Dac Nelson

I have grown tired of the carping about capital, or nonprotectionist, or deregulated, or free-market, or laissez faire economies from congressional Republicans. Or trickle down or Reaganomics. They are all shams. They rely on fundamentally flawed premises:

1. The market does not require regulation
2. Tax breaks stimulate economic activity
3. The market will correct itself

This is what we keep hearing from the Republicans in the U.S. House and Senate. The way to beat this recession is to increase tax breaks and stop needless spending. Well, guess what? That’s what we had for the last eight years. It gave us this:

Oh, and it has never worked. A look at human nature can illuminate the flaws in the above logic even to people who are not economists. I am sorry. In many respects, I am a Randian Objectivist, but the poor, plodding Aristotelian in me can see that laissez faire, or whatever Republicans choose to call it at a given time, is as good way to collapse an economy as communism’s precept “from each according to ability, to each according to need.”

Great Lie Number 1: The market does not require regulation

Who is the market? What is the market? Spenders and producers? Consumers? Purchasers? Fabricators? Corporations? Insurance companies? Manufacturers? … Food preparers? Over the last eight years, most industries in the United States have operated under a regulatory system that allowed industry insiders to hold majority control over the boards. A successful example of this environment has operated in the movie industry, which uses a self-rating system to keep the government from applying ratings to movies. But as far as I know, nobody has ever died because a movie got a bad rating. The same cannot be said for pharmaceuticals that pass the FDA and are prescribed for other purposes; for salmonella in peanut butter and E coli in spinach; for industries that are exempted from mercury caps; from products manufactured outside of the United States, under abominable conditions on the labor, and sent back to the United States, without inspection or testing of side effects for chemicals used during fabrication or that exist within the product.

Also assumed here is that leaders of the industry have a rational self-interest in keeping an economy moving, because paying a little more to labor today will sustain a customer for tomorrow. But not all people are rational or farsighted. Not all people act for their own and the general good. Only the government of the United States is mandated to provide for the general good. Corporations are not. And some people within those corporations are greedy, cheaters, or they take advantage of not being watched (i.e., regulated). When deregulation leads to dead or impoverished people, and at a great scale, we get the current environment: Enron. Haliburton/KBR. Blackwater. Katrina. Investment bank failure.

The glaring hole in the constant drumbeat being kept up by congressional Republicans about regulation is painfully obvious: Some industries are dangerous and need to be regulated closely, or people will be killed or impoverished.

Great Lie Number 2: Tax breaks stimulate economic activity

We tried this at the turn of the 20th century (see Robber Barons [industrialist]). We tried this for a brief period after the New Deal. We tried this with Reaganomics. We tried this for the last eight years. The problem here is not the tax breaks themselves, but what effect tax breaks have. Tax breaks remove revenue from government coffers. Period. That means revenue has to be generated or made up elsewhere or there will be a shortfall. Typically the way to do this is by slashing budgets, as Republicans are so fond of bundling in with their tax breaks.

However, tax breaks do not lead to wealth generation. Tax breaks actually slow revenue growth by keeping money in people’s pockets or bank accounts. If the record of the wealthiest people throughout history is anything to go by, what happens is that as wealth moves up it concentrates. There are fewer people at the top, you see. Tax breaks slow the movement of revenue, wealth concentrates, and currency movement slows. Yet when currency comes to lower-income peoples, it circulates. Low-income people spend money because they have to spend money. They have lower reserves of cash on hand to weather day-to-day expenses. They have less leisure time, less disposable income, if any, and as a consequence, less wealth. But they are spenders, and money changing hands is, by definition, economy. That is why food stamps temporarily put $1.73 back into the economy for every $1.00 spent, and unemployment insurance benefits put back $1.64 (See “Fiscal Bang for the Buck” chart [warning: .pdf]). It’s because people are circulating that currency, which generates more currency changing hands. Read circulation, as in movement, not concentration, as in stagnation.

Great Lie Number 3: The market will correct itself

Actually, this one is not a lie (well, yes it is, but by omission). Is is my particular favorite of the great lies, which is why I saved it for last. Because it is based entirely on things that we know to be untrue about human nature: that every single one of us is constant, rational, fair, and altruistic.

This lie assumes that the market will never actually move out from under the consumer’s feet. That is not what the evidence, or even experience, suggests. The jobs move out from under labor if it is cheaper elsewhere (outsourcing). The market moves into the places people can afford it (away from the unemployed). The market does not have agency. It is not a moral being. It cannot be bad or good. It cannot act of its own accord. It is a collective system run by good and bad people, and it follows the pressure applied by those people. For both the good and the bad, that pressure is money. Sometimes that is a good thing, but sometimes it is devastating. Don’t believe me?

Ask any American with “Fitz-,” “O’,” or “Mc” in their surname why they think they’re American and not Irish. Answer? The Great Famine.

The potato famine was caused by a laissez fair capitalist system. A labor economy (i.e., unions) did not cause the potato crop to fail. Protectionism did not cause the crop to fail. Taxes did not cause the crop to fail. Disease caused the crop to fail. It became a human tragedy because an unregulated market squeezed the lower classes into narrow economic margins, and when the crop failed, so did those margins. But while a million starved and a million emigrated just to survive, Ireland’s farms and ranches kept producing grains and meat for export to the continent: where people could pay for it.

So, at least the market did correct.

Great. Isn’t it?