High government deficits are being used to justify cuts to public employment and social programs. It is not a surprise that transnational finance, the corporate media and right-wing political parties demand that returns on investments be given priority over employment, workers’ income, and the well-being of the marginalized. Having aggressively supported cuts to business and income taxes, they have reason to worry about the real returns on government bonds.
It is also not a surprise that unions and students in Europe have mobilized millions against these cuts. Unions, public sector workers, pensioners, immigrants and the poor are not to blame. Government deficits are a direct result of tax cuts, capitalist speculation, the 2008 financial crash, government bailouts, and the resulting loss of employment, income and government revenues.
If public deficits were the real problem—not just a pretext—military spending particularly in the U.S. would be drastically cut. Taxes would be raised. Of course, tax increases have consequences. Higher sales and value-added taxes reduce consumer purchasing power, further weakening markets in times of recession. Taxes on enterprise revenues can reduce expenditures for plant and equipment and lead to the failure of more businesses.
Steeply graduated income taxes would upset the super-rich but are otherwise benign. Taxing income over $200,000 a year at rates of 75 per cent, and over $500,000 at 90 per cent would substantially increase government revenues without reducing markets for most goods and services. Taxing profits on the buying and selling of stocks, bonds, real estate, and currencies could raise additional revenues. International agreement to raise tariffs to 15 to 25 per cent from the current average of five to ten per cent would raise more. Although the profits of transnational corporations would be squeezed, the resulting growth in local production for local consumption would expand employment, income, and public revenues everywhere.
Increasing taxes on capitalist income is anathema to the supply-side economists who have dominated government policy for thirty years. They claim that increasing taxes on the wealthy reduces the supply of funds available for private investment, causing job loss, reduced real incomes, and economic decline. Supply-side economics was a wealth-holders’ reaction to Keynesian demand-side policies.
The Keynesian period—from World War II through the 1970s—had been a response to destructive twentieth century wars, financial crashes, prolonged economic declines, and rising support for militant unionism, socialism, and communism. To counter growing opposition to capitalism, to stimulate consumer demand and to revive opportunities for profitable investments, governments increased spending on pensions, unemployment insurance, education, healthcare and income support. Laws were changed to make it easier for unions to organize and to bargain collectively.
Much of the cost of stimulating demand was covered by steeply graduated income taxes. In Canada, the U.S., and the U.K. the highest incomes were taxed at marginal rates up to 90 per cent during the war and after. Although lowered in the 1960s, income taxes remained steeply graduated through the 1970s. The share of total income going to capital as profits, dividends, interest payments, and rent did decline. Nonetheless, investments in machinery, equipment, buildings, infrastructure (bridges, roads, schools, hospitals, public transit), and housing stock rose steadily.
By the 1970s many of the very rich and corporate oligarchs had concluded that the welfare state was not in their interests. Unions were in decline. Communism was clearly not outperforming capitalism economically or militarily. At the end of the decade, neoconservatives like Margaret Thatcher and Ronald Reagan were winning political office claiming that Keynesian policies had increased demand at the expense of the supply of capital for investments. The result, they said, was not growth, but inflation and stagnation.
In fact, the Keynesian period was a time of steady, impressive growth in investment and consumer income. Inflation rates did reach double digits in the 1970s. Neoconservatives blamed this on rising social spending and government deficits. A more obvious explanation was the combination of rising oil prices and massive inflows of capital from abroad. Oil prices had risen from under $3 to over $30 a barrel, increasing the price of nearly all goods and services. Suddenly awash in revenues, the rulers of oil exporting countries invested billions in the U.S., U.K, Europe and Canada. Governments that were already cutting taxes paid by the rich and accumulating deficits, responded by borrowing more. U.S. government decisions to finance war in Indochina with borrowed money, not tax increases, compounded the problem.
In the 1980s, after supply-side policies became the economic orthodoxy, taxes on corporations and upper incomes were methodically lowered. Industries were deregulated. Laws were changed to make it more difficult for unions to organize and to engage in effective collective bargaining. Public utilities and services were privatized.
The rich did get richer—the super-rich substantially richer—but economies did not flourish as supply-siders had predicted. The quality of public services declined. Social infrastructure was allowed to decay. Employment in manufacturing and service industries fell. The real income of wage and salary workers stopped growing. Markets for consumer goods stagnated.
Supply-side theorists ignored the evidence. Instead, they turned phrases from Adam Smith into a mantra. More income for capitalists, they intoned, meant more savings, more investment, more economic growth. But Smith was not talking of twentieth century corporate oligarchs when he equated capitalist income with savings and investment. He was describing a middle class of prosperous farmers, shopkeepers, and merchants, whose frugality he contrasted with the aristocracy’s fondness for luxury. The middle class, he said, turned their surplus income into savings for investment in the future; aristocrats spent and borrowed for their current pleasure.
