The Pope or the Republicans…?

The Pope or the Republicans…?
December 12, 2014



Across my lifetime, I never thought the Republicans were the best party for social justice, although I’m told they once were. I spent a career in the private sector, during which I generally thought the Republicans were best for economic wisdom. As a lifelong registered Democrat, I voted Republican a number of times. But, I have felt growing concern with how the world and our country have changed in recent years.  And after a year (2013) studying economics in London, and observing for a year since,  I have concluded that the “Grand Old Party” has lost its wisdom on economics (and a few other important attributes) along the way.  I am now planning to look to the Pope for more economic guidance than to the Republicans.


Consider the message from the Pope when speaking to the European Parliament recently, as reported in the Huffington Press:
“To cheers from both the Eurosceptic and left-wing members, the Pope railed against the ‘certain selfish lifestyles, an opulence that is no longer sustainable’ and the ‘frequent indifference to the world around us, especially to the poorest of the poor.'” 


Quoting Pope Francis: “To our dismay we see technical and economic questions dominating the political debate, to the detriment of genuine concern for human beings. Men and women are reduced to cogs in a machine, items of consumption to be exploited.The result is that when human life is no longer useful to the machine, it is discarded without qualms, as in the case of the terminally ill, the elderly who are abandoned and the children who are killed in the womb. It is a great mistake when technology is allowed to take over, and there is a confusion between ends and means. It’s an inevitable consequence of throwaway culture and uncontrolled consumerism.” These characterizations apply to the US as much as to Europe, if not more so, considering that our inequality and social mobility is worse than that of most European countries.

I don’t agree with all of the Pope’s views, abortion rights as an example. However, I do agree with much of what this Pope stands for. He’s a great transforming voice in the Catholic church and in religion today. Of course, some will say, what does the Pope know about economics? And what kind of economic message is conveyed in his views? He is calling for countries and companies to restore recognition of people as human beings, as opposed to units of production, who can be discarded as soon as capitalism finds better alternatives for production, without obligation to help re-train and re-deploy, without obligation to provide gainful and equal opportunity for all. He is insisting that citizens are not just automatons whose fulfillment is met only by constantly increasing consumption. I relate to his objection to selfish lifestyles and opulence, when there remain hundreds of millions in poverty, significant segments in most all countries in the world. The US Census Report says we have 45.3 million US citizens living in poverty, as of 2013.

These are most definitely economic factors. They are reflections of the harmful excesses of an unrestrained capitalism, the American version of which may be the most harsh on the middle class and poor. These behaviors cost our country and our economy. These are reflections of the Tea Party, the Libertarians, the Conservatives, mostly represented by the contentious and fractionalized Republican Party of today–the party now distinguished for its inability to propose any meaningful legislation, focusing all its attention on criticizing President Obama and the Democrats, and reducing government, at the expense of schools and infrastructure, as well as worker protections and social welfare.

What the Pope is decrying can be considered under the broad umbrella of “inequality,” a term Republican refuse to use and consider. They prefer “poverty” because that term suggests I can choose to help if I want to, whereas “inequality” suggests I am responsible to help–I failed to provide for others as I should have. Republicans don’t want any obligation assumed, since that would invite another pejorative word–“redistribution.”  Some find that the essence of this position by the Right is based on deep seated ideology, such as value of the individual (as opposed to the group), the belief that anyone can make it here (and if you haven’t, it’s your own fault), and favoring opposition to government doing much more than protecting private property rights, rule of law, and national defense. Unfettered capitalism should be left to do the rest. 

In contrast, the Democratic view can be summarized as valuing the collective, recognizing that equal rights means equal opportunity that requires work and protections to sustain. Democrats understand that some citizens simply need support from the state, which should be active in its partnership with capitalism, and should restrain some of the excesses of uncontrolled capitalism. Consider the agreements reached for the Millenium Development Goals. The much debated process ended up agreeing that while markets drive economic growth, they need the public sector to support them. The MDG goals also ended up agreeing that poor countries must have active support from rich countries. We were a major party to these global MDGs. Have we forgotten–government has a significant role, and we should concern ourselves with the needs of developing countries and their citizens? Consider what might happen if we really applied these principles in our trade and immigration policies.

As to the Republicans, I’m forced to agree with the views of Thomas Mann and Norman Ornstein. They wrote a best selling book in 2012. Mann is a Senior Fellow at Brookings, a centrist Think Tank, and Ornstein is a scholar at The American Institute, a conservative think tank. Indicating they have come to stark conclusions of today’s Republican Party with regret, they write, “We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the mainstream, it makes it nearly impossible for the political system to deal constructively with the country’s challenges.”

I hold Republicans largely responsible our high inequality, driven by their economic policies since around 1980, sometimes called “neoliberalism.” There are other contributing factors, such as technology, globalization, and financialization, but Republican policies have significantly influenced these as well. 

So, just how severe is our inequality in the US? Just how successful have the Republicans been in advancing this set of views?


