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America’s Political Class Struggle - Jeffrey D

America’s Political Class Struggle - Jeffrey D

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ECONOMICS AND JUSTICE
America’s Political Class Struggle
Jeffrey D. Sachs
2010-12-27
America’s Political Class StruggleNEW YORK – America is on a collision course with itself. This month’s deal between President Barack Obama and the Republicans in Congress to extend the tax cutsinitiated a decade ago by President George W. Bush is being hailed as the start of a new bipartisan consensus. I believe, instead, that it is a false truce in what willbecome a pitched battle for the soul of American politics.As in many countries, conflicts over public morality and national strategy come down to questions of money. In the United States, this is truer than ever. The US isrunning an annual budget deficit of around $1 trillion, which may widen further as a result of the new tax agreement. This level of annual borrowing is far too high forcomfort. It must be cut, but how?The problem is America’s corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above anyother goal. The Democrats have a bit wider set of interests, including support for health care, education, training, and infrastructure. But, like the Republicans, theDemocrats, too, are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.The result is a dangerous paradox. The US budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programs and a weak job market.One in eight Americans depends on Food Stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, and the other iseasily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favored the rich and powerful. Since Ronald Reagan becamePresident in 1981, America’s budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, therichest 1% of American households now has a higher net worth than the bottom 90%. The annual income of the richest 12,000 households is greater than that of thepoorest 24 million households.The Republican Party’s real game is to try to lock that income and wealth advantage into place. They fear, rightly, that sooner or later everyone else will begindemanding that the budget deficit be closed in part by raising taxes on the rich. After all, the rich are living better than ever, while the rest of American society issuffering. It makes sense to tax them more.The Republicans are out to prevent that by any means. This month, they succeeded, at least for now. But they want to follow up their tactical victory – whichpostpones the restoration of pre-Bush tax rates for a couple of years – with a longer-term victory next spring. Their leaders in Congress are already declaring thatthey will slash public spending in order to begin reducing the deficit.Ironically, there is one area in which large budget cuts are certainly warranted: the military. But that is the one item most Republicans won’t touch. They want toslash the budget not by ending the useless war in Afghanistan, and by eliminating unnecessary weapons systems, but by cutting education, health, and other benefitsfor the poor and working class.In the end, I don’t think they will succeed. For the moment, most Americans seem to be going along with Republican arguments that it is better to close the budgetdeficit through spending cuts rather than tax increases. Yet when the actual budget proposals are made, there will be a growing backlash. With their backs against thewall, I predict, poor and working-class Americans will begin to agitate for social justice.This may take time. The level of political corruption in America is staggering. Everything now is about money to run electoral campaigns, which have becomeincredibly expensive. The mid-term elections cost an estimated $4.5 billion, with most of the contributions coming from big corporations and rich contributors. Thesepowerful forces, many of which operate anonymously under US law, are working relentlessly to defend those at the top of the income distribution.But make no mistake: both parties are implicated. There is already talk that Obama will raise $1 billion or more for his re-election campaign. That sum will not comefrom the poor.The problem for the rich is that, other than military spending, there is no place to cut the budget other than in areas of core support for the poor and working class. IsAmerica really going to cut health benefits and retirement income? Will it really balance the budget by slashing education spending at a time when US studentsalready are being out-performed by their Asian counterparts? Will America really let its public infrastructure continue to deteriorate? The rich will try to push such anagenda, but ultimately they will fail.Obama swept to power on the promise of change. So far there has been none. His administration is filled with Wall Street bankers. His top officials leave to join thebanks, as his budget director Peter Orszag recently did. He is always ready to serve the interests of the rich and powerful, with no line in the sand, no limit to “compromise.” If this continues, a third party will emerge, committed to cleaning up American politics and restoring a measure of decency and fairness. This, too, will take time. Thepolitical system is deeply skewed against challenges to the two incumbent parties. Yet the time for change will come. The Republicans believe that they have theupper hand and can pervert the system further in favor of the rich. I believe that they will be proved wrong.
effrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals.
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America’s Political Class Struggle - JeffreyD. Sachs - Project Syndicate http://www.project-syndicate.org/commentary/sachs173/English1 of 4 7/5/2011 12:19 PM
 
