Once upon a time, in the 1970s, there probably was, as political conservatives and the business class claimed, a capital shortage. Union power, rising wages, and a tax-and-spend “liberal consensus” had increased household incomes for three decades at the expense of profit rates, and this left businesses without sufficient capital to invest in all the profit-making opportunities provided by expansive consumer spending power. This, so the story goes, was the root cause of the virulent 1970s inflation. In the famous Keynesian formula for macroeconomic demand, there was too much spending power in the hands of consumers and government, and too little in the hands of investors. Capitalists were short of cash, and the solution was clear: get them more, a lot more.
Short term this was accomplished through President Reagan’s tax cuts for the rich in the early 1980s. But long term it required “breaking the back of the American standard of living,” as I remember Business Week bluntly arguing at the time. This required limiting, eroding, and chipping away at a whole set of institutional structures built up since the 1940s around labor unions and government.
That mission has now been accomplished – and accomplished all too well. We now have exactly the opposite problem: too little spending power in the hands of consumers and too much in the hands of investors. Capitalists are said to be anxious as they sit on some $2 trillion in cash reserves, while real wages and household incomes decline. There simply is not enough consumer demand to provide profit-making opportunities for capitalists, just the opposite of the 1970s. The solution is again clear: get more money in the hands of consumers. In the long run that means we need higher wages, much higher wages, but tax changes and stimulus programs can do a lot of good in the short term, and they are a good way to get started.
Just as in the 1970s the solution was to redistribute spending power from consumers to investors, we now need redistribution in the other direction, from investors to consumers – not for the purpose of achieving a more equitable distribution of income (as desirable as that is) but, as in the ‘70s, to get the economy growing strongly again. Raising taxes on top earners to fund job creation and raising wages for low earners is not just about “fair shares” (though it is very much about that, too). It is necessary to reinvigorate our fat and weary form of capitalism.
The historical symmetry of these opposing problems and solutions is important because current Republican rhetoric about “job killers” and “job creators” assumes that there is always a capital shortage and, if that were true, throwing money at rich people might be part of the solution. It’s important to realize that this idea once had a legitimate intellectual provenance, disputed to be sure but with a factual basis. That factual basis is gone and has been for quite a while. With $2 trillion in corporate cash still sitting on the sidelines, it’s hard to argue that we need to overcome a capital shortage!
President Obama’s American Jobs Act implicitly recognized, at least on a temporary basis, that strong economic growth going forward depends on redistributing spending power from capital to labor, from investors to consumers. For example, it included payroll tax cuts, extended unemployment compensation, and direct federal spending to reemploy teachers, cops, firefighters and construction workers – all paid for by taxing millionaires. If it had passed, the Act would have increased economic growth by channeling spending power to workers and consumers who very much need it and would, therefore, spend most of it quickly, thereby stimulating other economic activity, leading to more jobs, more income, more consumer spending, and so on.
This is not an aberration. Much of Obama’s program from the very beginning – the initial stimulus package, semi-universal health care, the Making Work Pay tax credit – has been redistributive in the right direction. What is lacking is a clear Presidential explanation of the underlying problem – the long-term structural imbalance between investment capital and consumer spending. Indeed, the President will not admit, even when badgered by Bill O’Reilly earlier this year, that he favors any redistribution of wealth.
Our President denies being a socialist, and I believe him. For all I know, he may actually be philosophically opposed to the redistribution of income and wealth, seeing his own various redistributive programs as merely temporary expedients. But someone in his administration understands that the U.S. economy needs more income in the hands of workers and consumers. Even Business Week and the National Federation of Independent Businesses are beginning to understand it. So do thousands of Americans occupying Wall Street and other public spaces around the country. Explaining that – and pounding away at the need for increasing incomes in any way we can think of, as conservatives did with “the capital shortage” back in the day – might actually be more valuable than passing legislation. Plus, such arguments increase the chances of passing the necessary legislation.
A stronger and more insistent focus on growing incomes in order to grow the economy, coming from the White House and Congressional Democrats, would draw attention to and bolster movements already underway to combat wage theft, pass living wage legislation, and help workers organize unions and other forms of workplace collective action. All this not just to help poor unfortunate workers, but also to give our capitalists the boost they need. Greatly increasing consumer demand is the only thing that can provide the myriad of investment opportunities that will save them from their current malaise.
Thus, far from “punishing” the rich and multinational corporations, reducing their cash hordes by increasing wages and average incomes is really for their own good. I like this paternalistic empathy – especially in contrast to demonizing a whole class of people that I have almost no direct experience of – but I would not indulge that feel-good feeling if it weren’t also so clearly true and urgent. The best way to give our capitalists a hand up and not a handout is to increase wages and average households’ incomes.
Jack Metzgar, Chicago Committee for Working-Class Studies