems to have the instinct that we cannot get back to normal (as if this should be the goal) if we continue to reward the rich and punish the poor. He is taking modest steps in his stimulus package to extend unemployment benefits and reduce taxes at the lowest levels.
But, it will not be enough. It is going to be very hard to put people back to work. We don’t have enough jobs for them here in America, and I don’t think our leaders have a real plan to create jobs such as the WPA did during the Roosevelt administration. We are outsourcing every kind of job that is able to be out-sourced.
The jobs problem is far from new. When we started to robotize jobs 30 or so years ago, the handwriting was on the wall. The human factor—wage earners—was the low-lying fruit to be displaced in the name of efficiency and bottom-line profits. This is still the mind-set of capital. The auto industry will survive, either inside bankruptcy or outside it, only if the American union worker will make concessions, essentially eliminating some of the last remaining good paying blue collar jobs. Employers and their servants in government have made the National Labor Relations Board a joke. All the advantage is with employers, and unions have been demonized as responsible for denying employers the flexibility they need to compete in the global market. Lately, the strategy is to allow a subsidiary company with union workers to go through bankruptcy and break their contract with the union workers in this way. Listen to the comments of the CEOs of Wal-Mart and Home Depot, and you will see how workers are scorned if they dare to challenge the authority of the bosses. Obama has appointed a Labor Secretary with a good record on worker’s rights. The first test will be the “card check” proposal. I would not give it much chance.
The financial crisis of today was far from unpredictable. We have had a recession about every seven years. We have a big one, what is called a structural recession, less frequently, but this one started in about year 2000. They tend to last 14-16 years. Some economists are saying that we are already in the first phase of a Depression. The problem with the Obama solution is to get us back to where we were before this recession. In their thinking a reprise of the roaring 90s would be just fine. But, the seeds of this recession/depression were sown in the 90s. So, unless we look at this longer history, our solutions are likely to be insufficient and even detrimental. The Republicans are not entirely wrong in wanting more discussion and debate before spending trillions the way we are, but, of course, the solutions I have heard from them are infinitely worse than the Democratic ones. The problem is that real deep-thinking economists and business historians are not yet being employed in the recovery effort. It is mostly the same minds that operated in the Clinton administration, which we now know created a false euphoria and a fake prosperity for the majority.
We are now realizing that global warming will give us several-hundred-year floods in the next 100 years. A return to financial normalcy will give us more frequent recession and depressions until we get the structure right. In a way, getting off a fossil fuel-fed hyped economic track will solve both problems.
The administration is not entirely ignoring the structural issues. They are now considering a global “systems regulator”—accepting, I suppose, the premise that America can no longer regulate the world economy. However, I think this is a magician’s sleight-of-hand – misdirection to get our eyes off the ball. A brief history is in order:
In 1998 Sandy Weill of Travelers Insurance engineered a $76 billion merger with Citibank. Such a merger was clearly in violation of the Glass-Steagall Act of 1933, which mandated a firewall between the insurance, banking and securities businesses. It is true that efforts had been made over the years to reform and modernize this Act, but it was still firmly in place when Sandy made his move. His thinking was that Congress could be persuaded to ratify his merger after the fact. So, with considerable help from ex-president Gerald Ford and Robert Rubin (now in the Obama administration), within two years Congress passed the Gramm-Leach-Bliley Financial Services Modernization Act, which, essentially, repealed Glass-Steagall.
Perhaps George Bush had this action of Congress in mind when he blithely violated laws and then had those violations ratified ex-post-facto by a Republican-dominated and docile Democratic Congress. It is interesting to note that Gramm-Leach-Bliley, which touched off a rush of mergers of bank, brokerage and insurance companies, was passed in the Senate by a vote of 53 Republicans and 1 Democrat. The big idea of most mergers was expected synergies, and to have, hopefully, one part of the conglomerate be profitable when the others might be losing money. Oh, it all sounded wonderful at the time.
The synergies never happened, though, and the left hand often didn’t know what the right hand was doing. I was in the insurance business during this period, and I can tell you that the insurance executives I knew were not very happy that the underwriting aspect of insurance was being overtaken by the investment and marketing gurus—they predicted no good outcomes. AIG is a classic example. The cultures of these merged entities never did mesh, and conflicts of interest were rampant, and still are.
But there was one more “liberalization” that Wall Street coveted. Phil Gramm pushed hard for this one, and it set the stage for the catastrophe that has hit our financial system. Phil Gramm, by the way, is currently vice-chair of giant financial firm, UBS, which just agreed to pay a $780 million fine, the largest single fine in corporate history. One should read Gramm’s sordid history dating back to campaign finance discrepancies in his run for the U.S. Senate from Texas, and his close association with several owners of failed S&Ls during the early 90s S&L scandals.
