Archive for April, 2006

Democrats Divided On Immigration

Tuesday, April 4th, 2006


Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

It seems as though the Democratic Party has always been somewhat pro-immigrant, if not actually pro-immigration.  That is to say, Democrats seem to have viewed immigrants as deserving of sympathy because they are poor and all, but at the same time, the native poor of this country [who also deserve our sympathy] feel threatened—-and for good reason—-by the influx of immigrant labor because it tends to drive down their wages.

From these two distinct sympathetic Points of View we have seen the development of two separate factions within the Democratic Party.  Yes, we’re talking about the Pro-Immigrant Democrats vs. the Labor Democrats.  During the past week these two groups have become, shall we say, increasingly impatient with each other.  Some Pro-Immigrant Democrats were starting to sound like they were accusing Labor Democrats of being racists who “just hate foreigners.”  In response, many LD’s have started to accuse PID’s of having a traitorous lack of sympathy for “America’s own poor.”

This kind of division within the party is never a good thing.  Unfortunately, ‘party regulars’ have demonstrated during the past week that they are quite clueless as to how it might be possible to get these factions on the same side.  Although both sides are guilty of missing opportunities to resolve their differences, I put slightly more blame on the Pro-Immigrant Democrats for not allowing themselves to fully appreciate the concerns of Labor Democrats.

Who can really blame Labor Democrats for not wanting to see the bargaining position of America’s working poor deteriorate even more than it has during the past couple of decades?  It’s not difficult to see the root of their concerns.  In a Market Economy, workers will only see real gains in their wages if the demand for labor becomes greater than the supply.  Given this reality, Labor Democrats are rightfully concerned about immigration because it brings more job-seekers into an economy where real wages have been in decline for quite a while.

Instead of addressing this fundamental concern, Pro-Immigrant Democrats have typically fallen back on sympathy arguments and on borrowing the “it’s not so bad” arguments that have been generated by Republican Corporate Interests to downplay the consequences of immigration on the domestic labor market.  Not surprisingly, it’s an approach that hasn’t won over too many Labor Democrats.  If PID’s want to gain the support of LD’s to their cause, then they are going to have to support measures that would completely eliminate the concerns that LD’s have about low wages.  Do that one thing and they will find Labor Democrats eager to stand shoulder-to-shoulder with them in opposing harsh restrictions on immigration.

Instead of being viewed as a threat by LD’s, PID’s could easily transform themselves into The Best Friends of Labor.  All they need to do is start putting the blame for Labor’s predicament where it truly belongs.  The problem is not too much supply in the labor market, it’s too little demand.  Unemployed people should be seen as an opportunity, not a problem.  They provide society with an opportunity to produce more real wealth—-Public Wealth—-that would improve the quality-of-life of ALL Americans.

It’s an opportunity that is exploited whenever the Government increases the amount of money that it spends on infrastructure—-highways, sewers, education, etc.  Increased government spending on these Public Wealth Initiatives immediately translates into job creation.  You see, all jobs are ultimately dependent on the spending of others (of consumers, firms, governments).  Any time there is any level of unemployment, it is because insufficient spending is taking place.  This is a problem that Congress can correct at any time by simply choosing to spend more on Public Wealth creation.

Of course, in order for Congress to spend more money, it needs to obtain it from some place.  Are there any citizens in our country who could afford to be taxed more in order to increase the nation’s production of Public Wealth?  As a matter of fact, there are.  You don’t want to tax those who are already spending all of their income; if you did, the total amount of spending would just end up being the same.  Government spending would increase but consumer spending would drop by the same amount.  There would be no net increase in spending or jobs.

If, however, the government were to tax the wealthiest of savers, then we would experience a real drop in unemployment, and a real gain in Wealth Production.  When the government taxes savings, it takes money that was removed from the economy (not spent or received by anyone) and puts it back into the economy by spending it.  The net increase in aggregate spending creates jobs. If Congress increases spending enough through this method, it will be able to eliminate unemployment and bring about an End To Poverty As We Know It.

This is the kind of economic agenda that Pro-Immigrant Democrats could embrace and promote that would virtually guarantee an end to the rift that currently exists between the them and LD’s.  Their position should be: “Put the blame for America’s declining real wages where it belongs.  It’s not the supply of labor that is the problem; it’s the insufficient demand for labor that has been hurting both America’s poor and the poor of all other countries.

Pro-Immigrant Democrats need to tell America: “Look, forget about immigration.  That’s not the problem.  The problem is not having a party in control of Congress that will act to eliminate the problem of unemployment in America.  If Congress were to commit itself to creating and sustaining a chronic Labor Shortage in America, it wouldn’t matter how many immigrants cross the border, we’d still see improving real wages because the demand for labor across America would still be greater than the supply.”