Today’s super-rich are more like eighteenth-century aristocrats than the middle classes of Smith’s day. They are mega and giga-consumers who transform revenues from productive assets and social labour into personal wealth—into mansions, yachts, beachfront condos, and winter retreats. As a class, they are obsessed with maximizing returns on their wealth, but they have little interest in productive investment. For them, innovation means new more profitable investment instruments: futures, derivatives, dubious mortgages packaged as collatoralized debt obligations, and credit default swaps (bankruptcy insurance).
Even when pyramid scams and outright fraud are not involved, nothing is added to means of livelihood when one capitalist buys and another sells stocks. Financial entitlements are merely shuffled from one to another. When the rich do invest in actual plant and equipment this is likely to be abroad where labour is cheaper and profits are higher.
The economic argument
Steeply graduated income taxes would make public debt manageable. Unlike taxes on consumption, taxes on the highest incomes would not dampen markets for consumer goods. Additional public revenues could be used to improve education, healthcare, social housing, income support, public transit. As employment and markets expand, enterprises would be encouraged to invest more.
Undistributed corporate profits are the main source of investment in research, development, plant, and equipment. By discouraging the distribution of profits as dividends, executive salaries, and bonuses, confiscatory tax rates on the highest incomes would give enterprises more reason to retain earnings, increasing the funds available for investment in real means of livelihood.
With far higher taxes on capitalist income, the super-rich will have to make do with less sumptuous homes, fewer and less luxurious automobiles, yachts, and vacation spots. For everyone else, the cost of keeping up with the Joneses will be less. People in all income groups are likely to save more, making more funds available for investment in housing and local enterprises.
The democratic argument
Capitalism claims to be a system of individual opportunities. Increasing the revenues for education, healthcare, pensions, and income-support would expand opportunities. Steeply graduated income taxes would transfer control of social surpluses from a corporate oligarchy to elected national, regional, and local governments.
Can governments and elected representatives be trusted to act in the common interest? With steeply graduated income tax, a small self-serving minority would have less money to influence legislation and corrupt politicians. Billionaires, like the Koch brothers—two of the wealthiest men in the U.S. who have bankrolled the U.S. Tea Party—would have less spare cash to dominate and manipulate political agendas in their narrow class interests.
Steeply graduated income taxes alone would not end capitalist entitlement, but as elected governments gain more revenues to expand social entitlements and public employment, people will demand to have a voice in economic decisions. The right of wealth-holding minorities to impose their immediate interests will be replaced with the transparent, democratic right of people to direct economic life in the common interest, in the interests of human and environmental well-being.
The environmental argument
The wealthiest one per cent presently claim twenty per cent and more of total income. If their share were reduced to five per cent, extravagant consumption and the accompanying waste of resources would be greatly reduced.
Governments would have the funds needed to replace dependence on private automobiles with fast, accessible public transportation. Federal, regional, and local governments could be provided with the funds to construct public heating and cooling systems that require less fossil fuels. Investments could be made in local agriculture for local markets. Environmental protection agencies could employ enough inspectors to investigate complaints and to act against corporate damage to ecosystems.
As control of social surpluses passes from the hands of wealth-holding minorities to elected governments, people will mobilize to demand that national, regional, and local communities provide more employment and goods and services as human rights. Fewer people will come to depend on the profitability of capital in general and of transnational corporations in particular. More people will be free to oppose environmentally destructive industrial activity.
As communities replace private corporations as the institutions making economic decisions, industrial and service workers, professionals, the retired, homemakers, students, farmers, mushroom pickers, loggers, and ecologists will all have the right to a voice and equal vote. The interests of major shareholders and top corporate executives will no longer take precedence over the income and employment of common people, or over the carrying capacity of environments.
Al Engler
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Tags: capitalism, economic democracy, socialism, unions
New Commune-ist Manifesto 
Explaining Gaza to my 7-year old granddaughter
29 Jul“Grandpa, why are they killing kids in Gaza?”
A deep breath to compose my thoughts.
“You said most people were good, but I think only bad people could drop bombs on little kids. There was a boy crying on TV. He lost his whole family.”
“Most people are good but sometimes they do bad things,” I answered.
Back came the inevitable: “Why?”
“Because of greed and bad ideas. Those are the two main reasons people do bad stuff.”
Her expectant stare caused a moment of panic. She needed an explanation. She needed the truth. But the dilemma in explaining war to a seven year old is that simple answers — “these are the good guys and those are the bad guys” — are part of the problem. Simple answers limit critical thinking and enable those who profit from war to manipulate people. How could I explain a complicated subject in a simple enough manner that helped my granddaughter learn to think for herself? I had to try.
“You know what Israel is?”
“It’s a country. My friend Sarah went there for a holiday.”