The Act that did the most damage was The Commodity Futures Modernization Act of 2000. This same trio, Gramm, Leach and Bliley, were the chief engineers, with a little help from Richard Lugar and Chuck Hagel. And, by the way, Gramm’s wife, Dr. Wendy Gramm, happened to be the former head of the Commodity Futures Trading Commission under Reagan and the first Bush. The bill was never debated in the House and was signed by President Clinton, virtually on Christmas Eve, as part of an 11,000-page omnibus budget bill to keep the government going. So, it got passed by stealth, very reminiscent of the mis-named and ill-starred U.S. Patriot Act, which also was not read by the members who voted for it. Somewhere buried in the deepest recesses of this Commodity Futures legislation was the revolutionary idea that products offered by banking institutions would not be subject to regulation as “futures contracts.”
This Act, then, was the very monster that allowed such companies as Enron, right out of the box, to work their notorious scams with the cover of darkness. I wonder if President Obama, the champion of transparency, will focus on how this particular version of deregulation enabled the derivatives, default swaps, and junk securitizations that have hog-tied our financial system? It directly led to the liquidity crisis of 2008 and the downfall of Bear-Stearns, Lehman brothers, and AIG, with several other giants teetering on the brink. We find now that we are in a no man’s land, with neither the SEC nor the Commodity Futures trading Commission having clear jurisdiction.
I have a feeling that Obama does seem to recognize the pernicious effect that the revolving door, lobbying by big corporations, and corporate bundling of campaign money corrupts the system. Whether he can actually do anything about a system rigged in favor of big capital is doubtful. There are many economists and progressive thinkers, with unassailable credentials, who think that the free market and global capitalism are in their death throes. They give the present system 20 to 40 more years. What will replace it, however, is up for grabs. Communism, socialism and capitalism all had their birth in an industrial world where the employment of capital created great wealth (albeit never equally distributed) and resources were plentiful.
We are now living in a world of scarce resources, and are at the beginning of oil and water wars. We also face an environmental meltdown. We are near a tipping point for general ecological collapse, and it is a fair analogue to our financial collapse. New solutions, not yet fully formed, will be necessary. Some feel that we can convert to renewable energy in time to avoid the worst of what climate change has in store for us. I am an optimist, so I will read Earth:The Sequel for intimations of hope. It is true that capitalism has survived at least 35 serious economic crises in the past 150 years, and it may survive this one, but it may do so at a cost we cannot tolerate. (For further reading on possible futures I recommend the articles in the March 23 issue of The Nation under the headlines “Reimagining Capitalism,” and “Reimagining Socialism.”)
I am of the opinion that, with a world population nearing seven billion, we cannot retreat from the capitalistic model completely (unless someone knows how to get the population back to about two billion, and not through wars and disease). I think we need to think in terms of a hybrid system, much like the one for the agricultural sector imagined in the March-April issue of Mother Jones magazine. We need small farms (small is still beautiful) and we need organic products, as much as can be achieved in a contaminated environment; but we also need the “bread basket” of the Midwest to produce surplus grain to feed a world that is far less than self-sufficient or secure in its food production. Obama’s pick for Secretary of Agriculture is not promising. Both he and Obama are from a state (Illinois) whose politics is dominated by big agriculture. Obama is in full support of the production of corn ethanol for fuel, which is a very bad idea, as more and more experts are coming to appreciate.
So, highly regulated capitalism is probably the best bet for the near term until we see if, with the right set of incentives and penalties (carbon taxes, for instance), it can be reconciled with a planet of vanishing resources and species.
What follows is a short list of reforms that should be demanded by the people to put a collar on runaway capital:
The restoration of the Glass-Steagall Act in some form should be a priority. This would go hand-in-hand with breaking up the financial conglomerates that have become “too big to fail.” They may well be too big to save, as of this writing. In fact, the whole idea of having “national banks” should be re-examined. Can they be broken up into exclusively State or, perhaps, regional banks? There might be more financial security if banks were smaller and easier to regulate. I think even local currencies could supplement the official U.S. dollar, and be a back-up system when official currencies are sick. It isn’t popular to say so, but Nixon’s act, without Congressional vote, to abandon the gold standard may not have been the panacea it was once thought to be. Not many economists expect us to come out of this deficit spending binge and money creation without inflation in double digits.
Regulatory agencies must be fully funded and populated so that the fraud merchants will know that they will be found out and justice will be swift and sure. That Bernie Madoff could work his scam for 30 years without being caught is itself a crime. I’m not sure that hedge funds in their current form should be allowed. Jail sentences for corrupt billionaires should be at least as long as for low-level, non-violent drug users. While we are on that subject, most drugs should be de-criminalized and taxed. That alone would save us about $75 billion annually. We can’t eliminate drug use, just as we couldn’t eliminate alcohol during Prohibition, and we can’t afford the never ending “Drug War.” We don’t need any more "Czars."