Ultimately, this is an economic agenda that could be exported to other countries.  The reason why Mexico has a big problem with unemployment is because its political leaders have not been willing to tax the savings of Mexico’s richest citizens.  If they did that and spent the money on a vast improvement of Mexico’s infrastructure, then Mexico would leap into a better economic future.  With full-employment in Mexico, you’d find very few native Mexicans wanting to cross the border into America.

Once we’ve fixed our own unemployment problem in America, we could begin to put pressure on countries like Mexico to eliminate their own unemployment problems just like we have.  The result?  The immigration issue completely disappears from the American political scene.

James Kroeger<—bff53e4ad6e2e70665c19ef209867d52—>

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The Economy: America Saves Too Much

Saturday, April 8th, 2006

In my previous blog entry, I suggested at one point that the solution to the problem of unemployment in America is for the government to tax savings and spend that tax revenue on increased production of Public Wealth. One Democrat whom I respect, Jude Nagurney Camwell, had this to say:

At a time in this country when we are a debtor nation and so few are saving, and while credit debt runs the typical American life, I don’t think it’s politically responsible to tell Americans that savings are being treated punitively.

There is no doubt in my mind that Jude speaks here for many Democrats who, I’m sure, would be aghast at my suggestion that savings be taxed. These would be the Democrats—-many of them economists—-who have been regularly citing the decline in the nation’s Personal Savings Rate as proof that America needs to start saving more. Well folks, I’m here to tell you they’re wrong.

In order to pursue this discussion at all, we need to first understand the relationship that exists between savings, spending, and income. The BEA economists who calculate America’s Personal Savings Rate will tell you that money saved is income that is not spent. That is to say:

SAVINGS = INCOME – CONSUMPTION

That’s how the economists at the BEA arrive at a total savings figure; they calculate it from income and spending numbers. America’s Personal Savings Rate is simply the percentage of total income that is saved:

PSR = SAVINGS / INCOME
or
PSR = (INCOME – CONSUMPTION) / INCOME

If you’re mathematically inclined, you’ll want to note that if expenditures are constant, a higher INCOME number will result in a higher calculated Personal Savings Rate.

The reason why the nation’s calculated Personal Savings Rate does not provide us with useful information on national savings is because BEA economists do not include in their calculation of total personal INCOME the income that households earn from capital gains. They have their reasons for doing this but they are not ultimately good reasons, for capital gains income can be either saved or spent on consumption, just like any other kind of income. If they were to include capital gains income as part of total personal income, the result would be a significantly higher calculated PSR.

From this, we can see why the calculated PSR has declined while the Republicans have been running the Federal government. As they have cut the income tax rates of the wealthy, a greater share of the nation’s total income is comprised of capital gains income. This is because the very wealthy are most likely to use the huge gifts of disposable income that the Republicans have given them to buy assets, like stocks and real estate. When those assets appreciate and are sold, they provide income.

It is not, however, this flaw in the calculation of the Personal Savings Rate that tells me that America is currently saving too much. It is unemployment. Far too many Democrat economists have ignored the ultimate economic truth that ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS (consumers, firms, government). That’s where the money comes from that pays everyone’s salary: the expenditures of people or organizations. Savings have never created a single job, ever.

When there is any level of unemployment in an economy, it is because too much money is being saved. Think about this for a second. What is a recession? Officially, it is a decline in GDP. GDP is a measurement of aggregate SPENDING. Whenever a nation is having any kind of problem with unemployment, there is only one way to solve the problem, and that is by spending more. Where is the additional spending supposed to come from? Well, didn’t we just say a minute ago that any income that isn’t spent is money saved? All else equal, whenever there is a drop in aggregate savings, there will automatically, and necessarily, be an increase in spending. More spending means more jobs created.

In another article I’ve written, I pointed out that increasing the amount of income taxes that are collected from wealthy savers is something that is guaranteed to provide a economic stimulus to the economy. This is because it takes money that would otherwise have been saved (by rich people) and spends it instead. Yes, you heard it right: INCREASING taxes provides a stimulus to the economy if the citizens who are being taxed more are the nation’s biggest savers. Increasing the taxes of citizens who would have spent the money that they would be paying in taxes (the poor and working class) would do no good, because the increase in the government’s spending would be exactly matched by a decline in consumer spending.

Now, to say that there is too much saving occurring in the economy is not to say that everyone is saving too much. If your country’s economy needs a reduction in total savings (an increase in total spending) in order to eliminate unemployment, it makes sense for the federal government to only tax the savings of those who need ‘extra savings’ the least. The ultra rich should be asked to give up much more of their ‘extra savings’ than middle-class savers are asked to give up. Indeed, in order for more people in the lower-middle-class to be able to save more without their additional savings hurting the economy, it is necessary to ask the ultra rich to save substantially less. For a number of reasons, the best way to achieve this goal is to simply make the income tax much more steeply progressive.

