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Harvard Professor Jeffrey Sachs Sets Charlie Rose Straight On Our Current Economic Predicament And How To Get Past It

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Jeffrey Sachs latest book focuses on the American economy.   It's called "The Price of Civilization:   Reawakening American Virtue and Prosperity."   And he says this in the first paragraph of that book:

"At the root of America's economic crisis lies a moral crisis -- the decline of civic virtue among America's political and economic elite.   A society of markets, laws and elections is not enough if the rich and powerful fail to behave with respect, honesty and compassion towards the rest of society and towards the world.   America has developed the world's most competitive market society but has squandered its civic virtue along the way.   Without restoring an ethos of social responsibility, there can be no meaningful and sustained economic recovery."

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Sachs reminds us that it was Oliver Wendell Holmes who said that paying taxes is the price of civilization.   And for that reason he and many others have been pleased to pay their taxes.   But what a very different attitude we have today, especially among the most powerful among us.

So how did we come to this?   

It began with the demonization of taxation in the 1980s by Ronald Reagan.   He campaigned on the idea that cutting the top tax rate was "the solution" for the economy.   It was called "supply-side economics."    But is there really any kind of plausible argument to be made that reducing taxes will increase the "supply' off goods & services (i.e. stimulate economic growth) because people will take that money and invest it in things and create jobs and make products and create demand for more products?   No, there is not -- not unless there is something called "effective demand" for those goods, which simply means that sufficient numbers of consumers must have sufficient amounts of money in their pocket, so to speak, to buy those goods.   But right now, the only to put that amount of money in enough peoples' pockets is through massive government investment and, yes, spending.

Therefore Sachs concludes that the fundamental but not well known truth of American society today is that we no longer collect enough tax revenues, as a share of our national income, to have a civilized nation!   The simple fact is that we can't achieve the economic and social objectives of the country that we want, with the tax system we have.  

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Right-wingers disagree with this, of course, saying that if we just turn the free enterprise system "loose,' it will do all that that we want it do.   They say that turning it completely loose will automatically, and perhaps even magically, create the kind of civilized society we want.   But this is akin to a kind of blind, religious faith.   What they fail to understand is that the society will not then have public schools that teach our children, and it will not build the roads and the infrastructure that a smooth working economy depends on.   It will not develop the science and technology that has led the US to be the world leader we expect it to be.   In other words, there are some things the private sector will never take on because, inherently, the private sector can't be a competitive engine in those sectors.   Example:   When we need to build a highway system between two points, we don't want four or five highways competing with each other between City A and City B.   No, we have ONE highway to build and that's why all over the world, including in the United States, the government must always build that highway.   Similarly, when we have basic science to research, whether it is to keep us alive or to help grow more food, or to take on environmental challenges, we don't patent basic science.   We don't patent the great discoveries of scientists.   They don't earn an income from that.   The way they have gotten supported throughout history is by patronage from the government.   It used to be the kings, queens, sometimes the popes;   now it's the National Science Foundation and the National Institutes of Health.   And these institutions serve the critically important function they need to serve, for our economy, to the extent they are funded by . . tax revenues!

These are the ways we make progress as a nation.   These basic points used to be understood throughout our society, but in recent years, government has been demonized.   The Republican Party, to put it bluntly, had one message -- their "mantra' -- which is to cut government so that we can also cut taxes.   As a result, many of us have lost sight of the simplest and most basic fact:   that markets can do certain things, but markets cannot do other things.   For the other things, critically important things, government is essential.

Those who remain blind to this . . stupidly ask if perhaps we've gotten ourselves into such a bad situation, and have a debt and a deficit that is so overwhelming, that unless we make sacrifices now, in terms of what government can do, we will never get control of the economy again.   But this is of course tragically mistaken!   For where we have gotten ourselves into a bad situation has to do with the fact that the revenues that our government collects are by far the smallest of any high-income democracy in the world.   Essentially we in America have simply stopped collecting nearly enough of the taxes that a modern civilization requires!   This year, taxes are about 15% of GNP on the federal level, another 10% on the state and local level, for a total of 25% of GNP.   Meanwhile, in the highly successful countries of Scandinavia, for example, it is 20 percentage points more than that.   In other European countries maybe 10 or 15 percentage points more.   And who has unemployment and child poverty rates lower than ours, while also having GDP growth and median incomes that are higher than ours?   Answer:   The Scandinavians.

In America we all feel the results of the way we've been short-changed, and we feel it every day.   Here there are far fewer government programs than in Europe.   We have Social Security, we have Medicare and Medicaid, we have war, and we have interest payments on the debt.   And everything else falls into a category called civilian discretionary spending, which takes a meager 3% of our national income.   And we are on a trajectory for it to fall below 2%!   This includes federal money spent for education, environmental protection, energy, infrastructure, science and technology, as well as international diplomacy.   And that is a damn shame.

In other words, we Americans are in the process of gutting the core of government, and it's shocking if you actually look at what Congress and the president recently agreed to.   Yet the Republicans want even more cuts now.   But we're already on the verge of having to simply close down a lot of the most basic functions of government.   In skills and in education we are shooting ourselves in the foot:   Our kids are dropping out of college right and left because they can't afford the tuition and the high-interest loans that a good education now requires.   Why?   Because since 1980, the price of college tuition has gone up 600% and total student loan debt is projected to pass the $1 trillion dollar mark this year.

Ever larger numbers of students can no longer get adequate support from government for a college education.   In other countries they get that support automatically, but not in the USA.   As a result, we are, in a whole lot of ways, gradually falling behind other industrialized countries.   Way behind.   The math and science scores of our H.S. and college students are way down towards the bottom if you look at the list of industrialized countries.   We're somewhere around 34th in the world, while the percentage of our population who are kept behind bars puts us right up there at the top of this list.

By this means our economy is being completely divided, between two groups  

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The first group is the top 15% -- the affluent, college-educated folks from elite universities, whose families could afford the now very steep tuition.   These are the folks who are benefitting from globalization.  

The other group is comprised of the bottom four-fifths of our society, which no longer has the necessary skills to compete globally, can't afford college tuition, and can't find jobs anymore because the jobs they used to have, were moved to China or to other emerging economies that out-compete us because their workers are often better trained and better educated than ours, and work for a fraction of the price.  

So, is there a future for American manufacturing?   Yes, quite possibly -- but only if we begin to really invest heavily in it once again -- and that means investments in science, technology, infrastructure, and a highly-skilled labor force.  

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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