Elizabeth Warren on Debt, Public Goods and Class Warfare

This (h/t @merici) is an awesome early sign for what will hopefully be an enlightening Senate campaign.

Full text:

My favorite part of looking at this: we got $1 trillion on tax cuts for the rich under George Bush, we got into this whole $2 trillion on two wars that we put on a credit card for our children and grandchildren to pay off, and we got into this $1 trillion on a Medicare drug program that a) wasn’t paid for and b) was more expensive than it needs to be because it was a give away to the drug companies. So that’s $4 trillion right there. So part of the way you fix this problem is don’t do those things.

I hear all this, you know, “Well, this is class warfare, this is whatever.”—No!

There is nobody in this country who got rich on his own. Nobody.

You built a factory out there—good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that maurauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea—God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

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Stimulus: yes, but it’s not enough!

The American Jobs Act would provide much needed stimulus to our ailing economy. However it is more like putting a bandage over the deep flesh wounds inflicted by globalization over the past two decades. The U.S. economy needs to be fundamentally restructured in order to address the prolonged recession in a sustainable way, a restructuring that involves political, legal, and business institutions. More stimulus is no silver bullet.

Germany provides a wonderful example of how a society can fight back and protect itself from the damaging effects of the spread of the market economy, (á la Karl Polanyi). Instead of just giving away manufacturing industries as the United States did, Germany took a very active role in preserving manufacturing. They have an entirely different institutional environment. Corporate boards have labor representation, the government works to encourage industries that provide jobs that they want in Germany, and the corporations are not chasing extraordinary short term profits like we do in the United States as a result of mandatory quarterly reports and their influence on the capricious stock market.

While it is important not to romanticize manufacturing, we must not ignore its benefits. Maintaining industry has had massive benefits for Germany. While unemployment is higher than it was before the crisis, it is much lower that we are still suffering in the U.S. (by some est., 6% vs. 9% in the U.S.).  Industry provides jobs for middle skilled laborers; these jobs have left the U.S. and left a growing gap in income – and this is the cause of the disappearance of the middle class that everyone is talking about but no one understanding. In addition, R&D activities have been shown to follow manufacturing; certainly it is not difficult to imagine the benefits of having the research teams in close proximity to the manufacturing process. It is only a matter of time before R&D and “high tech” jobs also leave the U.S. in pursuit of the industries, unless we do something to protect our economy.

There are other spillovers, too. The article linked above details how German companies are exporting kitchens to China. These companies build the kitchens to fit European size ovens, which are smaller than American ovens. This has essentially blocked all competition from American companies that might want to export ovens to China, and has paved the way for a boom in German oven businesses as well.

The restructuring necessary for the health of the U.S. economy will require a multifaceted institutional reform, that includes the political system, the legal system, and the stock market.

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Friday Food for Thought

Paul Krugman, on the crisis in the economics profession:

There are also many calls for new economic thinking; there’s even an institute dedicated to that project. Again, fine — but the biggest problem we had as a profession wasn’t failure to keep up with a changing world, it was failure to remember what our fathers learned.

What we really need is a change in the destructive social dynamics that brought us to this point. And I wish I knew how to do that. But my problem is obvious: I’m an economist, and it seems that we need some kind of sociologist to solve our profession’s problems.

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