There is only one “rate” we can refer to that will tell us if the participants in an economy are—-collectively—-saving enough and that is the employment rate (there are flaws in the unemployment rate). Unfortunately, far too many Democrat economists have embraced without question the ‘more is better’ assumption when it comes to savings. It’s a simplistic assumption that is flawed on many levels. Let’s hope that they can begin to acknowledge that there are certain times when a net increase in total savings will have a positive effect on the economy (when the economy is experiencing hyperinflation) and other times when additional savings will have a negative effect on the economy (when there is any level of unemployment).

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Is Saving Money A VIRTUE?

Thursday, April 20th, 2006

Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

Saving money is a wonderful thing, isn’t it?  If you can manage to save a decent amount, it can provide you with a measure of much-valued security.  Indeed, some people think so highly of the habit of Saving they refer to it as a virtue.  So is that what it is?  A virtue?  Well, let’s just ponder that concept for a minute.  What kind of world would we be living in if everyone were to start saving money and no one were to ever borrow again?

Well, we can be sure that one of the most celebrated benefits of saving money—-the opportunity to earn interest income—-would disappear.  It turns out that savers need borrowers.  So how can we say that saving is a virtuous act if it is necessary for some people to dis-save in order for the savers to benefit?

There is a certain ideal that all savers pursue as a sort of ultimate goal: to save a very large amount of money and then retire and live off their accumulated dollar wealth.  Isn’t that what all the financial experts out there are advising us to do?  But just ask yourself what the world would be like if everyone were to somehow become extremely rich in dollars one day and then we all decided to retire and live off our accumulated money wealth.

We’d all be able to enjoy lives of luxury, right?  Well, no.  What we would soon discover is that we actually possessed no real wealth at all because no one would be producing anything of value that we could buy. In order for savers to benefit optimally from the saving of money, they need to have a lot of other people out there who are not able to save like them, but who are forced to work for a living, instead.  

The Real Wealth of the economy is its productive output: the real goods and services that are produced by our combined work efforts.  The more we collectively produce, the richer we collectively are, in real terms.  It ultimately doesn’t make any sense for us to all seek to become millionaires, because we cannot all live off of the productive efforts of “others.” But that’s actually the Republican Party’s ‘solution’ to the problem of poverty, isn’t it?  

What we should all seek is to maximize the production of real wealth in our economy so that we can maximize our consumption of real wealth. Enhanced economic security is something we can provide ourselves with, but it’s not going to come from everybody finding a way to save more money. The good news is that we can collectively provide ourselves with something (financial security) that we cannot all individually hope to provide ourselves with.

There is yet another very important reason why the practice of saving of money is not always a good idea.  If everyone were to “perfectly embrace” the ideals of thrift that are endlessly promoted by voices within the financial community, the result would be an economic disaster.  That is to say, if all Americans stopped borrowing money and they committed themselves, instead, to the practice of putting off all purchases until they had saved enough money to pay cash for them, America’s economy would immediately collapse into an economic depression, perhaps one that would even exceed the Great Depression of the 1930’s.

Why do we know that this is an absolute fact?  Because we know that ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS.  Just ask yourself where the money comes from that pays for nearly every job holder’s income?  It comes from the SPENDING of other people.  An economic recession is defined as a period of time when there is a decline in aggregate spending (GDP).  When spending drops; jobs disappear.  That’s what happened during the Great Depression; too much SAVING was going on.  People who had `extra’ money that they could have spent, chose to save it instead.  Those who would have spent the money if it had been placed in their hands, did not have it in their possession.

There is no denying that—-all else equal—-an individual will benefit from saving money so long as not everyone else is also saving money.  But we need to understand that the practice of saving money is not a pure virtue because bad things can happen if too many people are saving too much.  Yes, go ahead and try to save as much money as you can, but understand that when there is any level of unemployment in the economy, the government is going to have to reduce total savings if it wants to improve the welfare of all.  The only issue then is which savers should be asked to give up some of their savings in order to help the national interest?  I say tax the savings of those who are in the best position to make a sacrifice: the extremely wealthy.

It may be prudent for an individual to save (or save more) in certain circumstances that are strictly defined, but it is ridiculous to refer to the act of saving money as a virtue.  So can we please stop referring to Saving as some kind of Absolute Good, one that a society can never get too much of?  If anything, economic history has taught us that exactly the opposite is true.

The Misunderstood Relationship Between Savings & Investment

James Kroeger

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