Public Policy and Governance – Page 305

A Different Kind of Economic “Bubble”

In my Media and Public Policy class last week we were discussing the ways in which the Internet has given us the ability to live in “reality bubbles” of our own choosing, when an older student made a perceptive observation. She pointed out that when she grew up in Martinsville, she’d been surrounded by a “bubble” of bigotry–she’d lived in a small community of homogeneous people who all thought alike. In her case, the Internet had provided an escape from the bubble.

We all live in bubbles of one kind or another, and that ability to isolate ourselves from those with whom we do not share geography, religion, common interests and experiences can stunt our human empathy. When our distance from each other becomes too great, civility and self-government suffer.

Joseph Stiglitz is a Nobel-winning economist, and he has just written a book called The Price of Inequality, examining the effects of the currently huge divide between the rich and everyone else on our ability to sustain a democratic government.

He isn’t sanguine.

According to Stiglitz, the vaunted American market is broken. It has been overwhelmed by politically engineered market advantages—special deals that economists call “rent-seeking.” The term refers to politically-achieved “exemptions” from the market that allow certain individuals to reap economic returns above normal market levels– profits derived from favorable political treatment rather than competitive success.

In The Price of Inequality, Stiglitz chronicles these blatant tax and spending giveaways–the special deals and corporate welfare enjoyed by big agriculture, big energy, and many, many others.

Stiglitz also argues that much of the rent-seeking that plagues our economy takes a more subtle form. In many cases, the production of a product produces what economists call “negative externalities.” These are costs that are incurred during the manufacturing or development process that end up being imposed on society rather than paid for by the producer and included in the price of the goods or services involved. The most commonly cited example would be a manufacturer who discharges his waste into a nearby waterway rather than properly disposing of it, shifting the costs of cleanup and disposal to others. Society pays for the pollution, and that cost is not included in the market price of the manufactured goods.

The bottom line is that markets don’t operate properly when some participants are in a position to game the system, and societies don’t operate properly when markets are rigged.

As he points out, one of the consequences to society is that when those at the top–the 1%–enjoy the best health care, education, and other benefits that come with greater wealth, they fail to realize that “their fate is bound up with how the other 99 percent live.”

They live in a bubble.

Different Worldviews

The party’s conventions are over, and if there is one thing they showed us, it’s that Democrats and Republicans live in very different realities (as the President noted in his speech, Democrats understand that climate change is not a hoax) and have starkly different approaches to the age-old question: how should we live together?

From the composition of the crowds to the policies offered by the speakers, Americans saw two very different messages. It wasn’t simply that–as the President memorably noted–the GOP’s prescription for everything and anything that ails us is “Take two tax cuts and call me in the morning.” It was the difference between a longing for the past–for an America that only existed, if it existed at all, for a small group of middle-class white guys–and a determination to build a fairer, more inclusive, more stable future.

That difference in focus goes a long way toward explaining why the GOP has so much more party discipline than the Democrats do. When you are focused on defeating the other guys because you believe that will magically reinstate a time when women knew their place, gays were hiding in the closet where they belonged, immigrants picked the crops and then went home (or at least stayed out of sight), and black people did not occupy statehouses and most definitely did not live in the White House, the goal is clear and cohesion around that goal relatively easy.

When you are trying to cope with real problems, trying to come to agreement about the future you are trying to build, rather than focusing solely on the man and party you are trying to defeat, the conversation is different. There are many more areas of disagreement–where, precisely, do we want to go? What are the policies most likely to get us there?

Despite the Tea Party’s insistence that Obama is a socialist, what was striking about the rhetoric coming from the Democratic convention was its full-throated endorsement of market economics, of the meritocratic vision that used to be a Republican vision before the party was captured by its anti-rationalist extreme. That affirmation of an economics that rewards hard work and innovation differed from the exaltation of wealth we saw at the Republican convention, however, because it was situated in a larger concept of citizenship and mutual obligation.

The President said it clearly. “We also believe in something called citizenship – a word at the very heart of our founding, at the very essence of our democracy; the idea that this country only works when we accept certain obligations to one another, and to future generations.”

In November, we’ll see which worldview American voters endorse.

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Welfare Dependent

Since the Romney campaign is making welfare recipients a central focus of their advertising barrage, maybe it’s time to take a closer look at the identity of those who are–pardon the vulgarity–“sucking at the public tit.”

Common Dreams has published a list of entitlements, and who gets what. According to their analysis, social welfare programs cost taxpayers some 59 billion dollars a year. Corporate welfare, on the other hand, costs us much more.

What do they count as corporate welfare? Well, fossil fuel industries get more than $70 billion dollars annually in subsidies–most of which goes to the oil and gas sector. Another $58 billion a year is lost to the Treasury by reason of tax “deferrals” for off-shore profits. Taxing capital gains at 15% rather than at the rates imposed on wage and salary income costs another $59 billion, while hedge fund managers are able to avoid some $2.1 billion in taxes each year due to something called “carried interest.” (I have absolutely no idea what that is, but then, I’ve never been a hedge fund manager, never represented one when I was a practicing lawyer, and never even played one on TV.)