The answer is very successful. We are now back to the 1925 peak of inequality, the “robber baron” peak. We enjoyed a period of improvement between 1925 and 1975.  Recognizing that some “re-balancing” of the power of labor and capital may have been necessary in the 70’s and 80’s, the pendulum has now swung way too far to the Right. Republicans have done an excellent job of persuading Americans that Democrats and big government are responsible for their lackluster wages and poor jobs prospects, by arguing that the Democrats have hobbled capitalism with too much government and regulation–just get rid of all that, and everything will soon be hunky-dory. The Republican argument is that all we need is more growth! More growth comes only from unfettered capitalism. That’s the argument.  

There are two main problems with this argument:

First, it is certainly not evident that growth alone will reduce inequality, without any form of redistribution (either via increased taxes on the wealthy, or by simply re-allocating the existing government budget–federal, state, or local–to such as education and infrastructure from such as military or excessive government support for the relatively wealthy elderly, as examples).


Actually, for the world’s largest economy, we have had pretty decent growth since 1980, when all the ups and downs are smoothed out, but inequality increased steadily, regardless of the growth. Conservatives can argue that even more growth might do it. But, what about China?  From a much smaller base in 1980, China’s GDP grew at about 10% annually across this period, becoming the 2nd largest economy, and their inequality index has risen at about the same pace as ours. Once an egalitarian country, China also has very high inequality now. China has proven that growth can reduce poverty (from 65% of the population in 1980 to 10% now), but not necessarily inequality–that is, not without government intervention. There is certainly no evidence of the “Kuznets curve” revealing itself (inequality actually correcting for itself without government actions).
Second, how is growth to be achieved? What will induce greater growth? Conservatives argue that reduced government intervention (reduced regulations) will raise growth. Yes, in some cases, done selectively, that will help. We have many regulations that are burdensome on business. This posting is not intended to address the waste in government, but if properly addressed, there is more than enough there to allow for significant progress in education and infrastructure without raising taxes on anyone. It is indeed a major opportunity not addressed by either party. But until it is, we can’t just starve government without re-allocating and re-engineering what government does.  Just reducing regulations will not produce the result. And regulations have come from both sides of the aisle.

Then, Republicans argue that more foreign trade will do it. Yes, that can help, but there are complications. One is that conservatives are not fair in WTO and other trade negotiations–they want to protect our producers and persuade others to lower barriers. Another is that the open borders forced upon developing countries by neoliberal policies adopted by the IMF have had severely deleterious effects…except for the benefits to developed country producers, or course. 
A third argument is the “supply side” one–reduce taxes on the wealthy and they will invest it in productive jobs producing businesses.  Yes, in theory, but in the period of the highest marginal tax rate (above 90%), 1951-1963, the economy had outstanding growth–3.7%. And, we have reduced taxes from a high of 65% (top incomes) in 1980 to below 40% today–and look what happened to inequality across that period–it rose steadily, wages stagnated, worker protections deteriorated, and we have a highly dissatisfied citizenry now.  So, there is good cause to question whether the wealthy are now putting their savings into jobs producing investments. Maybe it’s now going mostly into luxury homes, cars, yachts, art, and passive investments in financial markets.
Beth Ann Bovino, Chief US Economist at Standard & Poors, a very capitalist organization, wrote recently: “One of the reasons that could explain this [current] pace of very slow growth is higher income inequality. And that also might also explain what happened that led up to the great recession.” The major argument in the S&P study is that the wealthy tend to spend less of their money, so putting more money in the pockets of the middle class and below will grow the economy (the “demand side” argument).  Indeed, many economists (e.g., Joseph Stiglitz, Paul Krugman) have argued that we could have had higher growth since 2008 if we had been willing to stimulate the economy–spend large sums on infrastructure, for example, employing millions of people. Republicans refused to spend, even to restore our deteriorating US infrastructure. Five years ago S&P forecasted our 10 year growth rate at 2.8%. They have now reduced it to 2.5%.

The NYT article on the S&P study adds, “Ms. Bovino and her colleagues find that if the average amount of education of the nation’s work force were to increase at the same rate it did during the middle of the 20th century, over the next five years annual G.D.P. would be 2.4 percent higher.” Makes sense. I got a good education in public schools in the 50s and 60s, even in a small town in North Carolina.  But public education has been starved by the Republicans in recent decades. In fact, within 3 blocks of my home, four private schools educate about 1,500 high school students of the wealthy at a cost of about $35,000 per year. Meanwhile, San Francisco’s Unified School District tries to educate 52,000 students on a budget of about $9,000 per pupil.  Wealthy public school districts like Orinda, CA, operate essentially like private schools, where the high cost of housing can only be met by the wealthy, who give generously to public school support. You must live there to attend. These are examples of what the economist Albert Hirschman explained in his 1970 treatise on the “exit voice.” When the wealthy exit public services because they can afford private services, there is no effective political voice remaining to defend the institutions they no longer care about.