dotsconnectors 06:56 27 Dec 10Mr. Sachs,Your comment:”The Republican Party’s real game is to try to lock that income and wealth advantage into place.” has prompted me to suggest that the lock of their income and wealth advantage into place is likely to be via Congress’s voting on the recommendations of the Fiscal Commission. Since the Fiscal Commissionchoose the less transparent route of only posting live testimony to its Website, I have included below my comments to Fiscal Commission prior to its first meetingin April 2010:Comments Regarding the Scope of National Commission on Fiscal Responsibility and ReformIntroductionIn June 1980 the broadcast of the NBC White Paper If Japan Can…Why Can’t We?; sent major U.S. corporations looking for W. Edwards Deming in his Washington,DC, basement office. The reason: many U.S. industries, measured by key matrix, peaked in the mid-late 1960’s and were increasingly challenged competitivelyby the Japanese. The NBC documentary asserted that America’s declining competitiveness and rate of productivity would make the United States“guns andbutter” policies of the past unsustainable and our children will be the first generation of American to have a lower standard of living than their parents. For moreinformation about If Japan can…Why Can’t We? - click the link that follows:http://en.wikipedia.org/wiki/If_Japan_Can..._Why_Can't_We%3FDeming’s spent the last 13 years of his life trying to prevent the United State from committing suicide. His blueprint for transformation was instrumental to theJapanese economic miracle after World War II and this same blueprint helped transform many American companies, including Ford, after 1980. Ford’s ability tothrive, without bailout assistance, is testimony to his sustainable framework. Deming networks exist in most countries; in fact, from 2001 through 2008companies from India were awarded more Deming Prizes for quality (15) than all other countries combined.In addition to U.S. industries’ competitiveness peaking in the mid-late 1960s, the following were at levels that have not been seen since:The percentage of the federal budget funded by corporate taxesThe level of employee post-retirement benefits funded by employersAs wide a dispersion of annual income across the populationParadoxically, in spite of America’s declining competitiveness and rate of productivity, the 40 years through 2006 has resulted in:The percentage of the annual income accruing to the top 20% of the population (the special interest) reaching an all-time highThe percentage of the federal budget funded by corporate taxes reaching an all time lowThe level of employee post-retirement benefits funded by employers reaching an all time lowThe aforementioned, have resulted in the bottom 80% (the common interest) bearing the brunt of America’s declining competitiveness and rate of productivity.The predominate reason corporate taxes were lowered and businesses justified freezing/terminating the funding of employee post-retirement benefits was tomake America companies more competitive. Yet in spite of the lack of increased competitiveness, the percentage of the annual income accruing to the top 20% of the population reached an all-time high.Scope of National Commission on Fiscal Responsibility and ReformThe scope of The Commissions work, perhaps more than anything else, will determine how history judges The Commission. Too many interest groups will wantinstant pudding and try to influence The Commission to focus more on the effects of the last 40 years, rather than the root causes. Over the 40 year period from1969 through 2008, one major political party controlled the legislative branch of the Federal Government, 70% of the time; while the other major political partycontrolled the executive branch of the Federal Government, 70% of the time. As a result there is ample blame to go around. Unfortunately, there is a fine linebetween holding leaders accountable and being views as partaking in the blame game, but this should not deter The Commission from holding interest groupsaccountable. Self-interest partisans have over-promised and have set the stage for to gross under-deliver to the American people. The Commission’s work shouldabove all be balanced and sustainable. Some interest groups have pointed to the follow deficits as being responsible for our current fiscal crisis:The Trade Deficit(s)The Saving DeficitThe Leadership Deficit(s)The Budget Deficit(s)Based on the heretofore introduction, perhaps The Productivity Deficit(s) should be added.Trade deficit challenges may not be considered as compatible to the mandate of The Commission as other deficits, however, if The Commission determines thatroots causes of trade deficits are also among the root causes of America’s current fiscal crisis, trade deficit root causes warrants disclosure.With globalization, addressing American’s saving deficit has special challenges, since policies designed to increase savings may not benefit our domesticeconomy/society; increased savings may benefit other countries more than the U.S. because these savings may result in increased investments by Americansabroad. The reduced dividend and capital gains tax rates, which are scheduled to sunset, did not result in increased savings, in facts savings rates reached all timelows. Perhaps savings targeted toward enhancing our domestic economy should be encouraged; this could take the form of individual investment, sovereignwealth fund investment or both.The leadership deficit(s) are not limited to public officeholders. All individuals in positions of authority have the primary responsibility for the system within whichthose that they lead and/or have authority over, operate.Budget deficit(s) have numerous moving parts. Often not discussed are tax discounts, tax credits and tax deferrals, which have been estimated to account for25% of the U.S. Government’s total spending. The U.S. Federal Income Tax Code should be justified from a domestic economic and societal benefit standpoint.For example, the current U.S. Federal Income Tax Code provides substantial tax rate discounts on long-term gains from the sale of capital assets held for longer
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America’s Political Class Struggle - JeffreyD. Sachs - Project Syndicate http://www.project-syndicate.org/commentary/sachs173/English2 of 4 7/5/2011 12:19 PM
 
