We’ve argued for just about forever that you can’t have a strong economy without strong employment, wages and benefits for the majority of citizens.  To us, this just seems blindingly obvious and we are mystified by those who demand labor work for less and get fewer benefits–that somehow we can shrink ourselves to prosperity.

Maybe we’re just not explaining ourselves well enough.  So here’s an attempt by James Livingston, Rutgers economics history professor who’s been studying American capitalism for 35 years.  In a New York Times article he makes the same points we’ve made, but heck, it’s worth reprinting in another attempt to explain what we think is true.

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.

The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”

But history shows that this is wrong.

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.

So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.

Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?

A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.

Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

Beezer here.  It’s not that one shouldn’t have savings and investments as part of a personal budget, it’s just that if everyone suddenly raises savings and stops spending and investing it’s really, really bad for the economy overall.  So when the economy tanks, particularly when it’s caused by a financial panic or collapse, creating millions of well paying jobs is the necessary response:  If for no other reason that it replaces depleted consumption.   You can’t fire people into employment.  You cannot grow an economy by shrinking it.  You can only reduce deficits and pay off debt by allowing the majority of citizens to have well paying jobs, not by reducing their pay and firing the rest.  To us this is obvious.  To many, for reasons that confound me, it’s not obvious.  Oh well, maybe Livingston’s article will help the blind to see.

The domestic economy wants to expand but can’t.  Rates are at historical lows so even the most risky investment can look good, yet domestic investment languishes still.

The problem is employment.  There’s millions of people unemployed who were previously working.  It’s not an issue of whether they want to work, it’s an issue of there being five or more people (sometimes far, far more people) applying for each position.  This problem is compounded by the low  quality of what jobs there are–most are in low paying service sector jobs.

The political problem is that the Republicans simply can’t agree to hire directly.  Their economic philosophy is that the government can’t effectively hire millions of people because government is always inefficient.  Republicans stick to this belief even when it is obvious the private economy is in a coma and is firing people by the millions, not hiring them.  When the private economy is strong the Republican point of view has some merit, but when the private economy is not healthy this Republican point of view is irrelevant to the point of adding to the damage.

So instead of doing the right thing–hiring millions of unemployed people and paying them well for their work–Republicans dig in their heels, stubbornly refusing to do what is, to most people, obvious.

As long as this Republican disconnect continues the country will remain recessed.  The longer the country remains recessed the greater the damage that will need to be undone.

I will resume more frequent posting after the November 8 elections here in Manchvegas NH.   Running for Mayor of a small city of 110,000 is more complicated than one might first imagine.

Being a regular Democrat running against a very well heeled Republican means I’m the underdog.  I will be wildly outspent of course, but being a regular Democrat I will have a lot of volunteers.   The registrations are almost equal, with Dems having a small advantage, so as always it’s a matter of getting your folks out to vote.

Education, safe neighborhoods and the recession’s impact on property values (and thus tax revenue) dominate the conversation.   Manchester could use Obama’s Jobs Act sooner rather than later, just like every other municipality in the nation.  But incredibly, our own members of Congress oppose allowing their state’s largest city any help.  From my perspective, that we elected them in 2010 was a big mistake that’s coming home to roost bigtime in Manchester.

The earth appears to be warming and the amount of carbon dioxide being pumped into the atmosphere is one metric scientists pay attention to when trying to predict future trends.   From an article in the New York Times, written by energy and environment journalist Justin Gillis and entitled ‘The Threats to a Crucial Canopy.‘

In the 1950s, when a scientist named Charles David Keeling first obtained accurate measurements of carbon dioxide in the atmosphere, a mystery presented itself. Only about half the carbon that people were releasing into the sky seemed to be staying there. It took scientists decades to figure out where the rest was going. The most comprehensive estimates on the role of forests were published only a few weeks ago by an international team of scientists.

As best researchers can tell, the oceans are taking up about a quarter of the carbon emissions arising from human activities. That is causing the sea to become more acidic and is expected to damage marine life over the long run, perhaps catastrophically. But the chemistry is at least somewhat predictable, and scientists are reasonably confident the oceans will continue absorbing carbon for many decades.

Trees are taking up a similar amount of carbon, but whether this will continue is much less certain, as the recent forest damage illustrates.

Carbon dioxide is an essential part of the cycle of life on Earth, but geologic history suggests that too much can cause the climate to warm sharply. With enough time, the chemical cycles operating on the planet have a tendency to bury excess carbon.

In the 19th century, humans discovered the usefulness of some forms of buried carbon — coal, oil and natural gas — as a source of energy, and have been perturbing the natural order ever since. About 10 billion tons of carbon are pouring into the atmosphere every year from the combustion of fossil fuels and the destruction of forests.

The concentration of the gas in the atmosphere has jumped 40 percent since the Industrial Revolution, and scientists fear it could double or even triple this century, with profound consequences.

Beezer here.  The article documents several attacks that are underway against our forests, from warmer temperatures that are drying out forests making them vulnerable to huge fires, to the expansion of tree destroying beetles whose populations are no longer controlled by cold winters.   Between forests and oceans, fully half of atmospheric carbon dioxide is absorbed in a natural tug of war that keeps the earth’s systems in rough balance.  In geological time frames these swings can take hundreds of thousands of years, longer than our existence as a species. These swings have wiped out species who dominated the ecosystem for millions of years.   We may be the first specie that would recognize the danger posed by global warming, but recognizing danger and knowing what to do about it may be quite different challenges. 

From an article by Princeton medical economics specialist Uwe Reinhardt, published in the New York Times:

According to a C.M.S. actuary, for the traditional Medicare program excluding money contributed by Medicare to private Medicare Advantage plans on behalf of beneficiaries choosing those plans, as much as 98 cents is paid to providers for every $1 appropriated by Congress for Medicare. (The 93.8 percent shown in the next chart includes Medicare dollars channeled through Medicare Advantage plans.)

In fairness, it must be added that traditional Medicare basically sets prices and then just pays bills. It makes no active attempt to manage care (utilization controls, disease management, coordinating care and so on), because it has not been allowed by Congress to do so. It is almost as if Congress did not want traditional Medicare to be a prudent purchaser of heath care for the elderly.

From the viewpoint of prudent purchasing, most economists would probably judge these prices too low. On the other hand, the fact that traditional Medicare just pays bills more or less passively may be precisely the reason that it is still so popular among the elderly. Traditional Medicare still offers beneficiaries completely free choice of providers and therapy — a degree of freedom that many younger Americans in insurance plans with limited networks of providers no longer enjoy.

The ratio of P.H.C. to N.H.E. for private insurance reflects what is known as the medical loss ratio, or M.L.R., on which I have written a post previously. It is the fraction of the premium an insurer pays out for “health benefits.” The overall average of 88.3 percent for private insurance includes M.L.R.’s ranging all the way from a low 55 percent for small insurers selling policies to individuals and small employers, mainly through insurance brokers, to M.L.R.’s above 90 percent for large insurers performing merely administrative services (e.g., negotiating fees or claims processing) for self-insuring large employers.

Beezer here.  It’s clear that the government programs, and those of large employers who self-insure, are more efficient than private plans.  That said, the government programs passively pay whatever the provider charges, which doesn’t sound all that efficient–particularly when it comes to the supplemental Medicare Advantage programs where the government explicitly prohibits Medicare from negotiating prices.  Our take away is that medical care is one of those industries where paying for the bulk of service is most efficient via direct taxation:  A single payer type of setup.