Charles Schwab has an opinion piece in the Wall Street Journal on his views on what will and won't work to create jobs. See Every Job Requires an Entrepreneur, Wall St. Journal, Sept, 27, 2011, at A15.
I. What won't work, according to Schwab
Responding to President Obama's Sept. 8 jobs speech, Schwab agrees with Obama that "our recovery will be driven not by Washington, but by our businesses and our workers." But that's about as far as the agreement goes. He runs through a laundry list of things that he says "cannot" work (listed below in the unconnected order in which he has them in the piece):
- government spending
- increased taxes
- "artificial" stimulation of the economy
- government regulation
- "shaming the successful"
- redistributing income
- raising taxes on Americans earning more than $1 million a year.
Let's unpack some of this.
Re "shaming the successful" This is one thing on his list that is put there just to draw the attention and loyalty of the right-wingers. Nobody suggests that we should "shame the successful". If anything, our cultural and government policies tend too far towards the opposite. We praise the successful and treat them like mini-gods, allowing the CEO to benefit from the intellectual property developments of a genius in their lab who gets almost nothing. We salute the Kathy Giffords, even when it is someone else in their enterprise that made their success possible (think cheap labor in sweatshops that made clothing manufacturers successful). We toast the Donald Trumps for their "success"--even when it includes numerous failures that have been made less painful by various provisions of the law (think of bankruptcies made more palatable to trump--but not to his creditors--by his ability to "require" hundreds of thousands in monthly income to "maintain" the luxurious lifestyle to which he was accustomed). We even make celebrities out of assholes who drive our country to ruin--think of the heads of any investment bank dealing in subprime mortgages. In fact, most everybody makes a practice of applauding the successful, urging that they be followed as role-models, giving them awards, and slipping them nice big loopholes in the state and federal tax codes.
(Of course, not shaming the successful does not mean that we cannot ask them to bear more of the tax burden in light of their extraordinary success. More on that later.)
Re "artificially" stimulating the economy: There's another item that is worded the way it is to set up an a priori conclusion along the lines desired by the author--that little phrase about "artificial" stimulation of the economy. That (together with the first item about government spending) is an attack on Keynesian policies for dealing with the kinds of tough lingering recessions that we are experiencing today. Folks, if your heart isn't working, then the docs in the ER are going to apply "artificial" stimulation to get it going again. When workers are being dumped by businesses while managers make even vaster amounts than before, when large private enterprises are hoarding resources (the trillion and a half of corporate cash sitting uninvested, both here and abroad) and when the financial industry is hoarding its resources (banks reluctant to lend to small businesses, even ones that have shown themselves to be successful), then it is clear that the economic heart isn't working. Government spending functions like those heart shocks in a stagnant economy--the right amount (i.e., enough to be stimulative for long enough) can shock the economic heart into action again and get it moving. Failure to do it leads to prolonged economic decline, like the Great Depression.
Re Redistributing income: Redistributing income is merely a description of what any system of taxation does, in every case except in that probably nonexistent equilibrium scenario where each dollar of tax a person pays results in a dollar of benefit to that same person. The question is only what direction the redistribution goes--does the tax system shore up the financially vulnerable by redistributing towards equality or does it pad the couches of the already financially comfortable by redistributing upwards?
The problem is that our social system as a whole has been redistributing upwards for the past forty years. Some examples would include the following:
- erosion of worker rights and bargaining power, resulting in more and more powerful management that unfairly garners more and more of the productivity gains for managers and owners
- Also relevant here is the battering of workers' pension plans which corporate enterprises consistently underfunded, while managers' lucrative severance and pension rights mushroomed; all occuring at the same time as there is an escalated attack on publicly funded social welfare programs that provide a critical backstop to what little ordinary workers can set aside during good times
- erosion of voter rights as states become more adept at gerrymandering to ensure the re-election of the status quo
- This is especially galling when it would be relatively simple to mandate use of a single computerized districting approach nationwide, ensuring a fair system
- constant expansion of statutory provisions (including tax) that benefit particular industries and their wealthy owner/managers (Big Oil, Big Pharma, Big Medicine, Big Banks), from so-called tort reforms that limit remedies for those seriously harmed by corporate malfeasance to tax expenditures that have provided permanent long-term subsidies to established and monopolistic industries (percentage depletion, R&D credit, active financing exception; tax-free reorganization provisions, especially ones that permit offshoring of business activity) rather than using the code judiciously to support the development of promising new industries
In short, much of our current system exists to maintain the status quo of the class distribution in society. Capitalism will always bend in that direction, since financial resources create political power, which supports capitalist capture and setting the rules to support those in power. Thus, a strong capitalistic system will favor capital (and the holders of capital) and disfavor labor. It requires some government intervention to create some socialist counterbalances, such as the social safety net programs of Social Security and Medicare, to temper capitalism's push for unilateral advantage to capitalists.
