An Important Lesson in Economics for Labor

Sorry, Professor Krugman, but we are Greece! Not just the United States of America, but most free-market, first world nations as well.

Current economic markets may treat the larger, more powerful countries such as the US and Britain with some deference, such as acceptance of lower rates on bonds; however, when the can of worms is finally uncovered, they too will march in sad step with Greece, Portugal, Spain… and the unnamed rest.

America’s fiscal outlook over the next few years isn’t bad, according to Paul Krugman; and the Nobel Laureate goes even further in his magna dementia by stating that in the long run health care reform in this country combined with a mild dosage of tax increases will cure the nation’s economic ills. A rosy picture, indeed… and one totally inane!

As much as I’ve always respected the good professor for taking a progressive stance from his pulpit at Princeton, as well as from his syndicated column, he is hemorrhaging an optimism which is totally out of step with reality: both the reality facing us today and the reality we are soon to confront as the economic cancer extends beyond the federal confines and is fully diagnosed at both state and municipal levels… in some instances cancer at stages III and IV. The belt-tightening that appears to be taking place in parts of the EU, even if strongly resisted in some quarters, will seem only mildly significant when compared to what awaits most communities in the US.

How did we, the citizenry, let such a thing happen? Well… capitalism can, at times, show a very deceiving, full udder capable of nursing one and all… as if saying, just grab a tit and suck to your heart’s content. And it appears as if we all did and are now about to pay the consequences. In this coming corrective period for the world economy, unfortunately, it is labor that will end up absorbing the brunt of the pain. Just as the cost of bailing out the “banksters” – and the governmental cry that the economy must be saved… meaning capitalism in its present form – is to be borne by future generations of working-class Americans, the cost of a mismanaged, deficit-prone economy will also be borne by working class Americans; this time, however, of the present generation.

If you are going to survive in a so-called free-market economy, you must know the rules of the game; or, rather, the consequences inherent due to the lack of such rules. And it is obvious that organized labor, through its own representative leaders and counsel’s advice, always focused on the needs of their membership without acknowledging a greater vigilant role to help secure what was contracted, and also ascertain government and corporate power adhere to a system fair for all. That hasn’t happened in the US

In our continuing efforts to place the blame of our sad state of economic affairs, we resort to many well-founded recriminatory reasons, lack of government controls at the vanguard of them all. However, I am afraid that all these reasons are but intervening variables in the scheme of things… and that the causal variable lies in front of our noses, yet one we fail to address: our anti-social, regressive system of taxation.

Under the false pretenses that we don’t wish to de-motivate the entrepreneurial spirit which we contend has brought us a better standard of living, or the misplaced fairness-doctrine that we should get to keep what we earn, we are living through a grotesque redistribution of wealth due to a system of taxation that is regressive and unfair; nothing but a scandalous robbery from the economically defenseless masses; wealth belonging to the commons to provide infrastructure, education, healthcare and the needs of the less fortunate amongst us, whatever the reasons for their misfortune.

Only greed, not the entrepreneurial spirit, is reasonably checked with much higher, yet fair, rates of marginal taxation. And as for the determination of what is comparatively fair in the compensation we all receive, we, most particularly in the United States, are using standards horrendously unfair that place the worth of the work performed by an individual 10, 100 or even 5,000 times that of a fellow citizen. Pure, unadulterated theft!

During this last century we have seen progressivity in the US in both state and federal income taxes fluctuate widely, always dictated by contemporary politics. Marginal rates at the top bracket (federal income taxes) have progressed from a 7 percent in 1913 to 77 percent in 1918; then gradually regressed to 24 percent at the beginning of the Great Depression, followed by hefty increases in order to deal with the depression and later World War II… with the marginal top rate reaching 94 percent! But it was a contentious conservative advocacy by Ronald Reagan and the Junior Bush that demolished much of the progressivity left… with the top bracket presently at just 35 percent.

Although conservatives point to Hauser’s Law – theory first proposed in 1993 – which claims federal tax revenues in the US historically remain at 19.5% of GDP, regardless whether the top marginal rate is 28 or 50 or 91 percent, their fallacy rests in the non-inclusion of Social Security revenues… which has masked the decline of tax revenues as the marginal rates are dropped, and the tax system becomes more regressive, the ultimate goal of conservatives being a flat rate tax applicable to all incomes.

The lesson to be learned by labor – organized or not –is that its interests aren’t served well by short term improvements in compensation/benefits that may have to be given up (often with additional penalties) unless a fair system of taxation is and remains in place; a system free from the political winds created by an elitist conservatism bent on the transfer of wealth from those who produce it to those who need it only for control of their fellowman.