Popular Economics Weekly
Much of the media lament over the first Democratic Presidential debates was whether the Democratic Party had moved too far to the left on immigration and healthcare—whether it was about decriminalizing Central American immigrants crossing the border, or advocating some form of Medicare for all.
Could this allow the reelection of Donald Trump and bring about the decline, if not abolishment, of American democracy as we have known it post-WWII? Russian President-for-life Putin announced at the recent G20 economic summit that liberalism as we know it is now passé.
In an interview with the Financial times, Putin said the “liberal idea,” by which he meant the postwar dominance of democracy, human rights, multiculturalism and tolerance, had become “obsolete.”
Fear not, that isn’t true by a long shot. As much as oligarchs like Putin would like to find more worlds to pilfer, democracy cannot fail unless modern capitalism, the creation of post-WWII democracy, fails. And it won’t fail because it is the manna on which all nations now depend to sustain their citizens. There is no other economic system that will feed its citizens, as even China knows.
Modern capitalism was created out of the New Deal, with its government support of social programs and regulations that prevent capitalism’s worst excesses—such as unregulated capital markets and monopolistic profit-seeking, causing the record income and wealth inequality that has brought on the discontent and enabled a President Trump.
It therefore behooves the Democratic presidential candidates, at least, to make the changes necessary to bring back some income parity and a greater social safety net, if for no other reason than it would reduce the souring suicide rates and gun violence that no other western democracy experiences.
How do we save a capitalism that doesn’t just cater to oligarchs like a Putin, or even China’s President Xi–who want capitalism that won’t allow dissent, and therefore the innovation necessary to nurture new ideas and inventions?
Senator Elizabeth Warren has thought out many new ways to make capitalism work for the many, and so democracy. The first step is to take back some of that wealth to strengthen the social fabric that was siphoned off to the wealthiest via lower taxes and deregulation causing many industries to become monopsonies—i.e., overly concentrated so they can control their markets, weaken social programs and employees’ bargaining power.
Warren would pay for her programs with a 3% wealth tax on fortunes over $1 billion, and 2 percent on fortunes between $50 million and $1 billion. According to University of California-Berkeley economists, it would raise about $2.75 billion over its first 10 years, all from taxpayers that the Massachusetts senator argues have benefitted too much from a generation of tax-cutting that slashed top federal tax rates almost in half and corporate tax rates by 40 percent, accompanying a surge in inequality in both before-tax and after-tax income.
Other candidates like Senator Kamala Harris and Bernie advocate a return to the 70 percent income tax rate on the highest income earners, and an outright breakup of those corporations literally too big to fail; should we have another Great Recession.
How do these proposals benefit modern capitalism so that it benefits the many, rather than the few? Studies show that without public works programs, labor productivity declines, since not upgrading such as infrastructure slows transportation of goods and services. Reducing public health care and environmental protection sickens more people thus reducing work times. Reducing public educational programs and government R&D reduces overall literacy and scientific innovation, period.
There is good news on that front, as I have noted in past columns. Modern capitalism with its checks and balances has enabled the growth of prosperous middle classes at the heart of liberal democracies. No other economic system is able to produce the quantity of goods and services required for a healthy liberal democracy.
The club of rich democracies is not easy to join, per a recent piece in the Economist, but those who get in tend to stay there. Since the dawn of industrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.
This is not a coincidence, say Torben Iversen of Harvard University and David Soskice of the London School of Economics in their recent book, “Democracy and Prosperity”. Rather, they write, in advanced economies democracy and capitalism tend to reinforce each other, as I’ve been saying. It is a reassuring message, but one that will face severe tests in years to come.
In other words, taking government out of modern capitalism makes modern democracies weaker and more vulnerable to predictions from those who fear democracy, like Putin.
Harlan Green © 2019
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