than 1 year; however not all capital assets provide meaningful economic and societal benefits. Some provide substantial benefits in terms of fosteringentrepreneurship, creating jobs and economic growth, while others actually detract from domestic economic growth, e.g., commodity speculation (causingbubbles), investing in foreign stocks and exchange traded fund (ETFs) which are in substance speculative vehicles are among those that generally detract.Corporate obsession with quarterly earnings is to some degree influenced by the ability to achieve long-term capital gains treatment for holdings, as short as oneyear and one day. From 1934 to 1941, taxpayers could exclude: 20, 40, 60, and 70 percent of gains on assets held 1, 2, 5, and 10 years, respectively. This gradedexclusion from taxation encourages genuine long-term investing and discourages hot-money investing which often results in bubbles.timwilliamson 06:56 27 Dec 10Great article.What is the solution to restoring economic balance in the USA? Greed and avarice have driven the widening gap between the rich and the rest of America to thepoint of fracture. How long can this continue? It is obvious that the rich have the resources to persuade others that their plan is 'good' for them too, but howmany must fall prey to the ideology of gross wealth accumulation as the modus operandi for a successful and prosperous America when in fact it only makes thewealthy more wealthy at the lives and expense of the rest of us?WIntelAgency 07:32 27 Dec 10Interesting review, but I wonder.. What if:1. The World followed what Russia just demonstrated, e.g., Putin vs. Mikhail Khodorkovsky see: http://www.france24.com/en/20101227-moscow-court-finds-khodorkovsky-guilty-oil-tycoon-embezzlementShouldn't Nations be concerned, and work to curb the greedy conflicts, false media, and deception; to bring in fair competition, fair regulators that will writefair/balanced laws that control Corporations from further hostile takeover. Laws that close the loop holes allowing the large oligarch Corporations and Banks fromgaming and running through the various tax evasions schemes, e.g., IRIS double, and use of competing governments such as Isle of Man, Dubai, etc. that allowITAR Free Zones (to avoid international sanctions) crippling fair competition Worldwide. This is literally collapsing the global economy. Those who gamble anations' assets away, (property, technology gain, and people) through gambling scams at Wall Street and other scams such as selling a nation's debts out to acompeting country (e.g., US morgage debts to Russia) should be put out of business permanently for treason and threat to National Security.The day that any regulators in the US demonstrate this will be a day of celebration! Which will bring back economy. Sad that Russia was the first to demonstratethis and not the US.lyndscott 03:14 28 Dec 10The author conveniently neglected to include the fact that the DEMOCRATIC PARTY has their hands pretty dirty, too...... like President Clinton & Robert Rubinlaying the foundation for this unholy mess.....it's called fraud. Or, how about Chriss Dodd & Barney Frank being the absolute puppets of the banking system thatdeliberately & systematically drained the wealth from average americans straight up to the Wall St. big banks ? The Federal Government (both parties) is moreconcerned with their own survival than the survival of the American Citizen . It will come back to bite them both when a Third Party is formed for a 2012presidential run.Jacob 10:32 29 Dec 10Two words: Stockholm Syndrome. jracpa 08:40 09 Jan 11A very slanted view of a pressing problemnissa20 10:30 14 Jan 11Mr. Sachs sad remedies for our present situation are , unfortunately, moregovernment spending and higher taxes . How can he be so uninformedas to suggest that Republicans are only greedy capitalists , looking fortax dodges , who haveno concern for the poor and hurting . That is an absolute lie and an insultto millions and millions of Americans .Maybe he should check out theFACT i that self-described “conservatives” in America are more likely to give—and give more money—than self-described “liberals.” In the year 2000, householdsheaded by a conservative gave, on average, 30 percent more dollars to charity than households headed by a liberal. And this discrepancy in monetary donationsis not simply an artifact of income differences. On the contrary, liberal families in these data earned an average of 6 percent more per year than conservativepeople
America’s Political Class Struggle - JeffreyD. Sachs - Project Syndicate http://www.project-syndicate.org/commentary/sachs173/English3 of 4 7/5/2011 12:19 PM

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