Credit default swaps and the like should be banned. We don’t need liquidity that badly. Banks need to service their own loans and not look to avoid all risk by going to the securities markets for relief. Bank lending should be more than a brokerage operation. In fact, all forms of financial guarantees should be either outright eliminated or severely restricted and regulated. Banks and insurance companies should be regulated just short of nationalization; after all, they are a form of public utility. Similar thinking should apply to our heath care system. The State of New York does not allow insurance companies to write financial guarantees. We simply must stop the layering of derivatives with immeasurable counter-party risk.
Economist Joseph Stiglitz is in favor of temporary nationalization of some of the larger banks, so that all of the exotic financial contracts can be assessed together and netted out, so that we know the exact extent of the liabilities. It is very likely that were it not for the banks’ waiver from mark-to-market accounting rules, more than 50% of all banks would be insolvent. Undoubtedly, the capital ratios for banks should be increased once they have been “stress-tested,” and we know their true capital. We have allowed too much leverage for banks and securities operations over the past decade—operating, I suppose, on the theory that assets always increase in value. This fundamental ignorance of cycles and risk has affected even such household names as Prudential (the rock) and Met Life (the blimp), and Hartford (the elk), who are now faced with insufficient capital to support their liabilities.
Even the municipal bond market has been adversely affected by the near collapse of the insurance companies that insure their debt. There were only a few obscure companies in this field to begin with, and they have all lost their own high ratings, creating a lack of certainty in municipal bonds whose sales have stagnated. The rating agencies themselves have come under fire for being too close to the companies they rate, who also pay them for their ratings.
I have a simple solution—don’t insure debt in the first place. It isn’t a proper use of insurance, and is not insurance in the technical sense, anyway. If you think it is, you will get at least one question wrong on your licensing exam. Another related scam is the appraisal industry. We cannot afford to have real estate, taken as collateral for loans, to become an asset with a moving target of valuation. For too long, in my opinion, appraisers have put primary emphasis on so-called “comps.” They can get very creative in what qualifies as a comparable property. This methodology creates a positive feedback loop, and is a self-fulfilling prophecy. If a comparable property sells at a discount, your property will be discounted as well, and all properties may then spiral downward because the banks will not let you sell to someone offering a higher price than the appraisal. Of course, you could find a cash buyer—good luck on that one. I know, because it has happened to me in my own building project here in New Mexico. I believe that the primary test of value should be the cost of construction (using long-term norms, perhaps), and the quality as well as the quantity of houses should be considered, especially as solar homes and highly efficient building systems come into their own.
We are a debtor nation (due primarily to our long-running trade deficits caused, ironically, by our transformation from a manufacturing economy to a financial services one), but we are also a debtor people. Even before the deflation of assets, making it more expensive, in real terms, to retire our debt, on the average, people had the highest debt-to-equity ratios in history. We all know the scenario: with wages and incomes essentially flat since the 1970s for the bottom 50% (and even negative for the bottom 20%), people have had to load up on credit card debt, often at usurious rates, enabled by legislation taking the caps off interest rates (more deregulation). Vice President Joe Biden has been the recipient of many favors over the years from the credit card bandits domiciled in the haven of Delaware, with the weakest laws on corporations. We have had, in fact, negative personal savings rates for some years, and that is why the government’s emphasis on spending and borrowing strikes a sour note.
I doubt that President Obama will ever get to the level of investigating corporate chartering laws. The bankruptcy law was recently changed by Congress to make it easier for the credit card companies to obtain judgments against their hordes of debtors. In fact, the interest rates are so high in some cases that creditors do not want the debt paid off. Some unfortunate victims of this draconian bankruptcy law, slanted in favor of the banks, let their houses go (especially if the mortgage debt exceeds the house value) in favor of paying their credit card and home equity debt, because they cannot shed this debt in bankruptcy, but can dissolve their mortgage debt.
