Serving banks and businesses
Labor journalistreviews a book introducing economics for our side.
APPARENTLY, ECONOMICS is one of the most popular electives in Ivy League schools. Admittedly, it can be a difficult and confusing subject. Particularly, it appears, for undergraduates from these very elite colleges.
According to a survey in the Wall Street Journal published a couple of years ago, most of them walk away from their brief classroom introduction with blind faith in an unfettered and unregulated market economy.
Perhaps this explains Harvard graduate Barack Obama's June 2008 comment to cable business channel CNBC that "I'm a pro-growth, free market guy. I love the market."
Maybe they're all reading the same books. I have another recommendation. It comes fresh off reading economic professor Jack Rasmus' latest book published by Pluto Press--Obama's Economy: Recovery for the Few. In refreshingly clear descriptive language, Rasmus presents a devastating indictment of the last four years of utterly failed government policies and their underlying false precepts.
No cheerleading for the private-sector cabal of banks and corporations here. Why should there be? Outside of Ivy League classrooms, what exactly has blind faith in the market accomplished?
Look no further than the very apropos book title--recovery for the few. Rasmus cites 2011 business journal reports that "corporations have a higher share of cash on their balance sheets than at any time in half a century...rather than invest[ing] in new plants or hiring."
Banks are no different. The author explains that banks are sitting on "$1.7 trillion in excess cash," which they refuse to extend for mortgage relief or as credit for small businesses." The author breaks down how banks received low interest and, in some cases, zero interest bailout funds of $9 trillion, without any obligation or intention to help out millions of working people facing foreclosures.
It may also shock readers to learn that insurance policies reimburse bank mortgage losses at higher, pre-crash market rates. And Rasmus reveals how quasi-government mortgage agencies like Freddie Mac and Fannie Mae extend exactly the same favor to their banker friends. This is a far better deal than renegotiating lower principle and interest payments with desperately "underwater" homeowners.
And just when you think it can't get worse, other chapters disclose one of the most unscrupulous policy scandals of any recovery program. Banks were actually urged to park their zero interest or ridiculously low 0.25 percent interest bailout funds with the Federal Reserve Bank (Fed), where they were paid more millions in interest for doing nothing.
Corporations are no better. Rasmus describes how they are sitting on a huge stash of $2 trillion, much of it resulting from government tax cuts. This money is being invested in more profitable overseas markets or is being used to buy up their company stock, a move that inflates the stock value and, thus, increases dividend payments to fortunate shareholders. Neither of these extremely profitable ventures produced jobs in this country.
Therefore, Rasmus concludes, rather than just simply arguing for more government spending, as some liberal economists do, it's far more important to challenge how the money is being spent, something economists call the composition of expenditures. In other words, who receives bailout funds and what do they do with it.
I ASKED the author to further explain how he differs from other progressive economists. "My other difference with liberal economists," Rasmus replied, "is that if corporations are hoarding their tax cuts and squeezing profits from labor the past four years, then government should and must tax them and create jobs directly itself. The market created the crisis, and you cannot rely on the market to resolve it. Government must directly create jobs, and to do so without raising deficits, there must be a radical restructuring of the U.S. tax system."
To illustrate his point that Obama's exclusive reliance on the private sector has been a complete disaster, Rasmus produces ample evidence that this is the most "lopsided" recovery of the post-Second World War era.
For example, while the majority is suffering significant loss of spending power from the deep recession, he explains in the book how stock and bond investors have achieved extremely high returns and how corporate profits have snapped back "to record highs not seen in decades."
Rasmus targets Obama's policy for these cockeyed results and for producing other ruinous consequences--not increasing employment, not halting foreclosures and not ensuring sustained state and local government revenue. As only one example mentioned by Rasmus, upward revisions of the current low tax rates for the wealthy and for corporations could alone offset most government deficits.
Other chapters thoroughly delve into Obama's three-pronged recovery program of tax cuts, temporary subsidies to states and local governments, and cash handouts to the private sector.
In fact, the author believes these government policies have generated another downturn in job losses and foreclosures. As Rasmus points out, "There has never been a recovery of the economy from recession since 1947 without a sustained recovery of jobs, without the housing sector leading the recovery, and without state-local government increased spending on jobs and services."
The government has completely failed to provide direct funding to solve these chronic problems--no funding to the 25 million unemployed for a massive, government-sponsored jobs program as was done during the Great Depression and no direct funding to some 16 million "underwater" homeowners facing foreclosures now at around levels of 200,000 month.
Rasmus examines in depth how Obama and Congress provided billions of dollars to banks without any obligation to renegotiate home loans and provided billions to corporations without any obligation to create new jobs.
This quick read of 177 pages is really a nice companion piece to Rasmus' earlier 2010 work Epic Recession: Prelude to Global Depression. But here, Rasmus focuses his critical review less on theory and more on policy, examining decisions that have deepened the crisis and burdened further the overwhelming majority of people by favoring banks, corporations and the very wealthy.
As the author concisely summarizes: "So long as current economic recovery policies focus on more tax cuts for business and investors, on more subsidies for corporations, more free trade, more deregulation and more deficit cutting for the rest of us--there will be no sustained recovery."
BEFORE BECOMING a trained economist, Rasmus served several stints as a union representative and organizer. He brings that knowledge and experience to his current profession. The last chapter in the book contains a full social and economic program that, in his view, will result in a dramatic reversal of the serious downward trends he predicts will only worsen, perhaps to the point of a global depression just a few years ahead of us.
His proposals are quite thoughtful. They include immediate relief to homeowners and the unemployed along with long-term structural reforms.
For example, it is quite interesting to review his detailed proposals for fundamentally restructuring the tax system and a similar overhaul of the banking and retirement systems, which in the longer run, Rasmus explained to me, "will shift income back to the middle and working classes and expunge their debt burden. Without these changes, more '2008-like' crashes are in our future, just as they are unfolding today in Europe."
In every case, his initiatives contain revenue sources that, predictably, do indeed place the burden on banks, corporations and the wealthy. But, for example, he suggests increasing corporate tax rates that return to 1980 levels. These are still far lower than business tax rates of the 1950s.
In this sense, Rasmus frames his program as realistic appeals to the majority of people. That is, while they do indeed require struggle against the entrenched interests of the 1 percent, the suggested reforms are also capable of being considered both reasonable and necessary by millions who today believe the rich should be taxed more.
I strongly recommend this very readable primer for those interested in understanding more thoroughly how economic policy affects us, how it has been shaped by the upper crust and how new radical reforms can earnestly get the attention of the majority whose support and action are so desperately needed to shape a new reality.
First published in Z Magazine.