And those are just a few of the garden-variety, built-into-the-system subsidies. The bank bailout cost us $700 billion. And while most of that was apparently paid back–and we really did have to avert a global meltdown–the terms of those “loans” could have been less favorable to the banksters and more protective of the rest of us.

When I read these numbers, I was dubious about their accuracy. Everyone seems to be playing fast and loose with the facts these days, and Common Dreams is a liberal-leaning organization. So I did some research, and found verification in an unlikely place–Forbes Magazine. Here’s a quote from a Forbes article on the deficit:

Among the most outrageous expenditures is corporate welfare. Desperate businesses now overrun Washington, begging for alms. Believing that profits should be theirs while losses should be everyone else’s, corporations have convinced policymakers to underwrite virtually every industry: agriculture, education, energy, housing, manufacturing, medicine, transportation, and much more.

My Cato Institute colleague Tad DeHaven has published a new study, “Corporate Welfare in the Federal Budget,” on business subsidies, which he figures to cost about $100 billion a year. Slashing corporate welfare obviously won’t balance the budget—which is why middle class and defense welfare also have to go on the chopping block. However, cutting business subsidies would be a good start to balancing the budget. Moreover, going after corporate welfare is essential to create a budget package that the public will see as fair.

Not every subsidy is bad policy, of course. There are sound reasons for encouraging some new enterprises, or saving endangered ones. (I’d argue that rescuing the American automobile industry averted catastrophic economic losses.) But those reasons need to be publicly vetted, debated and justified. Right now, we have ample reason to believe that most corporate welfare is the result of cozy dealings between campaign donors, lobbyists and legislators. There’s a reason it’s called “crony capitalism.”

Before we nod approvingly at the self-righteous candidates who are beating up on those “shiftless” poor folks, maybe we should take a closer look at the other end of the income spectrum. Maybe we should look at the well-fed and prosperous folks who are so un-self-aware that they don’t even recognize that they are just as dependent on welfare as the people they like to diminish and scorn.

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A Bigger Pie

I think it was Mark Twain who said “It isn’t what you don’t know that hurts you–it’s what you know for certain that just ain’t so.”

Political debate these days is awash with “facts” that “just ain’t so.” One of those “facts” is that immigrants take jobs from Americans, and that raising the number of foreign-born people we allow to enter the country legally each year would worsen unemployment. A recent study by the Fiscal Policy Institute tells a very different story.

The Institute looked at incorporation figures and determined that immigrants own 18% of all small businesses in the U.S. In other words, more than one in six small businesses is owned by an immigrant. Those businesses employ an estimated 4.7 million workers, and generate some $776 billion dollars in revenue.

That immigrants gravitate to ownership shouldn’t surprise us. You have to be a risk taker to leave the place of your birth and move to a foreign country. Anti-immigrant attitudes make it more difficult for educated and skilled immigrants to find management and professional positions with American-owned firms. So, disproportionately, immigrants start their own small businesses, and small businesses are far and away the largest generators of employment. Small businesses–not massive corporations–are the real “job creators.”

The notion that immigration slows job growth is rooted in a “zero sum” worldview, the belief that the economy is like a pie. In that view, there is a fixed amount of pie, and if you get a bigger slice, mine will be smaller–if an immigrant gets a job, that’s one job fewer for Americans.

The virtue of capitalism is that it encourages people to bake more pie. And that is precisely what immigrants are doing.

Somehow, I doubt that this evidence will make much difference to those who want to raise the gangplank and keep those “others” out. What we know that “just ain’t so” keeps getting in the way of acting in our own best interests.

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Short Story

A couple of days ago, a good friend (male) confided that he’d gone in for his annual checkup, and his doctor had found prostate cancer. Fortunately, it was very early, and the prognosis for full recovery is excellent. His surgery would be outpatient, and he’d be home the next day.

I commented that this was exactly why those annual exams are so important, especially for those of us getting along in years. He nodded his head, and proceeded to share a story.

He has a friend–a tennis buddy–who skipped those check-ups for three years. When he finally went to the doctor, he also had prostate cancer, but it was already stage four. They could slow it down, and give him an extra year–perhaps two. But that was it.

He’d skipped those physicals because he’d been between jobs, and without health insurance.

With all the talk about “Obamacare” and the focus on costs and mandates and political ideologies, we sometimes forget the consequences of our current system for real people. This man will die many years before he otherwise would. Those are years he won’t spend with his wife, won’t watch his children and grandchildren mature and grow, or play tennis with my friend.

If you don’t care about the human equation, I’ll just point out that these are also years he won’t pay taxes, and that the medical costs of treating him at this stage vastly exceed the costs of curing my friend at an early stage of the disease–prevention and early interventions are far less costly than later treatment.

Sometimes, a story tells the story.

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