All this legislation against people and in favor of capital might be reversed if Obama uses his mandate to get behind real change. The high interest rates of the past several decades are a big reason for capital moving from manufacturing into the financial sector - the returns are so much better. This, at least, is the thesis of an article in the current issue of Harper's magazine written by Thomas Geoghegan, titled, “Infinite Debt.” It is not just payday loans that are predatory. Many states have tried to cap interest rates and some have succeeded, but since most banks are nationally chartered, a state with a higher cap or no cap can freely operate in a state with a low cap. It is interesting, and, perhaps, predictable, that "60 Minutes", on their 3/15 show, ran an exclusive and rare interview with the latest wizard running the Federal Reserve Bank, Chairman Ben Bernanke. His thesis was that the American economy cannot rebound until the banking system is fixed. Never once was it mentioned that neither Congress nor the President has any authority over this privately owned institution (the Federal Reserve is owned by member banks), that most people probably think is a part of the government. We used to hail the “independence” of the Fed, but now that they have screwed up royally in their oversight function, we ought to take a closer look at possible conflicts of interest. Obama replaced Treasury Secretary Paulson of Goldman Sachs fame (now receiving Federal bailout money) with Timothy Geithner, straight from the Federal Reserve. A different kind of revolving door, perhaps, but not exactly men of the people. Ben Bernanke does feel his humble family origin is worth noting.
Well, one thing that would be fairly easy would be a tax on all securities transactions. This would include currency trades. It might be a way to have people think more long-term and act like investors rather than traders. It might serve to slow down the movement of global capital a little. Obama has shown no appetite for this as yet. Short-selling is also a dubious practice that should either be banned outright or taxed at a greater rate than other security transactions. Automated computerized trades are another practice that tends to make the stock market little more than a legalized gambling ring. To avoid depressions and deflation, we need to build some negative feedbacks into the system. Other than suspensions of trading when the markets swing too fast one way or another, I don’t see other types of natural governors.
On a totally different tack, health care needs to be fully nationalized on the Medicare model. Single-payer is the best solution. I read somewhere that single-payer would create 2.6 million jobs. But Obama seems totally in the pocket of the health care and pharmaceutical lobbies and will talk about automating health records—a good idea, but a diversion from the real issues. HMOs and PPOs were supposed to function as gatekeepers to keep down runaway heath costs, but, instead they became part of the bloated, bureaucratic, health care industry. Rates are high for small businesses because the large employers are able to negotiate very favorable terms for their employees. Now, with cost-cutting and layoffs at many of the largest companies, health care insurance is becoming less and less affordable. COBRA benefits are limited and expensive. The idea of universal health insurance has been made a goal of this administration, but the devil will be in the details. Expanding health care to poor children has been the sole accomplishment so far.
Beyond all else we need to put people to work. We have 12.5 million unemployed in America. We need to go back to the drawing board on how to create decent, good-paying jobs, and a lot of them, fast. We need massive public works projects to put people back to work. Let people work on small farms, on public art projects, cleaning up toxic waste sites, and protecting our natural resources, parks and preserves. Repairing infrastructure and creating commons in towns and cities would be worthwhile endeavors. The list could be unending. And all this work should be done at a living wage. We should have at least a $10 an hour national minimum wage. We need to build back the middle class and repair the safety net for the poorer lower class.
I think some protectionism for our key industries, and incentives for small business, are long overdue. We might even try import substitution, a long-standing progressive idea. Everyone at the G-20 will eschew this solution and warn of retaliation. I think retaliation will be fine if it will help countries grow their own critical industries. At the same time, if we protect American business from foreign competition, the protected businesses need to pay taxes at higher rates than they have been, and they should be prevented from using tax shelters and off-shore havens to avoid American taxes.
Tariffs were the main source of national revenues prior to the income tax. We should reconsider whether favorable tax rates for capital gains are necessary and, certainly, hedge funds should lose their highly favored tax treatment.
Also, the income tax needs to be more progressive. At least Obama will not continue the Bush tax cuts. Taxes on the highest bracket have come down steadily over the past 50 years, from more than 70% to about 35%. This compression has led to greater income inequality. The U.S., in fact, leads the world on income inequality.
Obviously, there are many other worthwhile progressive ideas that could probably fill at least one book. We need to look at our real prosperity index, and not focus on the GDP. The GDP is no good when it counts as a positive, the destruction of nature. Carbon caps, as proposed by this administration, are a start in recognizing the externalities of industrial processes.
Sadly, we may be past the tipping point for saving either the earth or designing a rational economic/political system. Very few people want to go backwards in time to when, for instance, we had more civic interaction, we took products to repair shops, we knew the butcher, redeemed bottles and played canasta. But, if we could go back even a little further, near the start of the modern industrial era, we would find more treed land and forest canopy, no light pollution at night, more song birds and other wild game, as well as native, unstocked fish in most rivers. The air would have seemed clearer, and we could see distant mountains on almost all days, not just when the smog is absent, as is the case these days even in Northern New Mexico.
We have lost a lot, and the memory of our loss is fading, in a society dominated by computer screens, flat TVs and suburban sprawl. Is it worth trying to retrieve such a world? This should be the question underlying all others.
J. Russell Tyldesley, a retired Baltimore insurance executive, writes from Santa Fe, New Mexico.
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This story was published on March 26, 2009.