Letter to Congressman Pete Stark, February 5, 2008

Dear Congressman Pete Stark, February 5, 2008

Re: Economic Solutions

In the past, Congressman Stark, you’ve been very cordial to me, replying to my letters. I wrote you on the topic of “A Wealth Tax to Eliminate Poverty.”
Do not bother to respond to this letter. I know your time is short, so I’ll try to write briefly.
I’ve studied economics the past 18 months, I’ve read a lot of material. My view is somewhat different from most economists, but my ideas also conform with some top-rate thinkers. It’s taken about thirty years to construct a perfect storm.

Solutions:
1. You should buy Why America Lost the War on Poverty and How We Can Win It by Frank Stricker, and/or read his web article at http://hnn.us/articles/46459.html
In short, inequality has grown enormously, and has hollowed out purchasing power or aggregate demand. We need government stimulus to step in with a jobs program. Go to the Levy Institute’s web page to get the best ideas about a stimulus plan.http://www.levy.org/
Their article The U.S. Economy: Is There a Way Out of the Woods? advises for
a stimulus package of 2% of GDP, or $260bn.
You may not find time to read this, but you get the idea.
Jeff Madrick, economist and editor of Challenge Magazine, provides a scholarly accounting of demand-led economics. L. Randall Wray in Understanding Modern Money proposes a permanent pool of government jobs
and the government as “employer of last resort.” Academics have been at work creating approaches to an alternative economic paradigm.

2. The current account deficit is the major culprit that will drag on, and maybe drag down, the world economy. Richard Duncan, former analyst for the World Bank, wrote the book The Dollar Crisis and a short interview from January, 2008 can be found at http://www.ft.com/cms/s/0/a7d7335a-d008-11dc-9309-0000779fd2ac.html

Duncan contradicts Alan Greenspan about the effect of the account deficit. I’m afraid that most politicians do not accept Duncan’s position, but Warren Buffett, Paul Volkert, and Stephen Roach from Morgan Stanley, who popularized the saying Economic Armaggedon, all agree with Duncan. For another interview with Duncan from 2005 you can go to
http://www.andongkim.com/articles/2005/06/Duncan_worryinggreenspan.htm
Just how to fix the balance of trade is a long story. Sorry. Not here.

3. A brief article by Robert Weissman, the editor of the Multinational Monitor, recently describes five failures of government regulation that have led to the current recession. See
http://www.multinationalmonitor.org/editorsblog/index.php?/archives/69-Deregulation-and-the-Financial-Crisis.html
He says “a severe world recession is a distinct possibility.” The first regulatory failure is the same as Richard Duncan’s thesis, “Failure to Manage U.S. Trade Deficit.”

4. Dean Baker, an economist, author of the book The United States since 1980 says that
“As a result, for most of the population of the United States, the quarter of
a century from 1980 to 2005 was an era in which they became far less secure economically, and the decrease in security affected their lives and their political attitudes. It is important to realize that this decrease was the result of conscious policy, not the accidental workings of the market.”
(my underline, the genesis of a perfect storm)
For your information, Baker lists seven main causes that led to the inequality in American economic life:
1. Decline of unions, 2. trade policy that led to manufacturing sector to
be exported (from 20% of working force to 10%), 3. taxation (between
1943 and 1983 the average top bracket rate was 80%, yet the effective rate
was in the 30%s), 4. Federal Reserve policy, 5. Deregulation of certain
industries, 6. immigration increases (from 300,000 legal a year to 600,000
not counting the undocumented, illegal immigration of 300,000 on average)
7. drop in minimum wage (a 40% drop from 1980 to 2005).

5. The economist Robert Kuttner, author of The Squandering of America, and editor of the magazine The American Prospect, reports on elected Democratic Party legislators (page 45)
“Traumatized as they are by deficits and in league with their own business elites, Democrats offer mainly small, token programs that mock their bold initiatives of the past, such as Social Security, the G.I. Bill, Medicare, the Wagner Act, and serious regulation of financial excesses, all of which really did serve the broad middle class and created a generation of economic opportunity and security.
With the exception of Democrats who run as populists, the Democratic message fails to rouse voters (who have been) harmed by the new economic realities. “New Democrats” treat the necessary instruments of greater equality as policy anachronisms no longer needed in the new era of a self-regulating economy. Progressive Republicans have vanished.
The result is a cumulative depoliticization of economic ills. This revolution of declining expectations is one of the most widely validated finding of public opinion polls.”

Democrats gave up on helping the economy and the middle income group. Now, we have serious inequality, that leads to weak aggregate demand, and that leads to world recession, possibly. I think the recession will hit the developing nations because, according to Charles Schwab and Co., Global Overreach, December, 2007, 51% of their GDP is tied up in exports, up from 39% in 1997.

Thanks for the time, Congressman Stark. I hope this has been helpful. I’ll continue in my own way to push to relieve inequality.

This last:
What does inequality look like? This may help. And it explains why socialists will soon be coming out of the sofa and woodwork.

Income distribution: Imagine the U.S. as a company. It has 100 employees and each year it produces 100 dollars, called the GDP. At the end of the year the income is distributed to all 100 workers. Each could get a $1.00. No, no, no, NO! that won’t do. In reality, the bottom 80% get $0.50 each (and 80 times 50cents is $40). The next 20 workers get $2.00 (and 20 times $2 is $40). So $80 dollars are distributed, but what about the last $20? That amount goes to the top one percent, he gets $20 (Does he work for a bank? Does he even work?). So 80% get 50 cents, 19% get a little more than $2.00, and the last one percent get $20. (See State of Working America, 2006/2007, by Mishel, Bernstein and Alegretto, Economic Policy Institute, page 79)
1 to 80 ------- get $0.50 ----------- $40.00
81 to 99 ----- get $2.00 ----------- $40.00
last 1 ------ gets $20.00 ------------ $20.00
total ----- $100.00 (admittedly I approximated)

That’s income distribution. Wealth distribution goes like this: again, we have 100 people working with a savings total of $100. If all of them had equal savings amount, everyone would have a dollar. No, no, no, again. The lower 50% of workers has a savings on average of $0.05 (a nickel) (and 50 time $0.05 is $2.50). The next 40 percent save $0.70 each (and 40 times 70 cents is $28.00). The next 9 percent, the 91st to the 99th percentile, get $4.00 each (and 9 times $4 is $36). So we’ve distributed $2.50 and $28.00 and $36.00, and that leaves $33.40 for the top one percent.


To review, the savings is distributed thusly
1 to 50 ------ get $0.05 each --------------- 2.50
51 to 90 ----- get $0.70 each -------------- 28.00
91 to 99 ----- get $4.00 each -------------- 36.00
last 1 -------gets $33.40---------------------33.40
(See Currents and Undercurrents, U.S. Federal Reserve, Consumer Finance Survey, 2006, Arthur Kinneckell, page 11)
All those numbers are real people.
Now I understand why socialists complain and call the system a failure. But in fact we are all human, we live in a great society in many respects. We have to respect, cherish and love one another. And we have to do better for those who are disadvantaged. Remember, I was a school teacher in east Oakland at Webster Academy for 8 years, and in Oakland and Richmond for 16 years. Those are the ones we have to help out. They need a federal jobs program. They are about to get clobbered by this coming recession.
Solutions: 1) jobs program, 2) fix the trade deficit somehow, read Duncan.

Thanks for your patience, and for your service. My best to you !!!

Ben Leet, in San Leandro.