Our tax system similarly currently favors capital throughout--from the preferential rate for capital gains, to the net capital gain treatment of corporate dividends, to the favorable netting of certain kinds of business gains under section 1231 (yielding preferentially taxed capital gains when there are net gains and higher valued ordinary deductions when there are net losses) to the barely felt pinch of the estate tax (especially with the recent revisions raising exemptions and lowering rates, but also especially because of the ridiculous gambits with discounts and trusts and other run-arounds that could easily be removed legislatively). With the 1986 reforms, Congress acted to eliminate, finally, the preferential rate for capital gains, but it took lobbyists only a few short years to get the preferential rate reinstated. the Clinton "reforms" lowered the rate, and the Bush reforms lowered it even more (to zero in some cases), with the preference extended to corporate dividends.
The result is that the wealthy who own most of the corporate assets enjoy a very favored tax status for their income (as well as favored status in most other aspects of their lives), and the United States is one of the most unequal nations on earth--with the many problems and heartaches that go with that inequality. See Richard Wilkinson & Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger, Bloomsbury Press, NY (2009) (surveying extensive studies on the impact of inequality on societies to conclude that it is inequality, even more than the level of income, that causes measurable harm to all income levels in a society--mental health, poverty, physical health, life expectancy, obesity, educational performance, teen births, violence, imprisonment and social mobility).
Re increasing taxes, and taxing millionaires more. Schwab of course echoes the Tea Party line that all increases in taxes--even on millionaires who have made out like bandits in the four decades since Reagan--would be inherently bad. The right doesn't even deem it necessary to provide an explanation for why they think this. Ryan laments that higher taxes (actually hitting only a tiny portion of small business owners) would kill job creation, even though there's no empirical association of lowering taxes with creating jobs. Schwab just lets all that built-up anti-tax lobbying speak for itself.
But all of the above provides ample reason for reforming the tax code so that it eliminates these extraordinarily favorable tax privileges that the wealthy and the huge multinational corporations currently enjoy--both by eliminating loopholes in corporate taxation (and especially by restricting their ability to grow ever larger through tax-free restructurings or to move assets offshore without paying tax on built-in appreciation) and in the personal provisions that give such benefit to wealthy taxpayers (exclusions of types of income; deductions and credits, etc.), and by increasing the rates of taxation, at least on the upper class in the income distribution (the top 20%). Those at the very top have contributed no more but gotten all of the productivity gains, leaving ordinary Americans hurting. It is only fair to ask them to pay more in taxes, to pay forward some of the huge benefits they have received.
And there are a number of other tax increases that we should consider--such as the financial transaction tax that is moving forward in the EU this week. See, e.g., Phillipe Douze-Blazy, To Ease the Crisis, Tax Financial Transactions, New York Times (Sept. 28, 2011); Stephen Castle, Europe Readies Plan for Tax on Financial Transactions, New York Times, B5 (Sept. 29, 2011); Alessandro Torello, EU Details Its Plan to Tax Trades, Wall St. Journal (Sept. 29, 2011); Greg McKenna, The Bots of FX, Naked Capitalism (Sept. 29, 2011) (article and comments considering the potential beneficial effect of discouraging high frequency trades).
II. So what's his prescription?
Schwab says the following: (i) businesses are started by entrepreneurs, (ii) Entreprenurial activity requires investment, and (iii) investment requires "confidence" and "certainty"--"Today's uncertainty on these issues--stemming from a barrage of new complex regulations and legislation--is a roadblock to investment." ... And he urges leaders in both political parties to "review every piece of existing legislation and regulation with a claer eye to what impact it will have on business and growth."
In other words, Schwab opines that if only government would quit doing what government is supposed to do--regulate businesses to protect consumers, protect the environment, ensure that businesses pay for their true costs rather than leaving costs as "externalities" that we suffer from--and ONLY pay attention to what business wants (and the kind of "growth" that results from that), then businesses would create jobs.
That's wrong on three scores.
First, experience with such "laissez faire" government shows that what results from market capitalism without restraint is monopoly and stagnation and lack of innovation. It is in fact important to have government as a partner in the economy (representing the people's desires that they cannot implement singlehandedly), else brute capitalism will take over and the overwhelming majority of ordinary people will lose out. George Bush's reign was one in which a good bit of the "free marketarian" ideology was followed, and it had a LOUSY job creation record.
Second, businesses aren't not investing in ways that create jobs because of "uncertainty" about taxes or regulations or stimulus programs. The uncertainty has been around since humans engaged in market transactions--how much will the sovereign exact from this transaction; what requirements on place, manner of undertaking the transaction will there be, who else will need to benefit??? That uncertainty is just one of the risks that every business considers, and not one of the major risks like counterparty risk, commodity pricing risks, natural disaster risks, consumer dissatisfaction risk, etc. On the contrary, those things have in fact created jobs, from businesses that remove asbestos to construction workers building schools.
Third, the kind of growth that results from government's dereliction of its duty to the people, in the interest of creating the kind of market capitalism growth that has rocketed the upper-class into the ultra rich zones while leaving the middle classes collapsing into the poverty strick, is not what servesthe people. The people are served by creating a sustainable economy in which decent livelihoods can be had by all, not by creating a kind of restricted growth zone based on market cap applicable only to rich managers and owners.
Suggesting that "proposed laws and regulations should be put to a simple test [of asking] what will this do to encourage businesses and entrepreneurs to invest?" leaves out most of what government should be doing vis a vis the economy--protecting its citizens from the vagaries of the economic marketplace and ensuring that the markets operate for the good of society.