“It’s a country that was started with some bad ideas that seemed like good ideas at the time. It’s a country the greediest people in the world give bombs, airplanes and other weapons to, because these greedy people have the bad idea that they’ll make lots of money and keep their power by doing it.”
The look on her face proved this was far too complicated. Start over.
“Do you know what religion is?”
“It’s like when people believe in god and go to church and stuff.”
“Yes. One religion is called Judaism and the people who belong to it are called Jews. It’s very old and a little bit different from other religions because some people still call themselves Jews even if they don’t believe in god or follow any of the Jewish rules. Through most of their history Jews have lived in places where there was another, more powerful religion and many times the bigger religion picked on Jews. You know, like kids picking on someone just because they’re different.”
“I know. Papa explained that to me.”
“Well in Europe picking on Jews grew and grew until a very bad man named Hitler took over in Germany and during a war his armies killed millions of Jews, including mommas, papas, grandmas, grandpas and little kids. That was called the Holocaust.”
“Millions?”
“Yes. It was very horrible and after the war the world felt so bad about the Holocaust that the governments of the most powerful countries said the Jews could have a country of their own where they could run things for themselves. Sort of like giving the kids who have been picked on their own playground.”
“Their own playground far away from the bullies?”
“Exactly, but the problem was that the land which the powerful countries gave to the Jews belonged to other people.”
“How could they give away land that belonged to other people?”
“Well, unfortunately that used to happen a lot. Like right here in Canada when the British and the French fought over land that belonged to the First Nations. Mama and Papa have explained colonialism to you, right?”
She nodded. “That was very bad.”
“This country given to the Jews was called Israel and some people thought it would be the perfect thing to end all the bullying that had happened in Europe, but others were not so sure. Some people said that if you gave land that belonged to other people the only way Jews would be able to keep it would be by becoming bullies themselves.”
“Why?”
“Because the people who lived there, the Palestinians, wouldn’t just give up their homes. Why should they? Palestinians weren’t the ones who had killed the Jews so why should they be punished for bad things Europeans had done? People predicted that the Jews would have to fight the Palestinians for the land and that’s exactly what happened, over and over again. And it’s still happening today.”
“They fight to take the Palestinian land?”
“At the root of it yes.”
“Are the Jews bullies now?”
“Jews are the same as everyone. Some are bad, but most are nice. Most don’t even live in Israel.”
“But taking people’s homes is not nice. Dropping bombs is not nice.”
“You’re right. But are you a bad person when you pick on your sister or have a temper tantrum? No, you’re a nice person doing something bad. It’s the government of Israel, its army, one of the largest in the world, and the police who are bullies. They’re always picking on Palestinians, especially the ones who still live on the land that the right-wing Israelis want for themselves, but that the governments of the world say belongs to Palestine. Of course this makes the Palestinians very mad and they try to fight back anyway they can. When they do, the Israeli government puts them in jail or tears down their houses or drops bombs on them and kills lots of little kids. Then Israel and its supporters says they can’t possibly be nice to Palestinians because all they ever do is fight.”
“I think the Israelis are mean.”
“I do too. But the real question is how do we stop it?”
“I don’t know.”
“How do you stop someone being mean on the playground?”
“By telling the teacher.”
“Sure, but sometimes that doesn’t work. And in the case of Israel telling the teacher is like telling the most powerful country in the world, which is the USA. But the USA keeps on giving Israel all the bombs and other weapons it wants. It suits the interests of the rich people who run the USA to keep everyone in the different countries around Israel fighting amongst themselves.”
She looked perplexed.
“So what do you do if the teacher doesn’t stop someone who is being mean?”
“Stop playing with them?”
“Exactly. If you can’t get a teacher or an adult to stop a bully, you stop playing with them. You avoid them. You tell your friends and everyone you know to stop playing with them, to avoid them. If no one plays with a mean person, if everyone avoids a bully, they just might learn that only way to have friends is by being nice to people. Right?”
She nodded.
“Well that’s what we need to do to Israel. We need to boycott it until it stops being mean to Palestinians, until it allows them to have their own country. That’s the only non-violent way of fixing things. Does that make sense?”
She nodded. “Sometimes when I’m bad, Mama makes me have a timeout.”
“That’s right, Israel needs a timeout. You remember when I took you to the candy store and bought you some but you wanted more. And I made the mistake of listening to you and buying you more? And that still wasn’t enough? You wanted even more? Then you threw a temper tantrum. You hit your sister because she wouldn’t give you her lollipop, even though you’d already eaten yours?””
“Mama said it was because of the sugar.”
“Exactly.”
“Is that what Israel is like?”
“Pretty close.”
She thought about it for a few seconds and then asked: “Grandpa, can you read me a book?”
Gary Engler
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Tags: foreign affairs, Gaza, Israel