In addition to logic and reasoning, there is also scholarly evidence that inequality does slow growth. The think tank of the OECD (Organization for Economic Cooperation and Development) has just published a study which concludes that “income inequality has a sizeable and statistically negative impact on growth, and that redistributive policies achieving greater equality in disposable income have no adverse growth consequences.” They estimate that US economic growth over the period of 1985-2005 would have been 6 or 7 points higher if inequality had not risen over that period.


Angel Gurría, the OECD’s secretary general, said: “This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate. Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”

The International Monetary Fund (IMF), historically very conservative in its economics, released a report in April 2014: “… lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. And…redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth.” While Republican rebuttals to any mention of higher taxes like to raise ire by suggesting Democrats are talking about doubling rates on the wealthy, in fact, no one is. A 10% increase would yield significant results. Or, how about raising capital gains taxes from 20% to 30%? 


Yet, the conclusion that inequality reduces growth will certainly remain disputed disputed. Even the findings of such entities as S&P, the OECD, and the IMF will undoubtedly be disputed by conservative economists. 

  • However, I certainly haven’t found any studies arguing the contrary–that high and rising inequality enhances growth.

  • Second, there is no dispute about the social and moral negatives to high and rising inequality, at least none other than the Libertarian response that we are all on our own, and that somehow this is what God intended. 
  • Furthermore, Republicans should take note–regardless of their arguments, there is a growing chorus of concern expressed across the spectrum from liberal to conservative. Politically, it is time for Republicans to pay attention.
  • Finally, even if growth should be slightly restrained by actions taken to improve equality of opportunity, or even to gradually redistribute by modestly increased taxation on the wealth and those of higher incomes, the trade offs would certainly be more acceptable to Americans than continuance of present trends.  

It does seem abundantly clear that Americans are not happy with the trends of the last 30, 20, or 10 years. It’s getting worse (for middle class and below). The recent mid-term election results suggest Americans have been persuaded to blame their frustrations over poor jobs, low wages, and reduced opportunity on the Democrats and big government. The reality is that these ills are largely the result of Republican policies over the last 30 years.


So, to me, it’s Paul Krugman and Pope Francis, who would constitute a good start to make economic policy for us for the next few years. I’ve had enough of “starve the beast (of government),” let infrastructure crumble, trust the private sector and the invisible hand, and everyone for himself. Not to mention that some Republicans are overanxious to get involved in foreign wars (or even to start one–e.g., with China).  As for building more fences, I’m for finding ways to admit more hard working immigrants who want to abide by our laws and pay their taxes. We didn’t become the strongest nation on earth by closing our borders. Have we forgotten we are all immigrants or children of immigrants? At a time of challenge to our strength and leadership, this is not a time to kick away the ladder. 

Of course, I recognize that the above description of the two parties is overly simplistic, as there are all kinds of combinations of views on both sides of the divide. Nevertheless, for these purposes, I felt this description adequate.

The Republicans are “out to lunch.” I hope it’s a short lunch, not too much champagne, and they will soon recover some balance and some wisdom. I occasionally voted Republican in the past, and would be open to doing so in the future. I acknowledge that there are some wise and reasonable voices in the Republican ranks, whose views are not those I criticize above–but they appear to be in a minority and unable to influence progress in recent times. Regrettably, our best hope may be for the upcoming period of Republican control to demonstrate to Americans that Republican policies will not achieve the improvements they rightfully demand–and that we can then move the pendulum toward greater equality, progress in wages and jobs, in equal opportunity, and a more egalitarian country.

References:

Pope Francis Slams EU’s ‘Opulence’ and ‘Aloofness’ in Historic Speech: http://www.huffingtonpost.co.uk/2014/11/25/pope-francis-european-parliament_n_6217178.html?utm_hp_ref=world&ir=World

Let’s just say it: The Republicans are the problem: http://www.washingtonpost.com/opinions/lets-just-say-it-the-republicans-are-the problem/2012/04/27/gIQAxCVUlT_story.html

US Census: http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf

Brookings on MDG’s: http://www.brookings.edu/blogs/up-front/posts/2014/12/09-post-2015-global-agenda-mcarthur-kharas?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=15227592&_hsenc=p2ANqtz–J2TFfFiJgD0WJ_YBUon1bGki4N2kib6W82IFlbCbKL1LT8QFPlF7a_PzPTUYt_ev_BK46Up33FEUDrDoQesWwV9Kazw&_hsmi=15227592

Standard and Poors on how inequality restrains economic growth: http://www.nytimes.com/2014/08/06/upshot/alarm-on-income-inequality-from-a-mainstream-source.html?abt=0002&abg=0

The Guardian: Summary of OECD report: http://www.theguardian.com/business/2014/dec/09/revealed-wealth-gap-oecd-report

IMF Report “Redistribution, Inequality and Growth, April 2014: 
http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

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