The saddest thing about the Tea Party movement is that most of its members seem totally closed to any conversation or debate on the issues. Engaging them is like talking to a 5 year old. No, I take that back. A 5 year old is more likely to engage and converse. Some Tea Party members claim, for instance, that their virulent attacks on Obama are justified even though Obama is just continuing many of the same policies, in the economy and the Middle East. When they are asked why they did not protest when Bush ran up a huge deficit that eliminated the Clinton budget surplus Bush inherited, they claim that Bush was wrong too, simply a RINO. They want us to know that they are just fed up now with business as usual. Fair enough. The problem, however, is that the Tea Party movement want to place all of our collective welfare in the hands of the private business sector but they don’t appear to understand how it works.
Let me explain the market to senor y senora Tea Partier. It works by buying and selling. It is also based to a great extent on psychology. Why do markets go into boom periods followed by bust periods? The main reason is because people get excited by things like tulips in 17th century Europe and by dot.com companies in the 1990s. Economists call this “exuberance.” Markets also go bust for the same reasons. People get afraid, too cautious, hesitant, etc. and save their money rather than spend it. That’s what is happening now. The banks and other financial institutions are flush with capital. You may not have much money, but plenty of other people do. All the economic reports show that the savings rate for the average household has tripled in the last 2 years. That means people are saving rather than spending. But a market economy, especially ours, depends on consumer spending! As individuals, it may make perfect sense to be more cautious about putting scarce dollars into the economic mill, but as a society such practices lead to disaster.
When individuals and companies don’t buy or lend in the market, the time-tested method for getting out of the economic rut that results is for government to spend money. Yes, some of that money comes from us. And that’s a good thing because when government spends, it spends in the market place. By spending in the market, companies that produce things will start to produce more. Those companies will hire again. More people will have jobs and income. Those people will then feel more comfortable about spending. And all of this will eventually re-balance the economy.
The one thing that the Tea Party movement has right is that they have an intuitive understanding that the world has changed and that the old ways of doing things will no longer work. Just take a look at one Tea Party sympathizer explain their fear,
“I’m working two shifts when I should be thinking about retirement. I know that keeps someone young from working, but my health insurance is through the roof; Marilyn’s got chemo, and after 40 years of good union work, I can’t afford to retire.”
Thus, they insist on lowering taxes and cutting back on government spending, eventhough those policies will simply increase the federal debt and keep more people out of work. They assume that the problem is an out of control, overspending government. That is simply not the case historically and not useful for sound economic policy making. What has changed, however, is not well understood by the Tea Party.
Before the 1970s, the U.S. economy was mostly a closed shop. We produced what we consumed and we mostly consumed what we produced. There were few imports and a lot more exports. Globalization has changed all of that. More and more of what we consume is produced elsewhere and we produce less and less of what other countries consume. The biggest change, however, was in the relationship between private business and the workforce. The political right, beginning seriously with Reagan, has blamed a lot of our economic troubles on unions. But that accusation is superficial.
Yes, unions do drive wages up and cost business more. But why is that a problem? Those higher wages go to U.S. workers, many of whom now join the Tea Party because their wages and jobs have tanked in the last 30 years. It has only become a problem now because production has mostly gone overseas, taken there by our companies. In the past, the private sector opposed unions, were forced to accept them under FDR, and, ultimately, benefitted from the rise in workers wages. Witness the long period of prosperity from WW II to the 1970s. U.S. workers benefitted because unions helped those workers to be in a better position by negotiating contracts that paid good wages and provided good benefits. The reality is that it was New Deal government, unions, and progressive taxation that enabled the average income of Americans in the bottom 90 percent to grow at rate that has not been seen since. In fact, average income rose
This rise in income made it possible for blue collar workers to consume the products the companies were producing. Left to themselves, to the marketplace, corporations would not have willingly accepted unions and paid workers higher wages.
As unions have lost their role in this society, workers have been left to the whims of private corporations and suffered. Witness the increasing levels of inequality in this country, an inequality that has ruined the middle class and threatens to drop more and more people into poverty and to ruin any chance this country has to remain competitive with other world economies. One commentator explains this market and policy driven disaster for the middle class this way,
“Over the last three decades, the top 1 percent of the country has received 36 percent of all the gains in household incomes; 1 percent got more than a third of the upside. And the top one-tenth of 1 percent acquired much more of the nation’s increased wealth during those years than the bottom 60 percent did. That’s roughly 300,000 super-rich people with a bigger slice of the pie than 180 million Americans.”
Today, the workers that produce iPads and Chevrolets are mostly overseas. Thus, corporations have little interest in keeping U.S. workers well paid because they are neither the producers and nor the only consumers of these products. As a result, companies are also less interested in paying the taxes to maintain the U.S. workforce because the connection between worker welfare and company profits have been torn apart by globalization. This means that government economic fiscal policies need to adjust for these changes. Government needs to place more emphasis on educating the workforce and providing the research necessary to incubate new industries that can hire our workers. These are coincidently the policies President Obama has promoted. But globalization does not mean that government has no role to play in the economy nor that workers have any real alternative but to rely on government to defend their interests vis-a-vis rapacious private corporations. In fact, government policies in taxes and spending from Reagan to Obama, from Republicans and Democrats, have consistently favored the very rich and produced a gigantic transfer of wealth to the very rich in this country.
That, in a nutshell, is why it is so important for government to spend during recessions. If anything, the recent spending of the Obama administration did not go far enough. That was proven in Japan during the 1990s and elsewhere. The Tea Party are just afraid of taking the medicine the economic doctor has ordered. Take the medicine already and help to get yourself and the market better!!! Don’t blame the doctor for the fact that he has to give you medicine. Don’t be a baby.